ECO Chapter 8

the expansion phase of the business cycle usually consists of

(1) rise in sales (2) rapid GDP growth (3) decline in unemployment

the level of output that can be achieved and sustained in the future, given the size of the labor force, its natural rate of unemployment consistent with the efficient operation of the labor market

potential output

thought of as the maximum sustainable output level consistent with the full employment of resources currently available in the economy

potential output

What will most likely occur during the expansionary phase of a business cycle?

real GDP rises and unemployment falls

In the business cycle a contraction is leading to a

recessionary trough

High and variable inflation will ________ investment

reduce

Frictional unemployment results from

scarce information about job opportunities and the time it takes to acquire that information.

Full employment is the situation in which the economy operates at an unemployment rate equal to the sum of

structural and frictional unemployment.

A general mismatch between the skills of unemployed workers and the skills needed by employers with job openings results in

structural unemployment

In the early 1990s, the U.S. government substantially reduced defense expenditures. The resulting unemployment of defense-related workers, who possessed skills no longer needed by the economy, is an example of

structural unemployment

unemployment due to the structural characteristics of the economy that make it difficult for job seekers to find employment and for the employers to hire workers

structural unemployment

The natural rate of unemployment equals

the sum of frictional and structural unemployment

When real GDP grows more slowly than potential GDP,

the unemployment rate rises.

The unemployment rate equals the number of persons

unemployed divided by the number in the labor force.

The labor force participation rate is defined as the number of

unemployed individuals plus employed individuals divided by the number of individuals in the working-age population.

how to calculate unemployment rate

unemployed/labor force x 100

In a properly operating, dynamic economy

we would expect to have some unemployment due to normal structural and frictional factors

Structural unemployment means that

worker qualifications do not match available jobs.

If unemployment in the United States was approximately 5 percent, most economists would believe that the economy was

at or near full employment

unemployment due to recessionary business conditions and inadequate labor demand

cyclical unemployment

The recessionary phase of the business cycle is characterized by

decreasing real output and increasing unemployment.

How to calculate the Labor force

employed + unemployed

which calculation do economists use to monitor labor market conditions?

employment/population ratio

The period of growth in real GDP between the trough of the business cycle and the next peak is called the

expansionary phase

When information about potential jobs is costly to acquire and individuals must spend time searching for jobs, which type of unemployment will result?

frictional

The type of unemployment resulting from the fact that labor market information is less than perfect is called

frictional unemployment

Unemployment caused by people voluntarily quitting work in order to seek more attractive employment is called

frictional unemployment

is present even when labor markets are working well.

frictional unemployment

unemployment due to constant changes in the economy that prevent qualifies unemployed workers from being immediately matched up with existing job openings

frictional unemployment

During a recession, the actual rate of unemployment will be

greater than the natural rate of unemployment.

The actual rate of unemployment will generally ____ as an economy enters a recession

increase

Actual GDP during recessions

is less than potential GDP

The natural rate of unemployment

is the rate of unemployment present when the economy is operating at full employment

how to calculate labor force participation rate

labor force/working age population x 100

During an economic boom period, the actual rate of unemployment will be

less than the natural rate of unemployment.

results from normal dynamic changes given the institutional arrangements of the economy.

natural rate of unemployment

the 'normal' unemployment rate due to frictional and structural conditions in labor markets

natural rate of unemployment

A person is considered unemployed if she is

not working but is actively looking for work

During a recession, which of the following will be true? (a) The actual rate of unemployment will be lower than the natural rate. (b) Actual GDP will be lower than potential GDP. (c) The employment/population ratio will increase substantially. (d) Actual inflation will be higher than was anticipated.

(b) actual GDP will be lower than potential GDP

During periods of high and variable inflation, which of the following is unlikely to occur? a. Resources will be diverted from economically productive activities toward activities designed to protect individuals from inflation. b. Individuals will find it difficult to know whether a price change is due to the general inflation or due to shifts in supply or demand in a given market. c. Individuals will want to make long-term contracts in order to enjoy the benefits of higher prices. d. Some resources will be wasted as suppliers have to reprint menus and price catalogs to reflect the new, higher prices.

(c) Individuals will want to make long-term contracts in order to enjoy the benefits of higher prices.

Which of the following will most likely occur during the contractionary phase of a business cycle? (a) Real GDP rises, and the unemployment rate falls. (b) Real GDP declines, and the rate of inflation rises. (c) The sales of most businesses decline, and the unemployment rate rises. (d) Inflation rises, and employment/population ratio falls.

(c) The sales of most businesses decline, and the unemployment rate rises.

The natural rate of unemployment a. is fixed; it cannot be changed with public policy. b. fluctuates substantially over the business cycle. c. is associated with the economy's maximum sustainable output rate. d. declines when youthful workers (under age 25) become a larger proportion of the labor force

(c) is associated with the economy's maximum sustainable output rate.

Which of the following would be officially classified as unemployed? a. a school administrator who has been working as a substitute teacher one day per week while looking for a full-time job in administration b. a mathematician who returned to graduate school after failing to find a job the last four months c. a 60-year-old former steel worker who would like to work but has given up actively seeking employment d. None of the above would be officially classified as unemployed.

(d) none of the above would be officially classified as unemployed

Suppose the population (age 16 and over) of Vietnam is 10 million; 500,000 are unemployed, and 4 million hold jobs. The labor force participation rate in Vietnam is

45%

Suppose the population (age 16 and over) of the Philippines is 100 million; 5 million are unemployed, and 70 million hold jobs. The labor force participation rate in the Philippines is

75%

In a modern dynamic economy such as the United States, full employment generally means

approximately 95 percent of the labor force is employed.

How will increased usage of the Internet by employers and employees influence the job search process?

It will make job-related information less costly and, therefore, tend to reduce the rate of unemployment.

Inflation is best described as

a sustained increase in the general level of prices as indicated by a price index.

Which of the following is true? a. During a boom, the natural rate of unemployment falls below the actual rate of unemployment. b. During a boom, the output of the economy will exceed its long-run potential output. c. During a boom, there will be widespread unemployment. d. During a boom, the actual rate of unemployment will exceed the natural rate of unemployment.

b. During a boom, the output of the economy will exceed its long-run potential output

The period of declining growth in real GDP between the peak of the business cycle and the trough is called the

contractionary phase

The type of unemployment that occurs because of a recession is called

cyclical unemployment

The primary cause of frictional unemployment is

the lack of and cost of acquiring information about available job opportunities.

The labor force participation rate is

the number of persons 16 years of age and older who are either employed or actively seeking work divided by the total noninstitutional population 16 years of age and older.

The definition of the unemployment rate is

the percentage of persons in the civilian labor force who are not employed.