Question 1

The aggregate cost of unemployment can be measured by the

Accepted Answer

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.E) A) and B)
F) All of the above

Question 2

In what circumstances would lenders most benefit?

Accepted Answer

A)  when there is an unanticipated decrease in inflation
B)  when there is an anticipated increase in inflation
C)  when there is an unanticipated increase in inflation
D)  when there is an anticipated decrease in inflationE) B) and C)
F) All of the above

Question 3

The natural rate of unemployment

Accepted Answer

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.E) None of the above
F) A) and C)

Question 4

One labor market quirk that helps explain why unemployment goes up so much in a recession is that

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 5

The total adult population of an economy is 175 million, the number of employed is 122 million, and the number of unemployed is 17 million.The percentage of adults who are not in the labor force is

Accepted Answer

A)  25.3 percent.
B)  20.6 percent.
C)  30.3 percent.
D)  13.9 percent.E) B) and D)
F) A) and C)

Question 6

What is the main problem with mild inflation, according to some economists?

Accepted Answer

A)  It reduces the size of the GDP gap.
B)  It leads to unanticipated deflation.
C)  It increases frictional and structural unemployment in the economy.
D)  It diverts productive time toward activities to hedge against inflation.E) B) and C)
F) C) and D)

Question 7

Which statement is correct?

Accepted Answer

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.E) All of the above
F) A) and B)

Question 8

Cyclical unemployment results from

Accepted Answer

A)  a deficiency of spending on goods and services.
B)  the decreasing relative importance of goods and the increasing relative importance of services in the U.S.economy.
C)  the everyday dynamics of a free labor market, with workers voluntarily changing jobs.
D)  technological change.E) C) and D)
F) A) and C)

Question 9

Real income is found by

Accepted Answer

A)  dividing nominal income by 70.
B)  multiplying nominal income by 1.03.
C)  dividing the price index (in hundredths)  by nominal income.
D)  dividing nominal income by the price index (in hundredths) .E) B) and C)
F) A) and B)

Question 10

If the nominal interest rate is 8 percent and the real interest rate is 5 percent, then the inflation premium is 13 percent.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A)  −0.2 percent to −4.3 percent
B)  −5.1 percent to −9.8 percent
C)  −10.4 percent to −14.6 percent
D)  −15.0 percent to −19.9 percentE) None of the above
F) A) and D)

Question 12

Potential Real GDP = $200 Billion Natural Rate of Unemployment = 6 Percent Actual Rate of Unemployment = 12 Percent Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable.The amount of output being forgone by the economy is

Accepted Answer

A)  $12 billion.
B)  $15 billion.
C)  $18 billion.
D)  $24 billion.E) B) and D)
F) A) and D)

Question 13

People who work part time, but desire to work full time, are considered to be officially unemployed.

Accepted Answer

A) True 
 B)False

Question 14

To prompt recovery from the Great Recession, some nations forced their nominal interest rates to be negative.

Accepted Answer

A) True 
 B)False

Question 15

Inflation is a rise in

Accepted Answer

A)  the general level of prices over time.
B)  the standard of living over time.
C)  unemployment over time.
D)  real GDP over time.E) B) and D)
F) A) and D)

Question 16

Real income will rise from one year to the next if nominal income

Accepted Answer

A)  falls and the price level falls faster.
B)  rises and the price level rises faster.
C)  falls and the price level rises.
D)  falls faster than the price level.E) A) and D)
F) A) and C)

Question 17

When the government prints money faster than output is expanding, the inflation that will occur is a form of

Accepted Answer

A)  subsidy.
B)  quota.
C)  production.
D)  taxation.E) C) and D)
F) A) and D)

Question 18

During the past 10 years, the annual rate of inflation in the United States has averaged less than 1 percent.

Accepted Answer

A) True 
 B)False

Question 19

Unemployment that is the result of deregulation, corporate downsizing, and the closure of military bases is best categorized as frictional unemployment.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A)  gold market and stock market
B)  international trade and foreign exchange markets
C)  real estate and financial markets
D)  consumer and government spendingE) A) and D)
F) B) and C)

Exam 29: Business Cycles, Unemployment, and Inflation

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

Correct AnswerverifiedShow Answer

In what circumstances would lenders most benefit?

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Inflation is a rise in

Correct AnswerverifiedShow Answer

The aggregate cost of unemployment can be measured by the

Correct AnswerverifiedShow Answer

Potential Real GDP = $200 Billion Natural Rate of Unemployment = 6 Percent Actual Rate of Unemployment = 12 Percent Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable.The amount of output being forgone by the economy is

Correct AnswerverifiedShow Answer

Real income is found by

Correct AnswerverifiedShow Answer

Cyclical unemployment results from

Correct AnswerverifiedShow Answer

One labor market quirk that helps explain why unemployment goes up so much in a recession is that

Correct AnswerverifiedShow Answer

The natural rate of unemployment

Correct AnswerverifiedShow Answer

Real income will rise from one year to the next if nominal income

Correct AnswerverifiedShow Answer

The total adult population of an economy is 175 million, the number of employed is 122 million, and the number of unemployed is 17 million.The percentage of adults who are not in the labor force is

Correct AnswerverifiedShow Answer

If the nominal interest rate is 8 percent and the real interest rate is 5 percent, then the inflation premium is 13 percent.

Correct AnswerverifiedShow Answer

To prompt recovery from the Great Recession, some nations forced their nominal interest rates to be negative.

Correct AnswerverifiedShow Answer

People who work part time, but desire to work full time, are considered to be officially unemployed.

Correct AnswerverifiedShow Answer

What is the main problem with mild inflation, according to some economists?

Correct AnswerverifiedShow Answer

During the past 10 years, the annual rate of inflation in the United States has averaged less than 1 percent.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the government prints money faster than output is expanding, the inflation that will occur is a form of

Correct AnswerverifiedShow Answer

Which statement is correct?

Correct AnswerverifiedShow Answer

Unemployment that is the result of deregulation, corporate downsizing, and the closure of military bases is best categorized as frictional unemployment.

Correct AnswerverifiedShow Answer

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