Question 1

The unemployment rate is the percentage of people in the labor force who are both able to and looking for work but who cannot find jobs.

Accepted Answer

A) True 
 B)False  True

Question 2

One of the prominent features of a modern market economy is the predominance of wage labor.Wage labor is paid a fixed wage,so that labor income during employment does not depend on the economic success of the firm.Prior to the Industrial Revolution,agricultural work was predominant,and agricultural workers did not work for fixed wages;their income was based on the net revenue of the farm.Explain why the change to wage labor is related to cyclical and structural unemployment.

Accepted Answer

Where workers receive a share of the residual over costs,a decline in profits of the employing firm will result in a smaller labor income,but not necessarily a decline in employment.Of course,some workers may choose to look for better employment in response to a fall in their income,but if the decline in income is cyclical,their other prospects,in general,will not be any better.Those who choose to remain will retain their employment,and share in the (diminished)net revenue.Where this type of labor institution predominates,labor income is more subject to variation over the business cycle than total employment.Where wage labor predominates,the employing firm is more likely to respond to a decline in its profits by reducing the work force.Remaining workers will experience little or no reduction in their income;while "laid off" workers will lose all of theirs.In a cyclical downturn,alternative jobs will be scarce,and an increase in the prevailing level of (cyclical)unemployment will be the result.
Structural unemployment is not affected in the same way by this institutional shift.Changes in technology (introducing new products or production techniques)or tastes will result in structural changes in the patterns of demand and supply.There will be a decline in the demand for labor in declining sectors and an increase in demand for labor in expanding sectors.These structural changes will occur whether or not labor is predominantly wage labor.Wage labor will experience somewhat greater employment trauma during structural transitions,however.Declining industries employing wage labor will respond by reducing their employment instead of reducing labor income.

Question 3

Classify each of the following cases as frictional,structural,or cyclical unemployment.
(a)John graduated from college and is currently looking for a job.
(b)A farmer lost his job because the area he lives in was transformed into a highly industrialized zone.
(c)Eliot works in the automobile industry in Detroit.He lost his job because cheaper imported cars have poured into America from Mexico.
(d)Mrs.Dunkin finished raising her children and decided to look for a job.
(e)Elizabeth lost her job because the company she used to work for merged with another company.
(f)David,who is a restaurant manager,lost his job because of a recession.

Accepted Answer

Frictional Unemployment: (a)and (d).
Structural unemployment: (b), (c), (e).
Cyclical unemployment: (f).

Question 4

In the postwar era, the average business expansion has lasted about 59 months.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements best characterizes the Classical view of business cycles?

Accepted Answer

A) Fluctuations in business activity occur in regular and predictable patterns. 
B) Fluctuations in business activity are to be expected and should be accepted. 
C) Business cycles are symptoms of underlying problems and should be addressed by macroeconomic policy. 
D) The appropriate macroeconomic policy can eliminate fluctuations in business activity. 
A) Fluctuations in business activity occur in regular and predictable patterns. 
B) Fluctuations in business activity are to be expected and should be accepted. 
C) Business cycles are symptoms of underlying problems and should be addressed by macroeconomic policy. 
D) The appropriate macroeconomic policy can eliminate fluctuations in business activity.

Question 6

Define the concepts of discouraged workers and underemployment,and explain why,due to their presence,we need to handle the official unemployment figures published by the BLS with care.

Accepted Answer

Discouraged workers are people who don't

Question 7

Before the Great Depression the popular view of government was:

Accepted Answer

A) laissez-faire; and after the Great Depression, the popular view of government was activist. 
B) activist; and after the Great Depression, the popular view of government was laissez-faire. 
C) activist; and after the Great Depression, the popular view of government was still activist. 
D) laissez-faire; and after the Great Depression, the popular view of government was still laissez-faire. 
A) laissez-faire; and after the Great Depression, the popular view of government was activist. 
B) activist; and after the Great Depression, the popular view of government was laissez-faire. 
C) activist; and after the Great Depression, the popular view of government was still activist. 
D) laissez-faire; and after the Great Depression, the popular view of government was still laissez-faire.

Question 8

The short-run business cycle framework focuses primarily on factors:

Accepted Answer

A) affecting demand. 
B) affecting supply. 
C) affecting both supply and demand. 
D) other than supply and demand. 
A) affecting demand. 
B) affecting supply. 
C) affecting both supply and demand. 
D) other than supply and demand.

Question 9

Between 2007 and 2009, the U.S. unemployment rate rose from under 5 percent to over 8 percent. A Keynesian economist would most likely blame this increase in unemployment on:

Accepted Answer

A) an increase in the minimum wage. 
B) an increase in the bargaining power of labor unions. 
C) a decline in the level of aggregate demand. 
D) a decline in aggregate supply. 
A) an increase in the minimum wage. 
B) an increase in the bargaining power of labor unions. 
C) a decline in the level of aggregate demand. 
D) a decline in aggregate supply.

Question 10

The top of the business cycle is called:

Accepted Answer

A) a growth trend. 
B) a recession. 
C) an upturn. 
D) a peak. 
A) a growth trend. 
B) a recession. 
C) an upturn. 
D) a peak.

Question 11

The secular trend growth rate is the:

Accepted Answer

A) rate of growth in any one year. 
B) rate of growth in per capita output in any one year. 
C) rate of growth of potential output. 
D) difference between actual output and the average growth in the economy. 
A) rate of growth in any one year. 
B) rate of growth in per capita output in any one year. 
C) rate of growth of potential output. 
D) difference between actual output and the average growth in the economy.

Question 12

Classical economists contend that official measures of unemployment:

Accepted Answer

A) understate the problem due to the existence of discouraged workers. 
B) understate the problem due to involuntary part-time employment. 
C) overstate the problem because most unemployment is voluntary. 
D) overstate the problem because most unemployment is cyclical. 
A) understate the problem due to the existence of discouraged workers. 
B) understate the problem due to involuntary part-time employment. 
C) overstate the problem because most unemployment is voluntary. 
D) overstate the problem because most unemployment is cyclical.

Question 13

Macroeconomists have defined three categories (types)of unemployment: cyclical,structural,and frictional.Briefly describe each type.

Accepted Answer

Cyclical unemployment is unemployment re

Question 14

Distinguish a Keynesian from a Classical economist,and give your view of how they would respond to an economy falling into a recession

Accepted Answer

Classical economists believe that busine

Question 15

Which of the following statements best depicts laypeople's explanation of the Great Depression at that time?

Accepted Answer

A) Government policies kept prices too high. 
B) An oversupply of goods had glutted the market. 
C) Unions were keeping the good jobs for themselves. 
D) An oversupply of goods is impossible. 
A) Government policies kept prices too high. 
B) An oversupply of goods had glutted the market. 
C) Unions were keeping the good jobs for themselves. 
D) An oversupply of goods is impossible.

Question 16

When Classical economists of the 1930s looked at the Great Depression, they:

Accepted Answer

A) lacked a good explanation of why it was happening. 
B) suggested wages were too flexible. 
C) blamed it on activist fiscal and monetary policies. 
D) thought it was a result of prices adjusting too quickly. 
A) lacked a good explanation of why it was happening. 
B) suggested wages were too flexible. 
C) blamed it on activist fiscal and monetary policies. 
D) thought it was a result of prices adjusting too quickly.

Question 17

Potential output:

Accepted Answer

A) is purely a physical phenomenon. 
B) is related to the long-term growth trend. 
C) requires government expenditures. 
D) requires the purchase of new equipment. 
A) is purely a physical phenomenon. 
B) is related to the long-term growth trend. 
C) requires government expenditures. 
D) requires the purchase of new equipment.

Question 18

Which of the following statements best characterizes the Keynesian view of business cycles?

Accepted Answer

A) Fluctuations in business activity occur in regular and predictable patterns that cannot be altered. 
B) Fluctuations in business activity are to be expected and should be accepted just as changes in the seasons are accepted. 
C) Business cycles are symptoms of underlying problems and should be dealt with through activist government policies. 
D) The appropriate macroeconomic policy can easily eliminate all fluctuations in business activity. 
A) Fluctuations in business activity occur in regular and predictable patterns that cannot be altered. 
B) Fluctuations in business activity are to be expected and should be accepted just as changes in the seasons are accepted. 
C) Business cycles are symptoms of underlying problems and should be dealt with through activist government policies. 
D) The appropriate macroeconomic policy can easily eliminate all fluctuations in business activity.

Question 19

The difference between the long-run and short-run frameworks is that the long-run framework focuses on demand while the short-run framework focuses on supply.

Accepted Answer

A) True 
 B)False

Question 20

What is the target rate of unemployment and how does it relate to potential income?

Accepted Answer

The target rate of unemployment is the l

Exam 24: Economic Growth, Business Cycles, and Unemployment

The unemployment rate is the percentage of people in the labor force who are both able to and looking for work but who cannot find jobs.

In the postwar era, the average business expansion has lasted about 59 months.

Which of the following statements best characterizes the Classical view of business cycles?

Define the concepts of discouraged workers and underemployment,and explain why,due to their presence,we need to handle the official unemployment figures published by the BLS with care.

Before the Great Depression the popular view of government was:

The short-run business cycle framework focuses primarily on factors:

Between 2007 and 2009, the U.S. unemployment rate rose from under 5 percent to over 8 percent. A Keynesian economist would most likely blame this increase in unemployment on:

The top of the business cycle is called:

The secular trend growth rate is the:

Classical economists contend that official measures of unemployment:

Macroeconomists have defined three categories (types)of unemployment: cyclical,structural,and frictional.Briefly describe each type.

Distinguish a Keynesian from a Classical economist,and give your view of how they would respond to an economy falling into a recession

Which of the following statements best depicts laypeople's explanation of the Great Depression at that time?

When Classical economists of the 1930s looked at the Great Depression, they:

Potential output:

Which of the following statements best characterizes the Keynesian view of business cycles?

The difference between the long-run and short-run frameworks is that the long-run framework focuses on demand while the short-run framework focuses on supply.

What is the target rate of unemployment and how does it relate to potential income?

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

Filters