Deck 9: Business Cycles, Unemployment, and Inflation

Question 1

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

A) Recession fluctuation
B) Economic growth trend
C) Natural rate of unemployment
D) Recovery trend

Answer 1

Economic growth trend

Question 2

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

Answer 2

Is a temporary maximum point

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

The diagram above illustrates the pattern of:

A) Business cycles
B) Wage movements over time
C) Price level movements
D) Economic growth patterns

Question 5

A recession is a decline in:

A) The inflation rate that lasts six months or longer
B) The unemployment rate that lasts six months or longer
C) Real GDP that lasts six months or longer
D) Potential GDP that lasts six months or longer

Question 6

The unemployment rate is interpreted as the percentage of the:

A) Adult population who are unemployed
B) Labor force that are not employed
C) Able-bodied population who are not working
D) Work force that have been laid off

Question 7

The recurrent ups and downs in the level of economic activity extending over several years are referred to as:

A) Economic phases
B) Business startups
C) Business cycles
D) Noncyclical fluctuations

Question 8

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

A) Peak, recession, expansion, trough
B) Trough, recovery, expansion, peak
C) Expansion, recession, trough, peak
D) Peak, recession, trough, expansion

Question 9

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) The inflation rate is at its lowest level

Question 10

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

A) Peak
B) Recession
C) Trough
D) Recovery

Question 11

The Great Recession that started in 2007 was triggered by shocks in which of the following economic sectors?

A) Gold market and stock market
B) International trade and foreign exchange markets
C) Real estate and financial markets
D) Consumer and government spending

Question 12

Some economists prefer to use the term business fluctuations rather than business cycles to describe the historical growth record in the United States because:

A) Cycles include a trough phase while fluctuations do not
B) Cycles imply regularity while fluctuations do not
C) Fluctuations include an expansion phase while cycles do not
D) Fluctuations are relatively predictable events

Question 13

Which statement is correct?

A) All sectors of the economy are affected to similar degrees by business fluctuations
B) Real output and employment generally show little variance over the business cycle
C) The production of nondurable consumer goods is more stable than the production of durable consumer goods over the business cycle
D) Recessions have not been severe because economists and statisticians have been able to predict their occurrence and intensity with high accuracy

Question 14

During the Great Depression of the 1930s, U.S. real GDP fell by about ____ percent, in comparison to the ______ percent decline during the Great Recession of 2007-09.

A) 27; 3.7
B) 10; 7
C) 25; 20
D) 25; 30

Question 15

What has been the range for the duration in months of U.S. recessions between 1950 and 2009?

A) 2 months to 5 months
B) 6 months to 18 months
C) 19 months to 25 months
D) 26 months to 30 months

Question 16

What has been the range of the decline in real output during recessions in the U.S. between 1950 and 2009?

A) -0.2 percent to -3.7 percent
B) -5.1 percent to -9.8 percent
C) -10.4 percent to -14.6 percent
D) -15.0 percent to -19.9 percent

Question 17

Which of the following groups declares the start and end of recessions in the U.S.?

A) The Business Cycle Monitoring Committee of the Federal Reserve System
B) The Business Cycle Tracking Agency of the Department of Commerce
C) The Business Cycle Dating Committee of the National Bureau of Economic Research
D) The Committee on Business Cycles of the Council of Economic Advisers

Question 18

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 19

Most economists agree that the immediate cause of the majority of cyclical changes in the level of real output is unexpected changes in the:

A) Level of total spending
B) Rate of unemployment
C) Rate of inflation
D) Stock market price indexes

Question 20

General sources of shocks that can cause business cycles include the following, except:

A) Irregular occurrence of innovations and productivity changes
B) Monetary factors and financial instability
C) Unemployment jumps and production drops
D) Political events, either domestic or global

Question 21

Official unemployment rate statistics may:

A) Overstate the amount of unemployment by including part-time workers in the calculations
B) Understate the amount of unemployment by excluding part-time workers in the calculations
C) Overstate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment
D) Understate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment

Question 22

Which of the following statements is correct?

A) Frictional unemployment is the result of friction between labor and management over how best to perform work
B) Structural unemployment is unemployment resulting from changes in the structure of consumer demand or technology
C) Cyclical unemployment is also called wait unemployment because this unemployment depends on the timing of the business cycle
D) Search unemployment is the broadest unemployment category because it covers all other types of unemployment

Question 23

Search and wait unemployment is another way to describe:

A) Noncyclical unemployment
B) Cyclical unemployment
C) Frictional unemployment
D) Structural unemployment

Question 24

A nation has a population of 260 million people. Of these, 60 million are retired, in the military, institutionalized, or under 16 years old. There are 188 million who are employed and 12 million who are unemployed. What is the unemployment rate?

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

Question 25

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 26

In calculating the unemployment rate, part-time workers are:

A) Counted as unemployed because they are not working full-time
B) Counted as employed because they are receiving payment for work
C) Used to determine the size of the labor force, but not the unemployment rate
D) Treated the same as "discouraged" workers who are not actively seeking employment

Question 27

Which of the following is the correct way to calculate the unemployment rate?

A) [(unemployed)/(population)] × 100
B) [(unemployed)/(labor force)] × 100
C) [(labor force)/(population)] × 100
D) [(labor force)/(unemployed)] × 100

Question 28

Full-time homemakers and retirees are classified in the BLS data as:

A) Employed
B) Unemployed
C) Part of the labor force
D) Not in the labor force

Question 29

Kevin has lost his job in an automobile plant because the company switched to robots for its welding step in 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 30

A worker who loses a job at a call center because the company moved the call center operations to another country is an example of:

A) Frictional unemployment
B) Structural unemployment
C) Cyclical unemployment
D) Disguised unemployment

Question 31

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

A) Wait
B) Cyclical
C) Frictional
D) Structural

Question 32

The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. 1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month, but still has not gotten a job offer.
2) George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few 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 defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.
4) Ricardo 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) Ricardo

Question 33

The unemployed are those people who:

A) Do not have jobs
B) Are not employed but are seeking work
C) Are not working
D) Are not in the workforce

Question 34

The unemployment rate in an economy is 6%. The total population of the economy is 290 million, and the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is:

A) 6 million
B) 9 million
C) 12 million
D) 24 million

Question 35

If the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, then the unemployment rate would be:

A) 4 percent
B) 6 percent
C) 8 percent
D) 10 percent

Question 36

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

A) Reduces productivity by causing friction 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 37

The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. 1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month, but still has not gotten a job offer.
2) George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few 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 defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.
4) Ricardo 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) Mollie
B) George
C) Jeanette
D) Ricardo

Question 38

In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are:

A) Excluded from the labor force
B) Included as part of the unemployed
C) Treated the same as part-time workers
D) Used to determine the size of the labor force

Question 39

Unemployment that occurs when there is deficient demand for the goods and services of an economy is called:

A) Frictional unemployment
B) Cyclical unemployment
C) Structural unemployment
D) Natural unemployment

Question 40

New college graduates still looking for their first jobs would be classified in the BLS data as:

A) Frictionally unemployed
B) Not yet in the labor force
C) Cyclically unemployed
D) Part of structural unemployment

Question 41

The full-employment unemployment rate for the United States economy is now generally considered to be:

A) 2 percent of the labor force
B) 4 percent of the labor force
C) 5 to 6 percent of the labor force
D) 8 to 9 percent of the labor force

Question 42

The one quirk that labor markets have, which helps explain why unemployment goes up so much in a recession is that:

A) A price floor called a "minimum wage law" exists for the labor market
B) Wages are flexible upward but "sticky" downward
C) Firms are "demanders" of labor, rather than suppliers
D) Machines could "replace" humans in the labor market

Question 43

The GDP gap measures the amount by which:

A) Nominal GDP exceeds real GDP
B) Actual GDP exceeds equilibrium GDP
C) Potential GDP exceeds actual GDP
D) Actual GDP exceeds national income

Question 44

The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. 1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month, but still has not gotten a job offer.
2) George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few 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 defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.
4) Ricardo 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) Mollie
B) George
C) Jeanette
D) Ricardo

Question 45

When the economy goes into a recession and firms require less labor, managers tend to:

A) Reduce wages, to reflect the lower demand for labor
B) Avoid cutting wages, for fear of drops in worker-productivity
C) Lay off workers, and keep wages of remaining workers constant
D) Keep all of their workers, by spreading work more thinly

Question 46

The downward-stickiness of wages serves like a _____ in the labor market.

