Question 1

If the actual rate of unemployment equals the natural rate of unemployment, then:

Accepted Answer

A) potential output is greater than real GDP. 
B) potential output equals real GDP. 
C) potential output is less than real GDP. 
D) there is a recessionary gap. 
A) potential output is greater than real GDP. 
B) potential output equals real GDP. 
C) potential output is less than real GDP. 
D) there is a recessionary gap.

Question 2

Recessions tend to be ________ by ________ the rate of inflation.

Accepted Answer

A) followed; an increase in 
B) followed; a decrease in 
C) preceded; a decrease in the stability of 
D) neither preceded nor followed; any change in 
A) followed; an increase in 
B) followed; a decrease in 
C) preceded; a decrease in the stability of 
D) neither preceded nor followed; any change in

Question 3

Cyclical unemployment is equal to zero when:

Accepted Answer

A) there is no recessionary gap. 
B) there is no expansionary gap. 
C) actual GDP and potential GDP are equal. 
D) frictional unemployment equals structural unemployment. 
A) there is no recessionary gap. 
B) there is no expansionary gap. 
C) actual GDP and potential GDP are equal. 
D) frictional unemployment equals structural unemployment.

Question 4

An expansion is:

Accepted Answer

A) a period in which the economy is growing at a rate significantly below normal. 
B) a period in which the economy is growing at a rate significantly above normal. 
C) the high point of economic activity prior to a downturn. 
D) the low point of economic activity prior to a recovery. 
A) a period in which the economy is growing at a rate significantly below normal. 
B) a period in which the economy is growing at a rate significantly above normal. 
C) the high point of economic activity prior to a downturn. 
D) the low point of economic activity prior to a recovery.

Question 5

A country's actual output ________ its potential output.

Accepted Answer

A) can never exceed 
B) can never fall below 
C) can only temporarily exceed 
D) is always be approximately equal to 
A) can never exceed 
B) can never fall below 
C) can only temporarily exceed 
D) is always be approximately equal to

Question 6

A recession occurs when ________, when ________, or when both of these occur.

Accepted Answer

A) potential output grows slowly; actual output falls below potential output 
B) potential output grows slowly; actual output rises above potential output 
C) potential output grows rapidly; actual output equals potential output 
D) potential output grows rapidly; actual output falls below potential output 
A) potential output grows slowly; actual output falls below potential output 
B) potential output grows slowly; actual output rises above potential output 
C) potential output grows rapidly; actual output equals potential output 
D) potential output grows rapidly; actual output falls below potential output

Question 7

The decline in the natural rate of unemployment between the 1979 and the 2000s might be the result of:

Accepted Answer

A) the changing age structure of the population and more efficient labor markets. 
B) advances in computer technology and globalization. 
C) increasing wage inequality and skill-biased technological change. 
D) greater quantities of human capital and increased average labor productivity. 
A) the changing age structure of the population and more efficient labor markets. 
B) advances in computer technology and globalization. 
C) increasing wage inequality and skill-biased technological change. 
D) greater quantities of human capital and increased average labor productivity.

Question 8

In the long run, total spending only influences:

Accepted Answer

A) actual output. 
B) potential output. 
C) productive capacity. 
D) inflation. 
A) actual output. 
B) potential output. 
C) productive capacity. 
D) inflation.

Question 9

An expansion occurs when ________, when ________, or when both of these occur.

Accepted Answer

A) potential output grows rapidly; actual output rises above potential output. 
B) potential output grows slowly; actual output rises above potential output 
C) potential output grows rapidly; actual output equals potential output 
D) potential output grows slowly; actual output equals potential output 
A) potential output grows rapidly; actual output rises above potential output. 
B) potential output grows slowly; actual output rises above potential output 
C) potential output grows rapidly; actual output equals potential output 
D) potential output grows slowly; actual output equals potential output

Question 10

If firms maintain preset prices in the short run, then the primary cause of output gaps is changes in:

Accepted Answer

A) potential output. 
B) prices. 
C) capital and technology. 
D) economy-wide spending. 
A) potential output. 
B) prices. 
C) capital and technology. 
D) economy-wide spending.

Question 11

Indicators of economic activity that move at the same time as the overall economy are called ________ indicators.

Accepted Answer

A) short-term 
B) long-term 
C) real 
D) coincident 
A) short-term 
B) long-term 
C) real 
D) coincident

Question 12

A particularly severe or protracted recession is called a(n):

Accepted Answer

A) depression. 
B) boom. 
C) peak. 
D) expansion. 
A) depression. 
B) boom. 
C) peak. 
D) expansion.

Question 13

The aging of the labor force in the United States is likely to ________ the natural rate of unemployment; an increase in the efficiency of the labor market is likely to ________ the natural rate of unemployment.

