Chapter #9 Review Question [Macroeconomics]

(Last Word) Which of the following statements best represents economists' predictions about recovery from the Great Recession? A)Recovery would take longer than usual because the recession was preceded by a credit bubble. B)Bursting of the credit bubble would facilitate recovery by creating greater price flexibility. C)Recovery of output growth would be rapid, but employment growth would be slow. D)Recovery would occur quickly because of continued rapid advances in technology.

A

(Last Word) Which of the following statements is true about employment during the Great Recession? A) The number of jobs held by people 55 or older increased. B) Women lost jobs at a higher rate than men. C) Older workers lost jobs at a higher rate than younger workers. D) Employment for all age groups fell.

A

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

A

According to the Bureau of Labor Statistics, to be officially unemployed a person must A) be in the labor force. B) have lost a job. C) be 21 years of age or older. D) be waiting to be called back from a layoff

A

Cost-push inflation may be caused by A) a negative supply shock. B) a decline in per-unit production costs. C) an increase in resource availability. D) a decrease in wage rates.

A

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is A) 11 percent. B) 91 percent. C) 33 percent. D) 10 percent

A

Inflation initiated by increases in wages or other resource prices is labeled A) cost-push inflation. B) demand-pull inflation. C) cost-pull inflation. D) demand-push inflation.

A

Inflation, as measured by percentage changes in the CPI A) is generally more volatile than core inflation. B) is generally less volatile than core inflation. C) does not include the most price-flexible goods in the economy. D) concerns policymakers more than the level of core inflation.

A

The natural rate of unemployment is the A) full-employment unemployment rate. B) unemployment rate experienced by the most-skilled workers in the economy. C) unemployment rate experienced at the depth of a depression. D) unemployment rate experienced by the least-skilled workers in the economy.

A

The phase of the business cycle in which real GDP declines is called A) a recession. B) the peak. C) the trough. D) an expansion.

A

The phrase "too much money chasing too few goods" best describes A) demand-pull inflation. B) cost-push inflation. C) the GDP gap. D) the inflation premium.

A

The presence of discouraged workers A)may cause the official unemployment rate to understate the true amount of unemployment. B) reduces the size of the labor force but does not affect the unemployment rate. C) increases the size of the labor force but does not affect the unemployment rate. D)may cause the official unemployment rate to overstate the true amount of unemployment.

A

What is the primary reason that changes in total spending lead to cyclical changes in output and employment? A) Prices are sticky in the short run. B) Prices are flexible in the long run. C) Government is unable to respond by changing the amount of money in circulation. D) Changes in total spending cause supply shocks that cause cyclical variation.

A

A college graduate using the summer following graduation to search for a job would best be classified as A) cyclically unemployed. B) frictionally unemployed. C) structurally unemployed. D) not officially a member of the labor force.

B

A lender need not be penalized by inflation if the A) short-term rate of inflation is less than the long-term rate of inflation. B)lender correctly anticipates inflation and increases the nominal interest rate accordingly. C) inflation is unanticipated by both borrower and lender. D) long-term rate of inflation is less than the short-term rate of inflation.

B

A recession is defined as a period in which A) nominal domestic output falls. B) real domestic output falls. C) demand-pull inflation is present. D) cost-push inflation is present.

B

Core inflation measures A)changes in the prices of the most commonly used goods, including food and energy. B) underlying increases in the CPI after removing volatile food and energy prices. C)underlying changes in the CPI, after accounting for the price volatility of high-tech goods. D) changes in key input prices

B

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates? A) peak B) expansion C) recession D) trough

B

Part-time workers who want full-time work are counted as A)unemployed, and therefore the official unemployment rate may understate the level of unemployment. B)fully employed, and therefore the official unemployment rate may understate the level of unemployment. C)fully employed, and therefore the official unemployment rate may overstate the level of unemployment. D)unemployed, and therefore the official unemployment rate may overstate the level of unemployment.

B

The production of durable goods varies more than the production of nondurable goods because A) producers of durables are highly competitive. B) durable purchases of durables are postponable. C) durable purchases of durables are not postponable. D) the producers of nondurables have monopoly power

B

Which of the following would most likely occur during the expansionary phase of the business cycle? A) cost-push inflation B) demand-pull inflation C) structural inflation D) frictional inflation

B

The type of unemployment associated with recessions is called A) structural unemployment. B) seasonal unemployment. C) cyclical unemployment. D) frictional unemployment.

C

(Last Word) Which of the following statements best describes employment changes since the Great Recession? A)The unemployment rate remains persistently higher than what it was at the start of the recession. B)The ratio of employed to the population has risen above prerecession levels, as families have attempted to repay debt and rebuild wealth. C)The unemployment rate has recovered to prerecession levels, but this masks the fact that many full-time jobs have been replaced by part-time employment. D)Employment growth since the recession has tended to favor younger, cheaper workers.

C

Cost-of-living adjustment clauses (COLAs) A) apply only to demand-pull inflation. B) invalidate the "rule of 70." C) tie wage increases to changes in the price level. D) increase the gap between nominal and real income.

