Deck 7: Business Cycles, Unemployment, and Inflation

Question 1

In which industry or sector of the economy is output least likely to be affected by the business cycle?

A) service industry
B) automobile industry
C) textile industry
D) petroleum industry

Answer 1

service industry

Question 2

The production of durable goods varies more than the production of nondurable goods because:

A) durables purchases are non-postponable.
B) durables purchases are postponable.
C) nondurables purchases are postponable.
D) durables purchases and nondurable purchases are both non- postponable.

Answer 2

durables purchases are postponable.

Question 3

In which industry or sector of the economy is output least likely to be affected by the business cycle?

A) housing construction
B) automobile production
C) agricultural commodities
D) capital goods production

Answer 3

agricultural commodities

Question 4

In which of the following industries or sectors of the economy is output likely to be most strongly affected by the business cycle?

A) military goods
B) durable goods (machinery, equipment, etc.)
C) textile products (clothing)
D) agricultural commodities (wheat, corn, etc.)

Question 5

The above diagram shows different phases of the:

A) business cycle.
B) cyclical variation.
C) recession cycle.
D) prosperity cycle.

Question 6

Refer to the above diagram. The straight line E drawn through the wavy lines would provide an estimate of the:

A) recession fluctuation.
B) growth trend.
C) natural rate of unemployment.
D) expansion trend.

Question 7

Which phase of the business cycle would be most closely associated with an economic contraction?

A) peak
B) recession
C) trough
D) expansion

Question 8

During a serious recession we would expect output to fall the most in:

A) the alcoholic beverage industry.
B) the clothing industry.
C) agriculture industry.
D) the machinery and equipment industry.

Question 9

In the expansion phase of a business cycle:

A) the inflation rate decreases, but productive capacity increases.
B) the inflation rate and productive capacity decrease.
C) employment increases, but output decreases.
D) employment and output increase.

Question 10

A peak in the business cycle:

A) occurs when the unemployment rate is its greatest.
B) occurs when the inflation rate is its lowest.
C) is a temporary maximum point.
D) is a temporary minimum point.

Question 11

The severe recession of 2008 - 2009 was precipitated by:

A) a slowdown in productivity.
B) a combination of excessive money and financial frenzy.
C) a combination of a decrease in the money supply and financial frenzy.
D) A combination of a decrease in money and a productivity slowdown.

Question 12

The labour force includes:

A) employed workers and persons who are officially unemployed.
B) employed workers, but excludes persons who are officially unemployed.
C) full-time workers, but excludes part-time workers.
D) permanent employees, but excludes temporary employees.

Question 13

The phase of the business cycle where real domestic output is at a minimum is called:

A) the peak.
B) a recession.
C) the trough.
D) the pits.

Question 14

To be officially unemployed a person must be in the labour force and must:

A) be actively seeking work.
B) be 21 years of age or older.
C) have just lost a job.
D) be waiting to be called back from a layoff.

Question 15

Refer to the above diagram. The phases of the business cycle from points A to D are, respectively:

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

Question 16

The phase of the business cycle in which real domestic output declines is called:

A) the peak.
B) an expansion.
C) a recession.
D) the trough.

Question 17

A trough in the business cycle occurs when:

A) cyclical unemployment is at a minimum point.
B) employment and output reach their lowest levels.
C) the natural rate of unemployment is at a minimum point.
D) structural and frictional unemployment are at their highest levels.

Question 18

According to the economists, different kinds of shocks to the economy could be responsible for the variations in real output and employment over time. These shocks include:

A) the changes in population, innovations and money supply.
B) the changes in the level of total spending, productivity, irregular innovations and money supply.
C) the changes in the population.
D) the changes in the standards of living.

Question 19

Most economists believe that the immediate cause of cyclical changes in the levels of real output and employment is:

A) the changes in productivity.
B) the changes in technology.
C) the changes in the level of total spending.
D) the changes in the money supply.

Question 20

A recession is a period in which:

A) cost-push inflation is present.
B) nominal domestic output falls.
C) demand-pull inflation is present.
D) real domestic output falls.

Question 21

The unemployment rate in an economy is 12 percent. The civilian labour force is 50 million. The number of employed workers in the economy is:

A) 38 million.
B) 40 million.
C) 42 million.
D) 44 million.

Question 22

Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. We can conclude that:

A) the official unemployment rate will fall.
B) the official unemployment rate will rise.
C) the official unemployment rate will remain unchanged.
D) the size of the labour force will increase.

Question 23

The following information is about a hypothetical economy:
Full-time employed = 80
Part-time employed = 25
Unemployed = 15
Discouraged workers = 5
Members of underground economy = 6
Consumer Price Index = 110
Refer to the above information. The unemployment rate is:

A) 18.8 percent.
B) 12.5 percent.
C) 16.7 percent.
D) 25 percent.

Question 24

The presence of discouraged workers:

A) increases the size of the labour force, but does not affect the unemployment rate.
B) reduces the size of the labour force, but does not affect the unemployment rate.
C) may cause the official unemployment rate to understate the amount of unemployment.
D) may cause the official unemployment rate to overstate the amount of unemployment.

Question 25

A college or university graduate using the summer following graduation to search for a job would best be classified as:

A) not officially a member of the labour force.
B) a part of structural unemployment.
C) a part of cyclical unemployment.
D) a part of frictional unemployment.

Question 26

Anne Kasperson works in her own home as a full-time caretaker and homemaker. Officially, she is:

A) unemployed.
B) employed.
C) not in the labour force.
D) in the labour force.

Question 27

Assume Smith is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Smith will be considered as:

A) cyclically unemployed.
B) frictionally unemployed.
C) secularly unemployed.
D) employed.

Question 28

In an economy, 35 million workers are employed out of a labour force of 50 million and a total population of 70 million. The unemployment rate is:

A) 15 percent.
B) 25 percent.
C) 50 percent.
D) 30 percent.

Question 29

Official unemployment statistics:

A) understate unemployment because individuals receiving unemployment compensation are counted as employed.
B) understate unemployment because "discouraged workers" are not counted as unemployed.
C) include cyclical and structural unemployment, but not frictional unemployment.
D) overstate unemployment because workers who are involuntarily working part time are counted as being employed.

Question 30

The following information is about a hypothetical economy:
Full-time employed = 80
Part-time employed = 25
Unemployed = 15
Discouraged workers = 5
Members of underground economy = 6
Consumer Price Index = 110
Refer to the above information. If 6 members of the labour force are presently counted as part of the unemployed when in fact they are employed, the official unemployment rate is overstated by:

A) 0 percentage points.
B) 2 percentage points.
C) 7.5 percentage points.
D) 6 percentage points.

Question 31

"Waiting for employment" and "searching for employment" are both types of:

A) cyclical unemployment.
B) hidden unemployment.
C) frictional unemployment.
D) structural unemployment.

Question 32

The unemployment rate in an economy is 7.5 percent. The total population of the economy is 250 million and the size of the civilian labour force is 180 million. The number of employed workers in this economy is:

A) 13.5 million.
B) 15.7 million.
C) 166.5 million.
D) 174.6 million.

Question 33

A nation has a population of 260 million people. Of these, 60 million are retired, in the military, in institutions, or under 15 years old. There are 188 million who are employed. What is the unemployment rate?

A) 4 percent
B) 6 percent
C) 9 percent
D) 27 percent

Question 34

Assuming the total population is 100 million, the civilian labour force is 50 million, and 47 million workers are employed, the unemployment rate:

A) is 3 percent.
B) is 6 percent.
C) is 7 percent.
D) is 9 percent.

Question 35

The official unemployment rate:

A) involves people over 15 years of age who are not currently seeking employment.
B) is the ratio of unemployed to employed workers.
C) is the percentage of the labour force which is unemployed.
D) is the percentage of the total population which is not working.

Question 36

A nation has a population of 300 million people. Of these, 80 million are retired, in the military, in institutions, or under 15 years old. There are 210 million who are employed. What is the unemployment rate?

A) 3.3 percent
B) 3.6 percent
C) 4.5 percent
D) 5.2 percent

Question 37

The total population of an economy is 175 million, the labour force is 125 million, and the number of unemployed is 8 million. The unemployment rate for this economy is:

A) 4.6 percent.
B) 5.8 percent.
C) 6.4 percent.
D) 7.8 percent.

Question 38

Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, the official unemployment rate would:

A) increase in the short run but eventually decline.
B) increase.
C) decline.
D) be unchanged.

Question 39

The unemployment rate is the:

A) ratio of unemployed to employed workers.
B) number of employed workers minus the number of workers who are not in the labour force.
C) percentage of the labour force which is out of work.
D) percentage of the total population which is out of work.

Question 40

Part-time workers are counted as:

A) unemployed and therefore the official unemployment rate tends to overstate the level of unemployment.
B) unemployed and therefore the official unemployment rate tends to understate the level of unemployment.
C) fully employed and therefore the official unemployment rate tends to overstate the level of unemployment.
D) fully employed and therefore the official unemployment rate tends to understate the level of unemployment.

Question 41

Kevin has lost his job in an automobile plant because of the use of robots for welding on the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is:

A) cyclical.
B) frictional.
C) structural.
D) natural.

Question 42

Kimberly voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kimberly presently is:

A) cyclically unemployed.
B) structurally unemployed.
C) frictionally unemployed.
D) not a member of the labour force.

Question 43

When a group of workers find that their job skills and work experience have become obsolete and are not needed by industry, this type of unemployment is:

A) search.
B) frictional.
C) structural.
D) cyclical.

Question 44

Structural unemployment:

A) is also known as frictional unemployment.
B) is the main component of cyclical unemployment.
C) is said to occur when people are waiting to be called back to previous jobs.
D) may involve a locational mismatch between unemployed workers and job openings.

Question 45

The type of unemployment associated with recessions is called:

A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) seasonal unemployment.

Question 46

In the depth of the Great Depression, the unemployment rate in Canada was about:

A) 15 percent.
B) 33 percent.
C) 20 percent.
D) 40 percent.

Question 47

Unemployment that occurs when there is a decline in total spending is called:

A) frictional unemployment.
B) cyclical unemployment.
C) structural unemployment.
D) natural unemployment.

Question 48

The best example of a "frictionally unemployed" worker is one who:

A) reduces productivity by causing frictions in a business.
B) is laid off during a recessionary period in the economy.
C) is in the process of voluntarily switching jobs.
D) is discouraged and not actively seeking work.

Question 49

The descriptions give the responses of four individuals to Statistics Canada.
1. Mollie just graduated from university and is now looking for work. She has had three job interviews in the past month.
2. George works in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in several months when national economic conditions improve.
3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defence spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.
4. Ryan lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year, but was unsuccessful and quit looking for work.
Refer to the above information. Which individual is structurally unemployed?

A) 1
B) 2
C) 3
D) 4

Question 50

Cyclical unemployment is the result of:

A) expansion in the economy.
B) technological change in the economy.
C) seasonal variation in the labour force.
D) a decline in total spending.

Question 51

The descriptions give the responses of four individuals to Statistics Canada.
1. Mollie just graduated from university and is now looking for work. She has had three job interviews in the past month.
2. George works in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in several months when national economic conditions improve.
3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defence spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.
4. Ryan lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year, but was unsuccessful and quit looking for work.
Refer to the above information. Which individual is frictionally unemployed?

A) Mollie
B) George
C) Jeanette
D) Ryan

Question 52

Working as an elevator operator used to be a common job in the workforce four decades ago, but today few jobs remain. The unemployment created by introduction of automatic elevators would be considered:

A) wait.
B) cyclical.
C) frictional.
D) structural.

Question 53

Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in P.E.I. That year, Professor Simpson would be officially counted as:

A) structurally unemployed.
B) frictionally unemployed.
C) not in the labour force.
D) employed.

Question 54

A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment?

A) structural
B) cyclical
C) frictional
D) natural

Question 55

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called:

A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) compositional unemployment.

Question 56

A mismatch between the geographic location of workers and the location of job openings would result in what type of unemployment?

A) wait
B) cyclical
C) frictional
D) structural

Question 57

A headline reads: "Steel industry suffers slump as import competition increases and unemployment rises." This type of unemployment can best be characterized in economic terms as:

A) frictional.
B) structural.
C) cyclical.
D) natural.

Question 58

Eckstein has lost her job in a Quebec textile plant because of import competition. She intends to take a short course in electronics and move to B.C. where she anticipates new jobs will be available. We can say that Eckstein is faced with:

A) secular unemployment.
B) cyclical unemployment.
C) structural unemployment.
D) frictional unemployment.

Question 59

Cyclical unemployment is a consequence of:

A) a decline in aggregate spending.
B) the decreasing relative importance of goods and the increasing relative importance of services in our economy.
C) the everyday dynamics of a free labour market.
D) technological change.

Question 60

The descriptions give the responses of four individuals to Statistics Canada.
1. Mollie just graduated from university and is now looking for work. She has had three job interviews in the past month.
2. George works in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in several months when national economic conditions improve.
3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defence spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.
4. Ryan lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year, but was unsuccessful and quit looking for work.
Refer to the above information. Which individual is cyclically unemployed?

A) 1
B) 2
C) 3
D) 4

Question 61

Canada's economy is considered to be at "full employment" when:

A) 90 percent of the total population is employed.
B) 90 percent of the labour force is employed.
C) about 6-7 percent of the labour force is unemployed.
D) 100 percent of the labour force is employed.

