ECON201 CHapter 9
Inflation means that
prices on average are rising although some particular prices may be falling
The phase of the business cycle in which real GDP declines is called
recession
Full-Time Employed = 80 Part-Time Employed = 25 Unemployed = 15 Discouraged Workers = 5 Members of Underground Economy = 6 Consumer Price Index = 110 Refer to the given information about a hypothetical economy. The unemployment rate is
12.5 percent
If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is a) $510 billion b) $490 billion c) $10 billion d) $990 billion
a) $510 billion
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) 33 percent c) 91 percent d) 10 percent
a) 11 percent
The GDP gap measures the difference between
actual GDP and potential GDP
The aggregate cost of unemployment can be measured by the
amount by which potential GDP exceeds actual GDP.
In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?
expansion
Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 The table contains information about the hypothetical economy of Scoob. All figures are in millions. The labor force in Scoob is a) 95 million b) 102 milliom c) 105 million d) 145 million
b) 102 million
According to the Bureau of Labor Statistics, to be officially unemployed a person must
be in the labor force
Recurring upswings and downswings in an economy's real GDP over time are called
business cycles
If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is a) $360 billion b) $660 billion c) $320 billion d) $20 billion
c) $320 billion
The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about a) 2.8 percent b) 3.4 percent c) 1.6 percent d) 4.1 percent
c) 1.6 percent
If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is a) 8 percent b) 5 percent c) 3 percent d) 2 percent
c) 3 percent
Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 The table contains information about the hypothetical economy of Scoob. All figures are in millions. If the natural rate of unemployment in Scoob is 5 percent, then a) structural unemployment is about 3 percent b) frictional unemployment is about 2 percent c) cyclical unemployment is about 2 percent d) hidden unemplyment is about 5 percent
c) cyclical unemployment is about 2 percent
The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are
capital goods and durable consumer goods.
The MPC can be defined as that fraction of a
change in income that is spent
If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to
consume is three-fifhs
Inflation initiated by increases in wages or other resource prices is labeled
cost-push inflation
Rising per-unit production costs are most directly associated with
cost-push inflation
The type of unemployment associated with recessions is called
cyclical unemployment
Suppose the nominal annual interest rate on a two-year loan is 8 percent and lenders expect inflation to be 5 percent in each of the two years. The annual real rate of interest is a) 6 percent b) 8 percent c) 2 percent d) 3 percent
d) 3 percent
Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 The table contains information about the hypothetical economy of Scoob. All figures are in millions. The unemployment rate in Scoob is a) 2.5 percent b) 3.2 percent c) 5.0 percent d) 6.9 percent
d) 6.9 percent
If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced a) inflation of 4 percent b) inflation of 3.33 percent c) defaltion of 3.33 percent d) deflation of 4 percent
deflation of 3.33 percent
The phrase "too much money chasing too few goods" best describes
demand-pull inflation
An unexpected increase in total spending will cause an increase in GDP
if prices are sticky
demand-pull inflation
occurs when total spending exceeds the economy's ability to provide output at the existing price
Okun's Law
shows the relationship between the unemployment rate and the size of the negative GDP gap
Innovations such as the microchip and the Internet lead to business cycle variations because
significant innovations occur irregularly and unexpectedly.
Which of the following constitute the types of unemployment occurring at the natural rate of unemployment?
structural and frictional unemployment
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
structural unemployment
At the economy's natural rate of unemployment,
the economy achieves its potential output.
The phase of the business cycle in which real GDP is at a minimum is called
the trough