Deck 16: Business Fluctuations and Unemployment

Question 1

The level of real national output demanded at each price level

A) declines as aggregate supply increases.
B) is horizontal according to the classical economists.
C) is unaffected by changes in interest rates.
D) can be calculated only when the economy is at full employment.
E) is inversely related to the price level.

Answer 1

E

Question 2

Since 1962,real GDP in the United States has

A) grown steadily.
B) fluctuated.
C) not changed in per capita terms.
D) been consistently above potential GDP.
E) been subject to increasingly severe depressions.

Answer 2

B

Question 3

The following questions are based on the following diagram:

The expansion phase of the cycle is best characterized by letter

A) A.
B) B.
C) C.
D) D.
E) E.

Answer 3

C

Question 4

The following questions are based on the following diagram:

The recession phase of the cycle is best characterized by letter

A) A.
B) B.
C) C.
D) D.
E) E.

Question 5

During a period when total spending is too high relative to potential output,the economy experiences

A) excessive unemployment.
B) falling average prices.
C) a glut.
D) a Great Crash.
E) inflation.

Question 6

If the money supply is fixed,decreases in the price level

A) reduce the total real output households and businesses want to purchase.
B) reduce the average money cost of each transaction.
C)shift the aggregate demand curve upward and to the right.
D) shift the aggregate supply curve upward and to the left.
E) raise interest rates and reduce total business borrowing.

Question 7

The phase of the business cycle in which output is lowest relative to its potential level is the

A) peak.
B) trough.
C) recession.
D) expansion.
E) trend.

Question 8

If the money supply is fixed,increases in the price level

A) raise the purchasing power of the money supply and increase the amount people spend.
B) reduce the average money cost of each transaction, thus lowering total spending.
C) reduce interest rates; thus, the cost of borrowing money falls, leading to more consumption and investment.
D) raise the incentive for people to spend on big-ticket items such as appliances, automobiles, and houses.
E) increase the size of the money balances people want in order to maintain the real value of their purchases, thus causing interest rates to rise.

Question 9

The phase of the business cycle in which output is highest relative to its potential level is the

A) peak.
B) trough.
C) recession.
D) expansion.
E) trend.

Question 10

The following questions are based on the following diagram:

The trough of the cycle is best characterized by letter

A) A.
B) B.
C) C.
D) D.
E) E.

Question 11

The total amount of goods and services that could be produced if the economy were at full employment is called the

A) business cycle.
B) price level.
C) potential GDP.
D) GDP deflator.
E) aggregate demand curve.

Question 12

The following questions are based on the following diagram:

The peak of the cycle is best characterized by letter

A) A.
B) B.
C) C.
D) D.
E) E.

Question 13

If the money supply is fixed,increases in the price level reduce

A) interest rates.
B) imports.
C) the rate of inflation.
D) total real output purchased.
E) the average money cost of each transaction.

Question 14

Deviations in national output around potential output are called a

A) business cycle.
B) price index.
C) Keynesian equilibrium.
D) market phase.
E) theory.

Question 15

The level of real national output purchased at each price level is called a(n)

A) market basket.
B) market demand curve.
C) aggregate demand curve.
D) derived demand curve.
E) consumption possibilities curve.

Question 16

In general,a business cycle goes through its phases in the following sequence:

A) trough, peak, expansion, recession.
B) recession, trough, expansion, peak.
C) trough, recession, expansion, peak.
D) trough, expansion, recession, peak.
E) expansion, recession, trough, peak.

Question 17

The business cycle

A) tends to be regular in length and amplitude.
B) has little or no impact on the price level.
C) is in the recession phase when national output is rising to its potential level.
D) has higher rates of unemployment at the trough than at the peak.
E) has been a rare phenomenon since World War II.

Question 18

Which of the following best defines the difference between a recession and a depression?

A) The terms are synonymous; there is no difference at all.
B) A depression is the correct term for recession experienced on a worldwide scale.
C) A depression is a period of economic hardship, while a recession generally is not.
D) A depression is a long, very severe recession.
E) A depression means potential GDP is falling. In a recession, only the actual GDP is falling.

Question 19

As the price level rises

A) the average price of all goods and services falls.
B) total output demanded rises proportionately.
C) interest rates rise if the money supply is held constant.
D) the aggregate supply curve shifts back and forth.
E) the demand for money falls.

Question 20

To construct an aggregate demand curve,one must assume that

A) the quantity of money is fixed.
B) the price level is fixed.
C) interest rates are fixed.
D) real output is fixed.
E) aggregate supply is fixed.