Accepted Answer

A) decrease; decrease 
B) increase; increase 
C) increase; decrease 
D) decrease; increase 
A) decrease; decrease 
B) increase; increase 
C) increase; decrease 
D) decrease; increase

Question 14

If the cyclical rate of employment equals 1 percent and the actual rate of unemployment equals 8 percent, then the natural rate of unemployment must equal:

Accepted Answer

A) −7 percent. 
B) 9 percent. 
C) 12.5 percent. 
D) 7 percent. 
A) −7 percent. 
B) 9 percent. 
C) 12.5 percent. 
D) 7 percent.

Question 15

In an expansion, the cyclical rate of unemployment is often:

Accepted Answer

A) positive. 
B) zero. 
C) negative. 
D) equal to the natural rate of unemployment. 
A) positive. 
B) zero. 
C) negative. 
D) equal to the natural rate of unemployment.

Question 16

Which of the following does not describe a characteristic of short-term economic fluctuations?

Accepted Answer

A) Expansions and recessions are felt throughout the economy. 
B) Expansions and recessions are irregular in length and severity. 
C) The unemployment rate rises during recessions. 
D) Durable-goods industries are less sensitive to short-term fluctuations than service and non-durable industries. 
A) Expansions and recessions are felt throughout the economy. 
B) Expansions and recessions are irregular in length and severity. 
C) The unemployment rate rises during recessions. 
D) Durable-goods industries are less sensitive to short-term fluctuations than service and non-durable industries.

Question 17

Which of the following does not describe a characteristic of short-term economic fluctuations?

Accepted Answer

A) Expansions and recessions are felt in only a few sectors of the economy. 
B) Expansions and recessions are irregular in length and severity. 
C) The unemployment rate rises during recessions. 
D) Durable-goods industries are more sensitive to short-term fluctuations than service and non-durable industries. 
A) Expansions and recessions are felt in only a few sectors of the economy. 
B) Expansions and recessions are irregular in length and severity. 
C) The unemployment rate rises during recessions. 
D) Durable-goods industries are more sensitive to short-term fluctuations than service and non-durable industries.

Question 18

If there is 2 percent frictional unemployment, 3 percent structural unemployment, and 1 percent cyclical unemployment, then the natural rate of unemployment equals:

Accepted Answer

A) 3 percent. 
B) 4 percent. 
C) 5 percent. 
D) 6 percent. 
A) 3 percent. 
B) 4 percent. 
C) 5 percent. 
D) 6 percent.

Question 19

Short-term economic fluctuations are ________ in length and severity and ________ to predict.

Accepted Answer

A) regular; difficult 
B) regular; easy 
C) irregular; easy 
D) irregular; difficult 
A) regular; difficult 
B) regular; easy 
C) irregular; easy 
D) irregular; difficult

Question 20

Suppose the natural rate of unemployment is 4 percent. What is the actual rate of unemployment if actual output is 2 percent above potential output?

Accepted Answer

A) 0 percent 
B) 2 percent 
C) 3 percent 
D) 6 percent 
A) 0 percent 
B) 2 percent 
C) 3 percent 
D) 6 percent

Exam 24: Short-Term Economic Fluctuations: An Introduction

If the actual rate of unemployment equals the natural rate of unemployment, then:

Recessions tend to be ________ by ________ the rate of inflation.

Cyclical unemployment is equal to zero when:

An expansion is:

A country's actual output ________ its potential output.

A recession occurs when ________, when ________, or when both of these occur.

The decline in the natural rate of unemployment between the 1979 and the 2000s might be the result of:

In the long run, total spending only influences:

An expansion occurs when ________, when ________, or when both of these occur.

If firms maintain preset prices in the short run, then the primary cause of output gaps is changes in:

Indicators of economic activity that move at the same time as the overall economy are called ________ indicators.

A particularly severe or protracted recession is called a(n):

The aging of the labor force in the United States is likely to ________ the natural rate of unemployment; an increase in the efficiency of the labor market is likely to ________ the natural rate of unemployment.

If the cyclical rate of employment equals 1 percent and the actual rate of unemployment equals 8 percent, then the natural rate of unemployment must equal:

In an expansion, the cyclical rate of unemployment is often:

Which of the following does not describe a characteristic of short-term economic fluctuations?

Which of the following does not describe a characteristic of short-term economic fluctuations?

If there is 2 percent frictional unemployment, 3 percent structural unemployment, and 1 percent cyclical unemployment, then the natural rate of unemployment equals:

Short-term economic fluctuations are ________ in length and severity and ________ to predict.

Suppose the natural rate of unemployment is 4 percent. What is the actual rate of unemployment if actual output is 2 percent above potential output?

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

Recessions tend to be by the rate of inflation.

A recession occurs when , when , or when both of these occur.

An expansion occurs when , when , or when both of these occur.

The aging of the labor force in the United States is likely to the natural rate of unemployment; an increase in the efficiency of the labor market is likely to the natural rate of unemployment.

Short-term economic fluctuations are in length and severity and to predict.