Ch 17 Macro Practice Questions
take the value at the peak (the intial value in the contraction) and subtract that from the value at the trough 12.2−12.4= −0.2
(The graph shows one full business cycle for Growthland) Over the course of the year, Growthland experiences a full business cycle. What is the change in GDP during contractions?
How do you caculate the output gap?
(actual output - potential)/ potential
expansion
The movement from point B to point C is called a(n):
A negative output gap implies an unemployment rate that is:
above the equilibrium rate
What is Okun's rule of thumb?
for every 1% the output gap rises, the unemployment rate falls %0.5
A recession does not lead to:
higher employment
The most commonly-referenced indicator of the state of the labor market is:
the unemployment rate
What is the point at which a recession ends and an expansion begins?
trough
take the initial value of the expansion and subtract it from the final value of the expansion: ((12.4−12.1) + (12.8−12.2))= 0.9
(The graph shows one full business cycle for Growthland) Over the course of the year, Growthland experiences a full business cycle. What is the change in GDP during expansions?
Change in GDP formula
(change in GDP/ inital GDP)100
True or False: Recessions are related to GDP, and therefore, are unrelated to business cycles.
False
What is the general trend observed among economic indicators?
Many economic indicators rise and fall together.
A firm's real sales rise by 3% this quarter. Is this a sign of a booming economy?
No, the sales growth might have been negative in the previous quarter.
True or False: Economic growth is typically steady and occurs without many short term fluctuations between expansion and contraction.
True
True or False: It is possible that the economic output associated with a nation's most recent business‑cycle trough is higher than the economic output associated with an earlier business‑cycle peak.
True
True or False: The point at which an economy turns from contraction to expansion is called a business‑cycle depression.
True
True or False: The point at which an economy turns from expansion to contraction is called a business‑cycle peak.
True
What is a leading indicator?
a variable that tends to predict the future path of the economy
You work as an analyst for the Council of Economic Advisors. Your current project is to develop strategies to drive the currently high unemployment rate down to the equilibrium level. This project is necessary because:
actual GDP is below potential GDP
Analysts in your consulting firm concluded that the current rate of unemployment is less than the equilibrium rate, which leads you to conclude that:
actual GDP is greater than potential GDP
How do you caculate cyclical unemployment?
actual unemployment rate − natural rate of unemployment
How is real GDP caculated?
adding all the spending in the economy
What is the consumer price index?
an index of the variation in prices paid by typical consumers for retail goods and other items.
What will fall when the economy is expanding?
applications for unemployment benefits
For the past several months, per capita output has grown more and more slowly, and unemployment has fallen, but both trends appear to have leveled off. Where in the business cycle is the economy?
at a peak
When the output gap is positive, the unemployment rate is:
below the equilibrium unemployment rate
Which indicator is a good predictor of investment?
buisness confidence
Which indicator might be a good predictor of investment?
buisness confidence
Suppose that aggregate output is equal to potential output; the actual unemployment rate is:
equal to the equilibrium unemployment rate
Suppose that an economy is in a recession. You would expect to see real GDP:
fall below potential GDP
What is Okun's rule of thumb for cyclical unemployment and the output gap?
for each 1% increase in cyclical unemployment, the economy loses 2% of output
An economic expansion in the United States is typically associated with a(n):
increase in output
What is the buisness cycle?
short term fulnctuations in economic activity
What is a narrow indicator?
the stock price for JPMorgan Chase & Co.
add the two values to get the total change 0.9+(−0.2)= 0.7
(The graph shows one full business cycle for Growthland) Over the course of the year, Growthland experiences a full business cycle. What is the general trend of GDP over time in Growthland?
How do you caculate the (estimated) unemployment rate from actual and potential output?
(output gap x (- 0.5)) + natural or equilibrium unemployment rate
If the median value of initial unemployment claims is 400,000, which value of initial unemployment claims indicates a particularly strong economy? 335,000; 450,000 or 780,000
335,000 (least ammount)
The relationship between the output gap and cyclical unemployment is expressed by:
Okun's rule of thumb.
What are the 3 leading indicators?
buisness confidence, consumer confidence, the stock market
Which economic indicator tells you weather real wages rise or fall?
consumer price index
Which economic indicator will tell you whether real wages will rise or fall?
consumer price index
Suppose the natural rate of unemployment is 6.6%, and the economy's unemployment rate is at 9.2%. Using Okun's rule of thumb, calculate the output gap.
(output gap= −2 × (cyclical unemployment)) (−2 ×( 9.2% − 6.6%)) -5.2%
The median annual growth in the stock index is 7%. Which annual stock index growth rate indicates a particularly strong economy? (6.8%, 10% or 12.9%)
12.9% (higher annual stock index growth = more flourising economy)
2018
Based on the information in the graph, in which year was the economy MOST likely in an expansion?
2010
Based on the information in the graph, in which year was the output gap probably the most negative?
2020
Based on the information in the graph, in which year(s) did the United States probably have the largest negative output gap?
True or False: Unemployment is typically increasing in the time leading up to a peak.
False
If an economy has a negative output gap of 2%, this means:
GDP is 2% below potential GDP
A firm's real sales rise by 2% this quarter. Is this a sign of a booming economy?
No, this could be a seasonal effect if the data is not seasonally adjusted.
2.1%
Refer to the following table. What was the approximate output gap in 1971?
1.9%
Refer to the following table. What was the approximate output gap in 1999?
If the economy is in a recession, actual output will be _____ potential output.
less than
What is a recession?
period between the peak and the trough of declining economic activity
What is an expansion?
period of increasing economic activity
Which economic indicator tells you how fast the economy is growing?
real GDP growth
Which will rise when the economy is expanding?
real GDP growth
Periods in which output and employment are falling in many industries are called:
recessions
Based on Okun's rule of thumb, if you forecast that the output gap will decline from −2% to −3%, the unemployment rate will:
rise by 0.5%
What are the steps of a buisness cycle?
runs from a peak, through a recession, to a trough, then into an expansion
What is the typical relationship between recessions and expansions in buisness cycles?
short and sharp recessions, followed by long and gradual expansions
As part of your work in the economic forecasting office in the governor's administration, you and another analyst independently produce weekly statements on the state of the labor market. You use moving averages of filings for unemployment to analyze the labor market, whereas your teammate prefers to use weekly data. The result is that your:
summaries reveal more about underlying trends
Which economic indicator tells you how fast wages and benefits are rising?
the employment cost index
What are peaks and troughs?
the high and low points of economic activity
Nonfarm payroll is an important indicator because it tells you how _____ is doing.
the labor market
Potential output is the level of real GDP that:
the level of output that occurs when all resources are fully employed
What are nonfarm payrolls?
the number of jobs in the private sector and government agencies
Which is a narrow indicator?
the stock price for JPMorgan Chase & Co
What are 4 lagging indicators?
unemployment and intrest rates, real GDP, non-farm payrolls
What is a lagging indicator?
variables that follow the business cycle with a delay
How do you find the change in output gaps? (estimated unemployment rate)
△OG(-1/2)