Cost-push inflation may be caused by |
a negative supply shock |
Real income is found by |
dividing nominal income by price index |
Real income can be determined by |
deflating nominal income for inflation |
Suppose that a person’s nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person’s real income will |
rise by about 15 percent |
Cost-push inflation |
reduces real output |
Cost of living adjustment clauses |
tie wage increases to change in the price level |
During a period of hyperinflation |
people tend to hold goods rather than money |
Inflation is undesirable because it |
redistributes real income and wealth |
If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is |
3 percent |
Recurring upswings and downswings in an economy’s real GDP over time are called |
business cycles |
In the United States, business cycles have occurred against a backdrop of a long-run trend of: |
rising real GDP |
As it relates to economic growth, the term long-run trend refers to: |
business activity that occurs over 50 or 100 years |
In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output? |
capital goods |
The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are: |
capital goods and durable consumer goods |
The phase of the business cycle in which real GDP declines is called |
a recession |
The phase of the business cycle in which real GDP is at a minimum is called |
the trough |
A recession is defined as a period in which |
real domestic output falls |
In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates? |
Expansion |
What is the primary reason that changes in total spending lead to cyclical changes in output and employment? |
Prices are sticky in the short run |
Unemployed 7 The labor force in Scoob is: |
102 million |
Unemployed 7 The unemployment force in Scoob is: |
6.9 percent |
Unemployed 7 If the natural rate of unemployment in Scoob is 5 percent then |
cyclical unemployment is about 2 percent |
The United States’ economy is considered to be at full employment when: |
about 4 to 5 percent of the labor force is unemployed |
Kara 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. Kara presently is: |
frictionally unemployed |
The natural rate of unemployment is |
when the economy is at its potential output |
The labor force includes |
employed workers and persons who are officially unemployed |
Alex works in his own home as a homemaker and full time caretaker of his children. Officially, he is |
not in the labor force |
Official unemployment statistics |
understate unemployment |
Part time workers who want full time work are counted as |
fully employed |
Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is: |
6 percent |
The unemployment rate is the |
percentage of the labor force that is unemployed |
A college graduate using the summer following graduation to search for a job would best be classified as: |
a part of frictional unemployment |
Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called: |
structural unemployment |
Which of the following constitute the types of unemployment occurring at the natural rate of unemployment? |
Structural and frictional unemployment |
The type of unemployment associated with recessions is called: |
cyclical unemployment |
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. As a result: |
the official unemployment rate will remain unchanged |
At the economy’s natural rate of unemployment: |
the economy achieves its potential output |
During the recession is the unemployment rate in the US was about |
25 percent |
Which of the following types of unemployment is directly associated with insufficient overall demand for goods and services? |
cyclical unemployment |
The GDP gap measures the difference between |
actual GDP and potential GDP |
A large negative GDP gap implies |
a high rate of unemployment |
If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is: |
$510 billion |
Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun’s law, the negative GDP gap as a percent of potential GDP is: |
8 percent |
Full employment output is also called |
potential output |
For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of: |
okun’s law |
Inflation means that |
prices on average are rising but some may be falling |
If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced: |
delfation of 3.33 percent |
If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is: |
11 percent |
Demand-pull inflaiton |
occurs when total spending exceeds the economy’s ability to provide output at the existing price level |
The phrase "too much money chasing too few goods" best describes: |
demand pull inflation |
Inflation initiated by increases in wages or other resource prices is labeled: |
cost-push inflation |
Economics Ch. 9
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