Question 62

The natural rate of unemployment:

A) is fixed over time.
B) is found by adding the cyclical and structural unemployment rates.
C) may change from one decade to another.
D) cannot be changed through public policy.

Question 63

The GDP gap measures the:

A) difference between NDI and GDP.
B) amount by which potential GDP exceeds actual GDP.
C) amount by which actual GDP exceeds NDI.
D) amount by which nominal GDP exceeds real GDP.

Question 64

Full-employment output is also called:

A) zero-unemployment output.
B) equilibrium output.
C) potential output.
D) zero-savings output.

Question 65

When the unemployment rate is relatively high, we can conclude that:

A) the economy is in the expansion phase of the business cycle.
B) potential GDP is in excess of actual GDP.
C) actual GDP is in excess of potential GDP.
D) actual GDP is equal to potential GDP.

Question 66

At the economy's natural rate of unemployment:

A) the economy achieves its potential output.
B) there is only a relatively small amount of cyclical unemployment.
C) only frictional unemployment exists.
D) none of the above are true.

Question 67

"For every 1 percent that the actual unemployment rate exceeds the natural rate, there is generated a 2 percent GDP gap." This is a statement of:

A) Stratford's law.
B) Okun's law.
C) the law of nominal incomes.
D) the rule of 70.

Question 68

If the actual GDP is less than potential GDP:

A) potential GDP will fall.
B) the price level will rise.
C) investment spending will fall.
D) the actual unemployment rate will be higher than the natural unemployment rate.

Question 69

The descriptions give the responses of four individuals to Statistics Canada.
1. Mollie just graduated from university and is now looking for work. She has had three job interviews in the past month.
2. George works in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in several months when national economic conditions improve.
3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defence spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.
4. Ryan lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year, but was unsuccessful and quit looking for work.
Refer to the above information. Which individual would be included in the calculation of the full-employment unemployment rate?

A) 1 only
B) 2 only
C) 1 and 3
D) 2 and 4

Question 70

The natural rate of unemployment is the:

A) unemployment rate experienced at the depth of a depression.
B) full-employment unemployment rate.
C) unemployment rate experienced by the least-skilled workers in the economy.
D) unemployment rate experienced by the most-skilled workers in the economy.

Question 71

The relationship between the size of the GDP gap and the unemployment rate is:

A) direct.
B) inverse.
C) undefined.
D) direct during recession, but inverse during expansion.

Question 72

Assume the natural rate of unemployment in the Canadian economy is 7 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the GDP gap:

A) is 4 percent.
B) is 8 percent.
C) is 10 percent.
D) is 2 percent.

Question 73

A large negative GDP gap implies:

A) an excess of imports over exports.
B) a low rate of unemployment.
C) a high rate of unemployment.
D) a sharply rising price level.

Question 74

When the Canadian economy has achieved "full employment," the unemployment rate is at or below:

A) 7 percent.
B) 4.0 percent.
C) 3.3 percent.
D) 2.5 percent.

Question 75

If the unemployment rate is 9 percent and the natural rate of unemployment is 7.5 percent, then the:

A) frictional unemployment rate is 7.5 percent.
B) cyclical unemployment rate and the frictional unemployment rate together are 7.5 percent.
C) cyclical unemployment rate is 1.5 percent.
D) natural rate of unemployment will eventually increase.

Question 76

Okun's law:

A) measures the tradeoff between the rate of inflation and the rate of unemployment.
B) indicates the number of years it will take for a constant rate of inflation to cause the price level to double.
C) quantifies the relationship between nominal and real incomes.
D) shows the relationship between the unemployment rate and the size of the GDP gap.

Question 77

The natural rate of unemployment is:

A) higher than the full-employment rate of unemployment.
B) lower than the full-employment rate of unemployment.
C) found by dividing total unemployment by the size of the labour force.
D) that rate of unemployment occurring when the economy is at its potential output.

Question 78

The Canadian economy is said to be producing its non-inflationary potential level of GDP when the natural rate of unemployment is:

A) 10-15 percent.
B) 7-10 percent.
C) 6-7 percent.
D) 2.3 percent.

Question 79

Which of the following constitute the unemployment occurring when the natural rate of unemployment exists?

A) frictional and cyclical unemployment
B) structural, seasonal and frictional unemployment
C) cyclical and structural unemployment
D) frictional, structural, and cyclical unemployment.

Question 80

The aggregate cost of unemployment can be measured by the:

A) amount by which actual GDP exceeds potential GDP.
B) amount by which potential GDP exceeds actual GDP.
C) excess of real GDP over nominal GDP.
D) excess of nominal GDP over real GDP.