Question 1

Deﬂation is generally considered by economists to be a positive economic situation because it
creates strong job growth.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  about 5 to 6 percent of the total population is unemployed. 
B)  90 percent of the labor force is employed. 
C)  about 4 to 5 percent of the labor force is unemployed. 
D)  100 percent of the labor force is employed. 
A)  about 5 to 6 percent of the total population is unemployed. 
B)  90 percent of the labor force is employed. 
C)  about 4 to 5 percent of the labor force is unemployed. 
D)  100 percent of the labor force is employed.

Question 3

The phase of the business cycle in which real GDP is at a minimum is called

Accepted Answer

A)  the peak. 
B)  a recession. 
C)  the trough. 
D)  the underside. 
A)  the peak. 
B)  a recession. 
C)  the trough. 
D)  the underside.

Question 4

Okun's law indicates that for

Accepted Answer

A)  every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 2 percent GDP gap is generated. 
B)  every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 5 percent GDP gap is generated. 
C)  a 5 percent GDP gap, a 1 percent increase in the natural unemployment rate is generated. 
D)  a 2 percent GDP gap, a 2 percent increase in the actual unemployment rate is generated. 
A)  every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 2 percent GDP gap is generated. 
B)  every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 5 percent GDP gap is generated. 
C)  a 5 percent GDP gap, a 1 percent increase in the natural unemployment rate is generated. 
D)  a 2 percent GDP gap, a 2 percent increase in the actual unemployment rate is generated.

Question 5

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

Accepted Answer

A)  demand-pull inﬂation 
B)  cost-push inﬂation 
C)  structural inﬂation 
D)  frictional inﬂation 
A)  demand-pull inﬂation 
B)  cost-push inﬂation 
C)  structural inﬂation 
D)  frictional inﬂation

Question 6

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

Accepted Answer

A)  $300 billion. 
B)  $30 billion. 
C)  $360 billion. 
D)  $630 billion. 
A)  $300 billion. 
B)  $30 billion. 
C)  $360 billion. 
D)  $630 billion.

Question 7

The economy has an annual inﬂation rate of 3.5 percent. It will take approximately how many years for the price level to double?

Accepted Answer

A)  10 years 
B)  20 years 
C)  25 years 
D)  30 years 
A)  10 years 
B)  20 years 
C)  25 years 
D)  30 years

Question 8

In calculating the unemployment rate, part-time workers are

Accepted Answer

A)  counted as unemployed because they are not working full time. 
B)  counted as employed because they are receiving payment for work. 
C)  used to determine the size of the labor force but not the unemployment rate. 
D)  treated the same as "discouraged" workers who are not actively seeking employment. 
A)  counted as unemployed because they are not working full time. 
B)  counted as employed because they are receiving payment for work. 
C)  used to determine the size of the labor force but not the unemployment rate. 
D)  treated the same as "discouraged" workers who are not actively seeking employment.

Question 9

Deﬂation is most likely to occur

Accepted Answer

A)  during the expansionary phase of the business cycle. 
B)  during the recessionary phase of the business cycle. 
C)  when the central bank imposes negative nominal interest rates. 
D)  when the inﬂation premium rises above 10 percent. 
A)  during the expansionary phase of the business cycle. 
B)  during the recessionary phase of the business cycle. 
C)  when the central bank imposes negative nominal interest rates. 
D)  when the inﬂation premium rises above 10 percent.

Question 10

Updated Question: What is Okun's law?

Accepted Answer

Okun?s law provides a way to quantify th

Question 11

Inﬂation, as measured by percentage changes in the CPI,

Accepted Answer

A)  concerns policymakers more than the level of core inﬂation. 
B)  does not include the most price-ﬂexible goods in the economy. 
C)  is generally less volatile than core inﬂation. 
D)  is generally more volatile than core inﬂation. 
A)  concerns policymakers more than the level of core inﬂation. 
B)  does not include the most price-ﬂexible goods in the economy. 
C)  is generally less volatile than core inﬂation. 
D)  is generally more volatile than core inﬂation.

Question 12

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

Accepted Answer

A)  decline. 
B)  increase. 
C)  increase in the short run but eventually decline. 
D)  be unchanged. 
A)  decline. 
B)  increase. 
C)  increase in the short run but eventually decline. 
D)  be unchanged.

