Question 1

In which of the following industries or sectors of the economy will business cycle ﬂuctuations likely have the greatest effect on output?

Accepted Answer

A)  military goods 
B)  capital goods 
C)  textile products 
D)  agricultural commodities 
A)  military goods 
B)  capital goods 
C)  textile products 
D)  agricultural commodities

Question 2

Lenders will be willing to reduce the nominal interest rates on loans if the expected inﬂation
increases.

Accepted Answer

A) True 
 B)False

Question 3

If the price level doubled in a 23-year period, we can conclude that the average annual rate of
inﬂation over that period was about 3 percent.

Accepted Answer

A) True 
 B)False

Question 4

Deﬂation is when the inﬂation rate turns negative.

Accepted Answer

A) True 
 B)False

Question 5

If the Consumer Price Index for a certain year is 120, this means that the average price of consumer items in that year was

Accepted Answer

A)  20 percent higher than the average price in the base period 1982-84. 
B)  about $120 per basket of consumer goods and services. 
C)  120 percent higher than the average price in the base period 1982-84. 
D)  20 percent higher than the average price of the preceding year. 
A)  20 percent higher than the average price in the base period 1982-84. 
B)  about $120 per basket of consumer goods and services. 
C)  120 percent higher than the average price in the base period 1982-84. 
D)  20 percent higher than the average price of the preceding year.

Question 6

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

Accepted Answer

A)  15 percent. 
B)  33 percent. 
C)  25 percent. 
D)  40 percent. 
A)  15 percent. 
B)  33 percent. 
C)  25 percent. 
D)  40 percent.

Question 7

Given the annual rate of inﬂation, the "rule of 70" allows one to

Accepted Answer

A)  determine whether the inﬂation is demand-pull or cost-push. 
B)  calculate the accompanying rate of unemployment. 
C)  determine when the value of a real asset will approach zero. 
D)  calculate the number of years required for the price level to double. 
A)  determine whether the inﬂation is demand-pull or cost-push. 
B)  calculate the accompanying rate of unemployment. 
C)  determine when the value of a real asset will approach zero. 
D)  calculate the number of years required for the price level to double.

Question 8

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

Accepted Answer

A)  purchases of durable goods are not postponable. 
B)  purchases of durable goods are postponable. 
C)  the producers of nondurable goods have monopoly power. 
D)  producers of durable goods are highly competitive. 
A)  purchases of durable goods are not postponable. 
B)  purchases of durable goods are postponable. 
C)  the producers of nondurable goods have monopoly power. 
D)  producers of durable goods are highly competitive.

Question 9

The duration of a recession measures the depth of decline in real output during the recession.

Accepted Answer

A) True 
 B)False

Question 10

Potential GDP is the output that would be produced if the economy was experiencing

Accepted Answer

A)  no unemployment. 
B)  free markets and international trade. 
C)  no inﬂation. 
D)  full employment. 
A)  no unemployment. 
B)  free markets and international trade. 
C)  no inﬂation. 
D)  full employment.

Question 11

The full-employment rate of unemployment is also called the

Accepted Answer

A)  potential rate of unemployment. 
B)  cyclical rate of unemployment. 
C)  frictional rate of unemployment. 
D)  natural rate of unemployment. 
A)  potential rate of unemployment. 
B)  cyclical rate of unemployment. 
C)  frictional rate of unemployment. 
D)  natural rate of unemployment.

Question 12

What are ﬁve economic shocks that may cause business cycles?

Accepted Answer

Political events, ﬁnancial ins

Question 13

A statement that is often used to describe demand-pull inﬂation is

Accepted Answer

A)  "A rising tide lifts all boats." 
B)  "Money is easily earned, but not easily saved." 
C)  "too much money chasing too few goods." 
D)  "There is no such thing as a free lunch." 
A)  "A rising tide lifts all boats." 
B)  "Money is easily earned, but not easily saved." 
C)  "too much money chasing too few goods." 
D)  "There is no such thing as a free lunch."

Question 14

One labor market quirk that helps explain why unemployment goes up so much in a recession is that

Accepted Answer

A)  a price ﬂoor called a "minimum wage law" exists for the labor market. 
B)  wages are ﬂexible upward but "sticky" downward. 
C)  ﬁrms are "demanders" of labor, rather than suppliers. 
D)  machines could "replace" humans in the labor market. 
A)  a price ﬂoor called a "minimum wage law" exists for the labor market. 
B)  wages are ﬂexible upward but "sticky" downward. 
C)  ﬁrms are "demanders" of labor, rather than suppliers. 
D)  machines could "replace" humans in the labor market.

Question 15

Inﬂation rates in the United States reached double-digit rates in the

Accepted Answer

A)  1960s. 
B)  1970s. 
C)  1990s. 
D)  2000s. 
A)  1960s. 
B)  1970s. 
C)  1990s. 
D)  2000s.

Question 16

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

Accepted Answer

A)  expansion 
B)  recession 
C)  peak 
D)  trough 
A)  expansion 
B)  recession 
C)  peak 
D)  trough

Question 17

Real income can be determined by

Accepted Answer

A)  dividing the price level by nominal income. 
B)  inﬂating nominal income for inﬂation. 
C)  dividing the annual rate of inﬂation into the number "70." 
D)  deﬂating nominal income for inﬂation. 
A)  dividing the price level by nominal income. 
B)  inﬂating nominal income for inﬂation. 
C)  dividing the annual rate of inﬂation into the number "70." 
D)  deﬂating nominal income for inﬂation.

Question 18

You are given the following information about the economy: the nominal interest rate = 8 percent, and the real rate of interest = 6 percent. The inﬂation premium is

Accepted Answer

A)  2 percent. 
B)  6 percent. 
C)  8 percent. 
D)  14 percent. 
A)  2 percent. 
B)  6 percent. 
C)  8 percent. 
D)  14 percent.

Question 19

A lender need not be penalized by inﬂation if the

Accepted Answer

A)  long-term rate of inﬂation is less than the short-term rate of inﬂation. 
B)  short-term rate of inﬂation is less than the long-term rate of inﬂation. 
C)  lender correctly anticipates inﬂation and increases the nominal interest rate accordingly. 
D)  inﬂation is unanticipated by both borrower and lender. 
A)  long-term rate of inﬂation is less than the short-term rate of inﬂation. 
B)  short-term rate of inﬂation is less than the long-term rate of inﬂation. 
C)  lender correctly anticipates inﬂation and increases the nominal interest rate accordingly. 
D)  inﬂation is unanticipated by both borrower and lender.

Question 20

The recurrent ups and downs in the level of economic activity extending over several years are referred to as

Accepted Answer

A)  economic phases. 
B)  business startups. 
C)  business cycles. 
D)  noncyclical ﬂuctuations. 
A)  economic phases. 
B)  business startups. 
C)  business cycles. 
D)  noncyclical ﬂuctuations.

Exam 9: Business Cycles, Unemployment, and Inflation

In which of the following industries or sectors of the economy will business cycle ﬂuctuations likely have the greatest effect on output?

Lenders will be willing to reduce the nominal interest rates on loans if the expected inﬂation increases.

If the price level doubled in a 23-year period, we can conclude that the average annual rate of inﬂation over that period was about 3 percent.

Deﬂation is when the inﬂation rate turns negative.

If the Consumer Price Index for a certain year is 120, this means that the average price of consumer items in that year was

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

Given the annual rate of inﬂation, the "rule of 70" allows one to

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

The duration of a recession measures the depth of decline in real output during the recession.

Potential GDP is the output that would be produced if the economy was experiencing

The full-employment rate of unemployment is also called the

What are ﬁve economic shocks that may cause business cycles?

A statement that is often used to describe demand-pull inﬂation is

One labor market quirk that helps explain why unemployment goes up so much in a recession is that

Inﬂation rates in the United States reached double-digit rates in the

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

Real income can be determined by

You are given the following information about the economy: the nominal interest rate = 8 percent, and the real rate of interest = 6 percent. The inﬂation premium is

A lender need not be penalized by inﬂation if the

The recurrent ups and downs in the level of economic activity extending over several years are referred to as

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

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