Question 21

When the economy is at equilibrium in the horizontal range of the short-run aggregate supply curve

A) there is little upward pressure on prices because of widespread unemployment.
B) the aggregate demand curve must be horizontal as well.
C) economic conditions similar to those experienced during World War II prevail.
D) real output is equal to potential output.
E) a change in aggregate demand causes price levels to fall.

Question 22

People unemployed because they lack the necessary qualifications to fill available jobs are examples of ________ unemployment.

A) frictional
B) structural
C) cyclical
D) inflationary
E) residual

Question 23

The following questions are based on the following diagrams in which D₀ and S₀ refer to the initial aggregate demand and short-run aggregate supply curves:

Economic conditions during World War II are best illustrated by diagram

A) A.
B) B.
C) C.
D) D.
E) E.

Question 24

The aggregate supply curve becomes vertical

A) when there is significant excess capacity.
B) as the prices of raw materials and labor fall.
C) at full employment.
D) because demand falls as prices rise.
E) for reasons that are a mystery to most economists.

Question 25

A horizontal short-run aggregate supply curve reflects

A) no upward pressure on prices because of significant levels of unemployed productive capacity.
B) full employment of the economy's resources.
C) falling price levels.
D) stagflation.
E) Say's law.

Question 26

Structural unemployment exists when those looking for jobs

A) are voluntarily unemployed.
B) lack employable skills.
C) can easily find work.
D) currently hold part-time positions at prevailing wages.
E) are not eligible for unemployment.

Question 27

Both aggregate demand and aggregate supply curves are relationships between

A) income and employment.
B) output and income.
C) the price level and real output.
D) interest rates and the prices of financial assets.
E) inflation and unemployment.

Question 28

The following questions are based on the following diagram:

If aggregate demand shifts to the right

A) unemployment increases.
B) price levels fall.
C) real output rises.
D) both the demand for money and interest rates fall.
E) consumers or investors must have decided to decrease their spending.

Question 29

The following questions are based on the following diagram:

An equilibrium level of output and an equilibrium price level occur

A) only when the aggregate supply curve is horizontal.
B) when the price level equals the level of national output.
C) as long as the aggregate demand curve slopes upward.
D) where the aggregate supply and demand curves intersect.
E) in the short run only with specific government intervention.

Question 30

The following questions are based on the following diagram:

High levels of resource unemployment and excess capacity would imply a price level of

A) 100.
B) 200.
C) 300.
D) 400.
E) 500.

Question 31

At full employment,the short-run aggregate supply curve

A) slopes downward.
B) becomes vertical.
C)shifts to the right.
D) causes the aggregate demand curve to fluctuate.
E) reflects declining costs of production.

Question 32

The three generally recognized types of unemployment are

A) voluntary, potential, and residual.
B) cyclical, frictional, and structural.
C) involuntary, temporary, and disciplinary.
D) teenage, female, and nonwhite.
E) classical, Keynesian, and post-Keynesian.

Question 33

The following questions are based on the following diagram:

Full employment of the economy's resources occurs when

A) the price level drops below 200.
B) the price level is 200.
C) real output is $1,500 billion.
D) real output is $3,000 billion.
E) aggregate demand equals aggregate supply.

Question 34

In the short run,increases in product prices increase firms' ________ per unit.

A) production costs
B) employment
C) sales
D) capacity
E) profit

Question 35

People temporarily out of work because they are changing jobs or looking for their first jobs are examples of ________ unemployment.

A) frictional
B) structural
C) cyclical
D) inflationary
E) residual

Question 36

It is argued that short-run aggregate supply curves slope upward to the right because

A) short-run price levels are inversely related to individual product prices.
B) falling profits force firms to increase prices.
C) in the short run, wages and raw material prices tend to rise less rapidly than product prices.
D) as price rises, demand falls.
E) increases in aggregate supply cause prices to rise.

Question 37

The level of real national output produced at each price level is called a(n)

A) aggregate supply curve.
B) production possibilities curve.
C) aggregate production function.
D) capital output ratio.
E) product-price yield curve.

Question 38

The following questions are based on the following diagrams in which D₀ and S₀ refer to the initial aggregate demand and short-run aggregate supply curves:

The Great Depression is best illustrated by diagram

A) A.
B) B.
C) C.
D) D.
E) E.

Question 39

The following questions are based on the following diagram:

At equilibrium,the price level and the level of real national output are,respectively

A) 100 and $0.
B) 200 and $1,500 billion.
C) 300 and $2,500 billion.
D) 400 and $2,000 billion.
E) 500 and $3,000 billion.

Question 40

An aggregate supply curve

A) becomes horizontal at full employment.
B) slopes downward and to the right during periods of unemployment.
C) can be derived by adding up the supply curves for all individual commodities.
D) is constructed on the assumptions that the money supply is fixed and there is full employment of resources.
E) is constructed by allowing all commodity prices to vary.

Question 41

The statement "supply creates its own demand" is often referred to as

A) value added.
B) the general theory of employment.
C) hysteresis.
D) the natural rate of employment.
E) Say's law.

Question 42

The unemployment rate

A) indicates the extent to which people are unemployed.
B) measures only cyclical unemployment.
C) uses a definition of unemployment that places attention on the serious cases of joblessness.
D) measures the percent of the population that does not have a job.
E) is a measure of the jobless proportion of the labor force actively seeking employment.

Question 43

Frictional unemployment

A) exists when jobs are available for qualified workers but the unemployed lack the required qualifications.
B) refers to the social frictions caused by unemployment.
C) results from the entrance of new workers into the labor market and the voluntary movement of workers between positions.
D) was the major component of unemployment during the Great Depression.
E) can and should be completely eliminated.

Question 44

The labor force consists of

A) those who are employed or actively seeking employment.
B) the entire population over 16 years of age.
C) only those who have full-time military or civilian jobs.
D) both those who have given up looking for work and those actively seeking work.
E) the difference between the total population and those who are unemployed.

Question 45

Say's law

A) states that the total amount paid out for resources must equal the value of the goods produced.
B) states that all income spent must have been earned.
C) is the intellectual basis for the Keynesian model of income and employment.
D) is an integral part of the Marxian analysis of capitalism.
E) requires the assumption of wage and price rigidity.

Question 46

Unemployment can result in substantial economic costs since

A) unemployed people lose their self-esteem.
B) society's potential output becomes more expensive to distribute.
C) employed people have to work harder to compensate for those who are not working.
D) actual output is below potential output.
E) idle machinery must have its life span lengthened.

Question 47

The unemployment of anthracite coal miners following the conversion of home heating to oil and gas is an example of

A) underemployment.
B) cyclical unemployment.
C) structural unemployment.
D) frictional unemployment.
E) unemployment caused by the short-run tradeoff between inflation and unemployment.

Question 48

Say's law suggests that

A) supply creates its own supply.
B) demand creates its own supply.
C) demand creates its own demand.
D) supply creates its own demand.
E) supply creates; demand destroys.

Question 49

If full employment is defined by an unemployment rate of 5 percent,potential GDP can be estimated by multiplying

A) last year's GDP times 1.05.
B) the average output of the workforce times 95 percent.
C) the normal hours of work times last year's GDP times 100.
D) 95 percent of the labor force times the normal hours of work per year times the average output per hour of work.
E) the normal hours of work per year times the average output of the white-collar worker at the relevant time times 95.

Question 50

A significant problem with U.S.unemployment figures is that they

A) exclude people who are under 16 and actively looking for work.
B) change monthly, making measurement of the unemployment rate impossible.
C) exclude those who are self-employed.
D) are based on a selected sample of the population and miss counting large numbers of employed people.
E) do not indicate those who are underemployed or who have given up looking for work.

Question 51

When actual output is below potential output

A) the economic costs of unemployment are zero.
B) everyone actively seeking a job can easily find one.
C) extreme inflationary pressure prevails.
D) less than 95 percent of the labor force is employed.
E) the economy is producing on its production possibilities curve.

Question 52

According to U.S.government figures,an unemployed person is one who

A) has given up looking for a job.
B) only works part-time.
C) is actively seeking a job.
D) cannot be a member of the labor force.
E) works at jobs below his or her skills or abilities.

Question 53

The gap between actual and potential output

A) is a measure of the costs of inflation.
B) is a measure of what it costs society to tolerate less than full employment.
C) is necessary to ensure economic efficiency.
D) has always been positive.
E) is calculated as 3 × (unemployment rate - 0.055) × potential GDP.

Question 54

Since 1945,the average annual unemployment rate in the United States has

A) varied from 10 to 20 percent.
B) increased steadily from 2 to 12 percent.
C) varied from slightly under 3 to over 9 percent.
D) decreased steadily from 10 to slightly under 7 percent.
E) not varied by more than 3 percentage points over the entire period.

Question 55

In the U.S.economy,each percentage point change in the unemployment rate is equivalent to ________ million people.

A) 8
B) 5.1
C) 3.2
D) 1.5
E) 0.5

Question 56

The costs of unemployment

A) consist solely of potential output forgone by society.
B) may often include despair and damage to an individual's self-image.
C) pertain solely to frictional unemployment.
D) are permanently high according to the classical theory.
E) are almost impossible to quantify because there is little agreement as to a common definition of full employment.

Question 57

Since World War I,the highest unemployment rates in the United States occurred during the

A) 1930s.
B) 1950s.
C) 1960s.
D) 1970s.
E) 1980s.