Question 13

Unemployment that occurs when there is insuﬃcient demand for the goods and services of an economy is called

Accepted Answer

A)  frictional unemployment. 
B)  cyclical unemployment. 
C)  structural unemployment. 
D)  natural unemployment. 
A)  frictional unemployment. 
B)  cyclical unemployment. 
C)  structural unemployment. 
D)  natural unemployment.

Question 14

(Consider This) If wages were more downwardly ﬂexible, then we would expect

Accepted Answer

A)  fewer layoffs during recessions. 
B)  more layoffs during recessions. 
C)  more severe recessions. 
D)  no business cycle ﬂuctuations. 
A)  fewer layoffs during recessions. 
B)  more layoffs during recessions. 
C)  more severe recessions. 
D)  no business cycle ﬂuctuations.

Question 15

Which of the following is not seen by economists as an underlying cause of business cycle ﬂuctuations?

Accepted Answer

A)  unexpected ﬁnancial bubbles that eventually burst 
B)  shocks to the money supply by the nation's central bank 
C)  supply shocks caused by major innovations 
D)  All of these are identiﬁed as causes of business cycle changes. 
A)  unexpected ﬁnancial bubbles that eventually burst 
B)  shocks to the money supply by the nation's central bank 
C)  supply shocks caused by major innovations 
D)  All of these are identiﬁed as causes of business cycle changes.

Question 16

The business cycle is so named because upswings and downswings in business activity are
predictably equal in terms of duration and intensity.

Accepted Answer

A) True 
 B)False

Question 17

The consumer price index was 177.1 last year and 179.9 this year. Therefore, the current rate of inﬂation is about

Accepted Answer

A)  2.8 percent. 
B)  3.4 percent. 
C)  1.6 percent. 
D)  4.1 percent. 
A)  2.8 percent. 
B)  3.4 percent. 
C)  1.6 percent. 
D)  4.1 percent.

Question 18

Inﬂation caused by a rise in the prices of inputs is referred to as

Accepted Answer

A)  cost-push inﬂation. 
B)  demand-pull inﬂation. 
C)  unanticipated inﬂation. 
D)  hyperinﬂation. 
A)  cost-push inﬂation. 
B)  demand-pull inﬂation. 
C)  unanticipated inﬂation. 
D)  hyperinﬂation.

Question 19

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

Accepted Answer

A)  cyclically unemployed. 
B)  structurally unemployed. 
C)  frictionally unemployed. 
D)  not a member of the labor force. 
A)  cyclically unemployed. 
B)  structurally unemployed. 
C)  frictionally unemployed. 
D)  not a member of the labor force.

Question 20

If the actual rate of unemployment is above the natural rate of unemployment, then potential GDP is

Accepted Answer

A)  equal to the GDP gap. 
B)  equal to actual GDP. 
C)  less than actual GDP. 
D)  greater than actual GDP. 
A)  equal to the GDP gap. 
B)  equal to actual GDP. 
C)  less than actual GDP. 
D)  greater than actual GDP.

Exam 9: Business Cycles, Unemployment, and Inflation

Deﬂation is generally considered by economists to be a positive economic situation because it creates strong job growth.

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

The phase of the business cycle in which real GDP is at a minimum is called

Okun's law indicates that for

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

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

The economy has an annual inﬂation rate of 3.5 percent. It will take approximately how many years for the price level to double?

In calculating the unemployment rate, part-time workers are

Deﬂation is most likely to occur

Updated Question: What is Okun's law?

Inﬂation, as measured by percentage changes in the CPI,

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

Unemployment that occurs when there is insuﬃcient demand for the goods and services of an economy is called

(Consider This) If wages were more downwardly ﬂexible, then we would expect

Which of the following is not seen by economists as an underlying cause of business cycle ﬂuctuations?

The business cycle is so named because upswings and downswings in business activity are predictably equal in terms of duration and intensity.

The consumer price index was 177.1 last year and 179.9 this year. Therefore, the current rate of inﬂation is about

Inﬂation caused by a rise in the prices of inputs is referred to as

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

If the actual rate of unemployment is above the natural rate of unemployment, then potential GDP is

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters