Chapter 9 Quiz: Business Cycles, Unemployment, and Inflation

Unemployment that is caused by a decline in total spending is called:

cyclical unemployment.

Hyperinflation is:

extraordinarily rapid inflation.

Cost-push inflation:

factors that raise per-unit production costs at each level of spending. Costs are pushing the price level upwards.

Who is hurt by inflation?

fixed-income receivers, savers, and creditors.

Who is unaffected or helped by inflation?

flexible-income receivers and debtors.

A college graduate using the summer following graduation to search for a job would best be classified as: Answer not officially a member of the labor force. a part of structural unemployment. a part of cyclical unemployment. a part of frictional unemployment.

frictional unemployment.

What are the three types of Unemployment?

frictional, structural, and cyclical.

Inflation:

is a rise in the general level of prices. When inflation occurs, each dollar of income will buy fewer goods and services than before.

Core inflation:

is the underlying inflation rate after volatile food and energy prices have been removed.

Economists say that the economy is fully employed when:

it is experiencing only frictional and structural unemployment.

Structural unemployment consists of:

unemployed workers who find it hard to obtain a new job without retraining, gaining additional education, or relocating.

Frictional unemployment consists of:

workers who are either searching for jobs or waiting to take jobs in the near future.

Rate of inflation =

((207.3 - 201.6) / 201.6) X 100 = 2.8%

CPI =

(price of the most recent market basket in the particular year / price estimate of the market basket in 1982-1984) X 100

In an economy, the price level has doubled in about 70 years. The approximate annual percentage rate of increase in the price level over this period has been: Answer 1 percent. 2 percent. 3 percent. 4 percent.

1 percent.

With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6 percent. But, if the rate of inflation was anticipated to be 4 percent, the bank would most likely charge the firm an annual interest rate of: Answer 2 percent. 4 percent. 6 percent. 10 percent.

10 percent.

The price level has doubled in 35 years. The approximate annual percentage rate of increase in the price level over this period has been: Answer 50 percent. 20 percent. 5 percent. 2 percent.

2 percent.

The economy has an annual inflation rate of 3.5 percent. It will take approximately how many years for the price level to double? Answer 10 years 20 years 25 years 30 years

20 years.

The unemployment rate in an economy is 12 percent. The civilian labor force is 50 million. The number of employed workers in the economy is: Answer 6 million. 24 million. 42 million. 44 million.

44 million.

If the Consumer Price Index was 165 in one year and 175 in the next year, then the rate of inflation from one year to the next was approximately: Answer 4.3 percent. 5.7 percent. 6.1 percent. 7.5 percent.

6.1 Percent

The total population of an economy is 175 million, the labor force is 125 million, and the number of unemployed is 8 million. The unemployment rate for this economy is: Answer 4.6 percent. 5.8 percent. 6.4 percent. 7.8 percent.

6.4 percent.

Several shocks that can cause business cycles:

Irregular innovation, productivity changes, monetary factors, political events, financial instability.

The phases of the business cycles are:

Peak, recession, trough, and expansion.

The labor force consists of:

People who are able and willing to work. Both those who are employed and those who are unemployed but actively seeking work.

Okun's law indicates:

That for every 1 percentage point by which the actual unemployment rate exceeds the natural rate, a negative GDP gap of about 2 percent occurs.

Businesses cycles are:

alternating rises and declines in the level of economic activity, sometime over several years.

Real income is:

a measure of the amount of goods and services nominal income can buy.

GDP gap =

actual GDP - potential GDP The GDP gap can be either negative or positive.

Per-unit production costs =

total input cost / units of output

The unemployment rate is subject to criticism due to:

part-time employment and discouraged workers.

Cost-push inflation reduces:

real output

Demand-pull inflation reduces:

real output. Even low levels of inflation reduce real output.

A period of decline in total output, income, employment, and trade, lasting six months or longer, is defined as a: Answer trough. recession. business cycle. secular trend.

recession.

The main measure of inflation is:

the consumer price index.

Nominal income is:

the number of dollars received as wages, rent, interest, or profit.

The percentage change in one's real income can be approximated by: Answer dividing real income by the price level, expressed as an index number. dividing the price level, expressed as an index number, by nominal income. the percentage change in price level minus the percentage change in nominal income. the percentage change in nominal income minus the percentage change in the price level.

the percentage change in nominal income minus the percentage change in the price level.

The unemployment rate is:

the percentage of the labor force unemployed: unemployment rate = unemployed / labor force X 100

Potential output is:

the real GDP that occurs when the economy is fully employed.

Demand-pull inflation:

too much spending chasing too few goods. Demand is pulling the price level upwards.