Question 1

Which of the following statements is true about causes of business cycle fluctuations?

Accepted Answer

A) Economists all agree that supply shocks are the cause of most business cycle fluctuations. 
B) Economists all agree that productivity shocks are the cause of most business cycle changes. 
C) Economists all agree that monetary changes are primarily responsible for business cycle fluctuations. 
D) There are a wide range of theories as to the underlying causes of business cycle movements.

Question 2

The annual rate of inflation can be found by subtracting

Accepted Answer

A) the real income from the nominal income. 
B) last year's price index from this year's price index. 
C) this year's price index from last year's price index and dividing the difference by this year's price index. 
D) last year's price index from this year's price index and dividing the difference by last year's price index.

Question 3

The rate of unemployment when the economy is at its potential output is called the

Accepted Answer

A) full-employment rate of unemployment. 
B) natural rate of unemployment. 
C) structural rate of unemployment. 
D) frictional rate of unemployment.

Question 4

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.

Question 5

A large negative GDP gap implies

Accepted Answer

A) an excess of imports over exports. 
B) a low rate of unemployment. 
C) a high rate of unemployment. 
D) a sharply rising price level.

Question 6

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

Accepted Answer

A) Taylor's rule. 
B) Okun's law. 
C) Say's law. 
D) the Coase theorem.

Question 7

Which of the following is a correct statement?

Accepted Answer

A) It is relatively easy to distinguish between cost-push and demand-pull inflation even if you don't know the source of the inflation. 
B) A supply shock will cause a variation of demand-pull inflation that can lead to hyperinflation. 
C) Demand-pull inflation will continue so long as there is excess total spending in the economy. 
D) Demand-pull inflation is usually accompanied by higher unemployment rates.

Question 8

For a person to keep his real income steady at a certain level from one year to the next, his nominal income must

Accepted Answer

A) rise if the price index falls. 
B) stay the same as the price index rises. 
C) fall if the price index rises. 
D) rise as fast as the price index.

Question 9

The unemployment rate in an economy is 7.5 percent.The total population of the economy is 250 million and the size of the civilian labor force is 180 million.The number of employed workers in this economy is

Accepted Answer

A) 13.5 million. 
B) 15.7 million. 
C) 166.5 million. 
D) 174.6 million.

Question 10

Unemployment rates for men and women normally are very similar.In the Great Recession of 2007-09, the unemployment rate for men

Accepted Answer

A) remained roughly similar to that for women. 
B) was slightly lower than that for women. 
C) was much lower than that for women. 
D) significantly exceeded that for women.

Question 11

The higher the rate of unemployment,

Accepted Answer

A) the larger is the GDP gap. 
B) the smaller is the GDP gap. 
C) the higher is the level of actual GDP. 
D) the lower is the level of potential GDP.

Question 12

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."

Question 13

(Consider This) 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.

Question 14

Which of the following countries experienced deflation for several years in the period 2002-2015?

Accepted Answer

A) France 
B) Germany 
C) Italy 
D) Japan

Question 15

Unanticipated inflation arbitrarily

Accepted Answer

A) "subsidizes" those who receive fixed money incomes. 
B) "taxes" those who receive fixed money incomes. 
C) "penalizes" those who borrow money. 
D) "benefits" those who save money.

Question 16

Only two resources, capital and labor, are used in an economy to produce an output of 600 million units.If the total cost of capital resources is $300 million and the total cost of labor resources is $100 million, then the per-unit production costs in this economy are

Accepted Answer

A) $0.67. 
B) $1.50. 
C) $2.00. 
D) $3.00.

Question 17

Dr.Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska.That year, Professor Simpson would be officially counted as

Accepted Answer

A) structurally unemployed. 
B) frictionally unemployed. 
C) not in the labor force. 
D) employed.

Question 18

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

Question 19

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.

Question 20

Regarding the overall effect of negative interest rates on the economy, economists

Accepted Answer

A) are in general agreement that the overall effect is negative, because economic activity will slow down. 
B) are in general agreement that the overall effect is positive, because economic activity will be stimulated. 
C) are still debating, awaiting the results of the real-world "experiments" in several countries. 
D) believe that negative interest rates simply cannot happen in reality.

Exam 29: Business Cycles, Unemployment, and Inflation