A) Price floor
B) Price ceiling
C) Demand determinant
D) Supply determinant

Question 47

The higher the rate of unemployment:

A) The larger is the GDP gap
B) The smaller is the GDP gap
C) The higher is the level of actual GDP
D) The lower is the level of potential GDP

Question 48

If the negative GDP gap were equal to 4% of the potential GDP, Okun's law suggests that the actual unemployment rate would exceed the natural rate of unemployment by:

A) One percentage point
B) Two percentage points
C) Three percentage points
D) Four percentage points

Question 49

The full-employment rate of unemployment is also called the:

A) Potential rate of unemployment
B) Cyclical rate of unemployment
C) Frictional rate of unemployment
D) Natural rate of unemployment

Question 50

The rate of unemployment when the economy is at its potential output is called the:

A) Full-employment rate of unemployment
B) Natural rate of unemployment
C) Structural rate of unemployment
D) Frictional rate of unemployment

Question 51

If the unemployment rate for the United States economy rises from 7 to 11 percent during a year, we can conclude that:

A) Actual GDP exceeds potential GDP
B) Actual GDP is less than potential GDP
C) The economy is experiencing only frictional unemployment
D) The natural rate of unemployment for the United States economy has risen

Question 52

Potential GDP is the output that would be produced if the economy was experiencing:

A) No unemployment
B) Free markets and international trade
C) No inflation
D) Full employment

Question 53

The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. 1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month, but still has not gotten a job offer.
2) George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few 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 defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.
4) Ricardo 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 classified as a discouraged worker?

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

Question 54

If the actual rate of unemployment is above the natural rate of unemployment, then potential GDP is:

A) Equal to the GDP gap
B) Equal to actual GDP
C) Less than actual GDP
D) Greater than actual GDP

Question 55

"Full employment" refers to the situation when there is:

A) 100% employment of the labor force
B) 0% unemployment rate
C) No frictional or structural unemployment
D) No cyclical unemployment

Question 56

If the GDP gap is positive, then:

A) The inflation rate is falling
B) The unemployment rate is rising
C) Potential GDP is greater than actual GDP
D) Actual GDP is greater than potential GDP

Question 57

If the natural rate of unemployment was 6 percent, the current unemployment rate was 10 percent, and the potential GDP was $4,000 billion, then according to Okun's law the economy would have sacrificed:

A) $160 billion in output not produced
B) $240 billion in output not produced
C) $320 billion in output not produced
D) $480 billion in output not produced

Question 58

The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. 1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month, but still has not gotten a job offer.
2) George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few 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 defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.
4) Ricardo 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(s) would be included in the calculation of the natural unemployment rate?

A) Mollie only
B) George only
C) Mollie and Jeanette
D) George and Ricardo

Question 59

The natural rate of unemployment:

A) Means that the economy will always operate at that rate
B) Means that the economy will always realize its potential output
C) Is equal to the total of frictional and structural unemployment
D) Is a fixed unemployment rate that does not change over time

Question 60

The amount by which actual GDP falls short of potential GDP is one measure of the:

A) Natural rate of unemployment
B) Macroeconomic cost of unemployment
C) Difference between real and nominal GDP
D) Potential to produce outside the nation's PPC

Question 61

When inflation occurs:

A) All prices are rising
B) Each dollar of income will buy more output than before
C) The purchasing power of money increases
D) The purchasing power of money decreases

Question 62

The inflation rate measures the percentage growth rate of:

A) Real GDP from the base period 1982-84 to a given year
B) Real GDP from one year to the next
C) The CPI from the base period 1982-84 to a given year
D) The CPI from one year to the next

