Macroeconomics Chapter 9

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:

the long-term expansion or contraction of 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.

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions.

Refer to the given information. The labor force in Scoob is:

102 million.

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions.

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

6.9 percent.

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions.

Refer to the given information. 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 4-5 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:

that rate of unemployment occurring 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 because discouraged workers are not counted as unemployed.

Part-time workers who want full-time work are counted as:

fully employed and therefore the official unemployment rate may understate the level of unemployment.

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.

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:

decline.

Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon, where she anticipates that a new job will be available. We can say that Susie is faced with:

structural unemployment.

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.

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

Bureau of Labor Statistics.

At the economy’s natural rate of unemployment:

the economy achieves its potential output.

In the depth of the Great Depression, the unemployment rate in the United States 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.

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

$360 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, although some particular prices may be falling.

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:

deflation 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 inflation:

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.

Cost-push inflation may be caused by:

a negative supply shock.

Real income is found by:

dividing nominal income by the price index (in hundredths).

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 (COLAs):

tie wage increases to changes in the price level.

During a period of hyperinflation:

people tend to hold goods rather than money.

Inflation is undesirable because it:

arbitrarily 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.