Question 58

The view that unemployment becomes increasingly severe as machinery is substituted for labor is most closely associated with

A) Ernst Say.
B) Maynard Keynes.
C) Eric Mill.
D) Karl Marx.
E) Adam Smith.

Question 59

The major component of the 9.5 percent unemployment rate in 1981-82 was most likely ________ unemployment.

A) frictional
B) structural
C) cyclical
D) global
E) inflationary

Question 60

People actively looking for work who CANNOT find jobs because of an insufficiency of aggregate demand are examples of ________ unemployment.

A) frictional
B) structural
C) cyclical
D) inflationary
E) residual

Question 61

In the classical model,achieving a full-employment level of output

A) requires a modest amount of government intervention.
B) is a temporary state resulting from flexible wages and prices.
C) is possible because competition bids wage rates down to the point where everyone who really wants a job can have one.
D) is based on the assumption that there is no saving in the economy because all the income created is spent.
E) becomes more and more difficult to attain as labor-saving technology throws more and more workers into unemployment.

Question 62

An economist who argues that a free market economy,if left to itself,is strong enough to recover from any economic crisis reflects

A) Keynesian analysis.
B) a strong Marxist influence.
C) the classical view.
D) the post-Marxian-Keynesian synthesis.
E) his or her own original view, with no apparent relationship to the thinking of other economists.

Question 63

Which of the following events shifts the short-run aggregate supply curve to the right?

A) technological improvements
B) increases in input prices
C) reductions in the amounts of available labor and capital
D) increases in consumer and government spending
E) significant shortages of important raw materials

Question 64

Most economists today hold a certain respect for Marx's economic perspectives because

A) most of Marx's predictions have come true, pretty much in the way he said they would.
B) most economists today are strong labor sympathizers.
C) Marx was the first to recognize the inherent dangers of government intervention.
D) Marx demonstrated that in the final analysis, there is always a market for goods and the labor that produces them.
E) Marx was the first to conceptualize a business cycle in which good times eventually produced bad times and vice versa.

Question 65

If the aggregate demand and supply curves intersect in the horizontal range of the aggregate supply curve,an increase in aggregate demand increases

A) the price level but not the total real output.
B) total real output but not the price level.
C) both total real output and the price level.
D) neither total real output nor the price level.
E) total employment while decreasing the price level.

Question 66

In general,an increase in productive capacity

A) leaves the aggregate demand and supply curves unchanged.
B) causes the aggregate supply curve to become vertical.
C) causes the aggregate demand curve to become horizontal.
D) shifts the aggregate demand curve to the left and pushes up price levels.
E) shifts the aggregate supply curve to the right and increases real output.

Question 67

In the long run,the aggregate supply curve is vertical because

A) in the long run, potential output is less than actual output.
B) input prices and output prices are unaffected by changes in aggregate demand.
C) aggregate demand becomes horizontal.
D) input prices change by the same proportion as product prices, leaving output levels unchanged.
E) excess capacity allows firms more resource flexibility.

Question 68

If the aggregate demand and supply curves intersect in the positively sloped range of the aggregate supply curve,a decrease in aggregate demand decreases

A) the price level but not total real output.
B) total real output but not the price level.
C) both total real output and the price level.
D) neither total real output nor the price level.
E) total employment while increasing the price level.

Question 69

A leftward shift in the short-run aggregate supply curve causes

A) price levels to fall.
B) real output to rise.
C) demand-pull inflation.
D) simultaneous inflation and a decrease in total real output.
E) unemployment to fall.

Question 70

A major purpose of Keynes's General Theory was to explain

A) how a less-than-full employment equilibrium was possible in a capitalist economy.
B) the automatic mechanisms in a capitalist society that generate a high level of employment.
C) how supply creates its own demand.
D) the close interrelationships between the savers and investors in any society.
E) why Marx's predictions about capitalism were inevitable.

Question 71

Preceding the Great Crash of 1929,the country enjoyed a period of relative economic prosperity.This prosperity was largely attributable to

A) stronger growth in agriculture than the country had seen in years.
B) demand for manufactured goods to replace those that were worn or outdated.
C) after-effects of the high production years preceding World War I.
D) government policies that stimulated growth through taxation and investment.
E) the fact that wages and prices were rising exponentially.

Question 72

While much of the U.S.business world was struggling with the problems of the Great Depression and clinging to the classical view that the country's economic problems would rectify themselves,John Maynard Keynes felt that the way out of the depression was to

A) hold the lid on consumer demand while expanding production.
B) expand effective aggregate demand by using government's power to spend and tax.
C) make larger numbers of people employable.
D) limit government power to tax.
E) nationalize all basic industries as the first step toward socialism.