Question 63

Unemployment rates for men and women normally are very similar. In the Great Recession of 2007-09, the unemployment rate for men:

A) Remained roughly similar to that for women
B) Was slightly lower than that for women
C) Was much lower than that for women
D) Significantly exceeded that for women

Question 64

If the Consumer Price Index for a certain year is 120, this means that the average price of consumer items in that year was:

A) 20% higher than the average price in the base period 1982-84
B) About $120 per basket of consumer goods and services
C) 120% higher than the average price in the base period 1982-84
D) 20% higher than the average price of the preceding year

Question 65

The rate of unemployment tends to be lowest for:

A) Black teenagers
B) White teenagers
C) Black adult males
D) White adult males

Question 66

If the CPI declines from one year to the next, then the following statements are true, except:

A) There is deflation
B) The inflation rate is negative
C) The average price level is decreasing
D) The CPI turns negative in the next year

Question 67

"Depression means idleness. And idleness means loss of skills, loss of self-respect, plummeting morale, family disintegration, and sociopolitical unrest." This quote describes some of the:

A) Consequences of the hyperinflation that accompanies a recession
B) Reasons for the natural rate of unemployment
C) Noneconomic costs of unemployment
D) Characteristics of structural unemployment

Question 68

The economy has an annual inflation rate of 3.5%. It will take approximately how many years for the price level to double?

A) 10 years
B) 20 years
C) 25 years
D) 30 years

Question 69

Inflation is a rise in:

A) The general level of prices over time
B) The standard of living over time
C) Unemployment over time
D) Real GDP over time

Question 70

Over a ten-year period, the Consumer Price Index doubled. On the basis of this information and using the rule of 70, we can say that the average annual rate of inflation over this period was approximately:

A) 10 percent
B) 9 percent
C) 7 percent
D) 5 percent

Question 71

If the Consumer Price Index was 90 in one year and 100 in the following year, then the rate of inflation is about:

A) 9 percent
B) 10 percent
C) 11 percent
D) 12 percent

Question 72

Which of the following measures the changes in the prices of a "market basket" of some 300 goods and services purchased by typical urban consumers?

A) The GDP Price Index
B) The Consumer Price Index
C) The Retail Trade survey
D) The Wholesale Price Index

Question 73

If the natural rate of unemployment is 4.5 percent and the actual unemployment rate is 6.5 percent, then Okun's law indicates that the GDP gap is:

A) 2 percent
B) 3 percent
C) 4 percent
D) 6 percent

Question 74

Which measure of inflation would include consumer goods and capital goods?

A) The GDP Price Index
B) The Consumer Price Index
C) The Retail Trade Survey
D) The Employment Cost Index

Question 75

Okun's law indicates that for:

A) Every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 2 percent GDP gap is generated
B) Every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 5 percent GDP gap is generated
C) A 5 percent GDP gap, a 1 percent increase in the natural unemployment rate is generated
D) A 2 percent GDP gap, a 2 percent increase in the actual unemployment rate is generated

Question 76

The CPI compiled by the Bureau of Labor Statistics is used in the computations for:

A) The unemployment rate
B) The inflation rate
C) The interest rate
D) The foreign exchange rate

Question 77

Inflation rates in the U.S. reached double-digit rates in the:

A) 1960's
B) 1970's
C) 1990's
D) 2000's

Question 78

Which of the following statistics can turn negative?

A) Inflation rate
B) GDP
C) CPI
D) Unemployment rate

Question 79

Inflation rates in the U.S. from 2000 to 2012 were within the range of:

A) 0% - 4%
B) 3% - 8%
C) 8% - 15%
D) 12% - 25%

Question 80

Unemployment rates for skilled workers compared to unemployment rates for unskilled workers are:

A) Lower, because skilled workers tend to be employed in less cyclically vulnerable industries, such as the services and nondurable goods industries
B) Higher, because skilled workers tend to be employed in more cyclically vulnerable industries, such as the durable goods industry
C) Higher, because businesses are less likely to retain the more costly skilled workers no matter what type of industry
D) Lower, because skilled workers tend to be primarily employed by government at the local, state, and Federal levels