Economics Ch. 9

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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?


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
Total Population 145
Employed 95
Discouraged Workers 3

The labor force in Scoob is:

102 million

Unemployed 7
Total Population 145
Employed 95
Discouraged Workers 3

The unemployment force in Scoob is:

6.9 percent

Unemployed 7
Total Population 145
Employed 95
Discouraged Workers 3

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

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