C

Cost-push inflation A) increases real output. B) reduces the unemployment rate. C) reduces real output. D) raises the natural rate of unemployment.

C

Cyclical unemployment results from A) technological change. B)the everyday dynamics of a free labor market, with workers voluntarily changing jobs. C) a deficiency of spending on goods and services. D)the decreasing relative importance of goods and the increasing relative importance of services in the U.S. economy.

C

Full-employment output is also called A) equilibrium output. B) zero-unemployment output. C) potential output. D) zero-savings output.

C

Real income is found by A) multiplying nominal income by 1.03. B) dividing the price index (in hundredths) by nominal income. C) dividing nominal income by the price index (in hundredths). D) dividing nominal income by 70.

C

Recently, a labor union argued that the standard of living of its members was falling. A critic of the union argued that this could not possibly be true because the union had been receiving increases in the nominal incomes of its members through collective bargaining. Is the critic correct? A)Yes, because when you have a large nominal income, your standard of living automatically increases. B)Yes, because real income may fall if prices increase less proportionately than the increases in nominal income. C)No, because real income may fall if prices increase more proportionately than the increase in nominal income. D)No, because real income may fall if prices increase less proportionately than the increases in nominal income.

C

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will A) rise by about 25 percent. B) fall by about 20 percent. C) rise by about 15 percent. D) fall by about 2 percent.

C

Suppose that lenders want to receive a real rate of interest of 5 percent and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of A) 5 percent. B) 2 percent. C) 7 percent. D) 3 percent.

C

The GDP gap measures the difference between A) NI and PI. B) NDP and GDP. C) actual GDP and potential GDP. D) nominal GDP and real GDP.

C

The labor force includes A) permanent employees but excludes temporary employees. B) full-time workers but excludes part-time workers. C) employed workers and persons who are officially unemployed. D) employed workers but excludes persons who are officially unemployed.

C

The natural rate of unemployment is A) found by dividing total unemployment by the size of the labor force. B) higher than the full-employment rate of unemployment. C) that rate of unemployment occurring when the economy is at its potential output. D) lower than the full-employment rate of unemployment.

C

(Last Word) Growth in employment since the Great Recession A)increased rapidly so that wages in 2015 were substantially higher than the prerecession wages. B) has largely restored the full-time jobs lost during the recession. C)has favored younger workers over older workers, as employers could hire younger workers for less pay. D)has favored older employees over younger workers, as employers could hire someone with more experience at the same salary.

D

Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is A) unemployed. B) in the labor force. C) employed. D) not in the labor force.

D

Demand-pull inflation A) occurs when prices of resources rise, pushing up costs and the price level. B) occurs only when the economy has reached its absolute production capacity. C) is also called cost-push inflation. D) occurs when total spending exceeds the economy's ability to provide output at the existing price level.

D

During a severe recession, we would expect output to fall the most in A) the health care industry. B) agriculture. C) the clothing industry. D) the construction industry

D

In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output? A) military goods B) textile products C) agricultural commodities D) capital goods

D

Inflation is undesirable because it A) usually is accompanied by declining real GDP. B) reduces everyone's standard of living. C) invariably leads to hyperinflation. D) arbitrarily redistributes real income and wealth

D

Innovations such as the microchip and the Internet lead to business cycle variations because A) they cause prices to be flexible. B) they cause prices to be sticky. C) the central bank will often change the money supply in response. D) significant innovations occur irregularly and unexpectedly.

D

Most economists agree that the immediate cause of most business cycle variation is A) the growth and subsequent bursting of financial bubbles. B) an unexpected change in the productivity of workers. C) the invention of new products. D) an unexpected change in the level of total spending.

D

Okun's law A)indicates the number of years it will take for a constant rate of inflation to double the price level. B)measures the trade-off between the rate of inflation and the rate of unemployment. C) quantifies the relationship between nominal and real incomes. D)shows the relationship between the unemployment rate and the size of the negative GDP gap.

D

Recurring upswings and downswings in an economy's real GDP over time are called A) recessions. B) output yo-yos. C) total product oscillations. D) business cycles

D

Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon, where she anticipates that a new job will be available. We can say that Susie is faced with A) seasonal unemployment. B) frictional unemployment. C) cyclical unemployment. D) structural unemployment.

D

The aggregate cost of unemployment can be measured by the A) excess of nominal GDP over real GDP. B) excess of real GDP over nominal GDP. C) amount by which actual GDP exceeds potential GDP. D) amount by which potential GDP exceeds actual GDP.

D

The government agency responsible for collecting and reporting unemployment data is the A) Bureau of Economic Analysis. B) Bureau of Economic Research. C) Bureau of Unemployment. D) Bureau of Labor Statistics.

D

Which of the following is not seen by economists as an underlying cause of business cycle fluctuations? A) shocks to the money supply by the nation's central bank B) unexpected financial bubbles that eventually burst C) supply shocks caused by major innovations D) All of these are identified as causes of business cycle changes.

D