Econ 2020 Chapter 9

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Which of the following would most likely occur during the expansionary phase of the business cycle?

Demand-pull inflation

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

a part of frictional unemployment.

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

frictionally unemployed.

Inflation is undesirable because it:

arbitrarily redistributes real income and wealth.

If potential GDP is $330 billion and there is a positive GDP gap of $30 billion, real GDP is:

$360 billion.

Which of the following would most likely move the economy into a recession in the short term?

The central bank printing less money than was anticipated.

The government agency responsible for collecting and reporting unemployment data is the:

Bureau of Labor Statistics.

Suppose that a person’s nominal income rises by 5 percent and the price level rises from 125 to 130. The person’s real income will:

rise by about 1 percent.

Most economists agree that the immediate determinant of the volume of output and employment is the:

level of total spending.

If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is:

$510 billion.

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

durables purchases are postponable.

Unanticipated inflation benefits debtors at the expense of creditors


Cost-of-living adjustment clauses (COLAs):

tie wage increases to changes in the price level.

Rising per-unit production costs are most directly associated with:

cost-push inflation.

In which of the following cases would real income rise?

Nominal income rises by 2 percent, and the price level remains unchanged.

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.

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

a recession.

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, all else equal, the official unemployment rate would:


An annual rate of inflation of 7 percent will double the price level in about 15 years.


The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are:

capital goods and durable consumer goods.

Suppose that lenders want to receive a real rate of interest of 5 percent, and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of:

7 percent.

The United States’ economy is considered to be at full employment when:

about 4-5 percent of the labor force is unemployed.

Recently a labor union argued that the standard of living of its members was falling. A critic of the union argued that this could not possibly be true because the union had been acquiring increases in the nominal incomes of its members through collective bargaining. Is the critic correct?

No, because real income may fall if prices increase more proportionately than the increase in nominal income.

If both the real interest rate and the nominal interest rate are 3 percent, then the:

inflation premium is zero.

Suppose the nominal annual interest rate on a two year loan is 8 percent and lenders expect inflation to be 5 percent in each of the two years. The annual real rate of interest is:

3 percent.

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?


Answer the question on the basis of the following information for a specific year in a hypothetical economy for which Okun’s law is applicable:
Potential real GDP: $200 billion
Natural rate of unemployment: 6 percent
Actual rate of unemployment: 12 percent

Refer to the above data. The size of the negative GDP gap as a percent of potential GDP for the above economy is:

12 percent.

Answer the question on the basis of the following information about a hypothetical economy:
Full time employed: 80
Part-time employed: 25
Unemployed: 15
Discourage Workers: 5
Members of Underground Economy: 6
Consumer Price Index: 110

Refer to the above information. If the members of the underground economy are presently counted as part of the unemployed when in fact they are employed, the official unemployment rate is overstated by about:

4 percentage points.

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions.
Unemployed: 7
Total population: 145
Employed: 95
Discouraged Workers: 3

Refer to the above information. The unemployment rate in Scoob is:

6.9 percent

Under which of the following circumstances would we observe the greatest increase in real income?

Nominal income falls by 2 percent, and the price level falls by 10 percent.

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