Macro Ch 7

A. business cycle.

6. The above diagram shows different phases of the: A. business cycle. B. cyclical variation. C. recession cycle. D. prosperity cycle.

C. a recession.

1. The phase of the business cycle in which real domestic output declines is called: A. the peak. B. an expansion. C. a recession. D. the trough.

A. service industry

10. In which industry or sector of the economy is output least likely to be affected by the business cycle? A. service industry B. automobile industry C. textile industry D. petroleum industry

A. employed workers and persons who are officially unemployed.

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

C. the official unemployment rate will remain unchanged.

12. Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. We can conclude that: A. the official unemployment rate will fall. B. the official unemployment rate will rise. C. the official unemployment rate will remain unchanged. D. the size of the labour force will increase.

C. may cause the official unemployment rate to understate the amount of unemployment.

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

D. fully employed and therefore the official unemployment rate tends to understate the level of unemployment.

14. Part-time workers are counted as: A. unemployed and therefore the official unemployment rate tends to overstate the level of unemployment. B. unemployed and therefore the official unemployment rate tends to understate the level of unemployment. C. fully employed and therefore the official unemployment rate tends to overstate the level of unemployment. D. fully employed and therefore the official unemployment rate tends to understate the level of unemployment.

B. frictionally unemployed.

15. Assume Smith is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Smith will be considered as: A. cyclically unemployed. B. frictionally unemployed. C. secularly unemployed. D. employed.

C. is in the process of voluntarily switching jobs.

16. The best example of a "frictionally unemployed" worker is one who: A. reduces productivity by causing frictions in a business. B. is laid off during a recessionary period in the economy. C. is in the process of voluntarily switching jobs. D. is discouraged and not actively seeking work.

C. structural unemployment.

17. Eckstein has lost her job in a Quebec textile plant because of import competition. She intends to take a short course in electronics and move to B.C. where she anticipates new jobs will be available. We can say that Eckstein is faced with: A. secular unemployment. B. cyclical unemployment. C. structural unemployment. D. frictional unemployment.

D. employed.

18. Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in P.E.I. That year, Professor Simpson would be officially counted as: A. structurally unemployed. B. frictionally unemployed. C. not in the labour force. D. employed.

C. cyclical unemployment rate is 1.5 percent.

19. If the unemployment rate is 9 percent and the natural rate of unemployment is 7.5 percent, then the: A. frictional unemployment rate is 7.5 percent. B. cyclical unemployment rate and the frictional unemployment rate together are 7.5 percent. C. cyclical unemployment rate is 1.5 percent. D. natural rate of unemployment will eventually increase.

C. the trough

2. The phase of the business cycle where real domestic output is at a minimum is called: A. the peak. B. a recession. C. the trough. D. the pits.

C. may change from one decade to another.

20. The natural rate of unemployment: A. is fixed over time. B. is found by adding the cyclical and structural unemployment rates. C. may change from one decade to another. D. cannot be changed through public policy.

C. a high rate of unemployment.

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

C. potential output.

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

C. Teenagers experience approximately the same unemployment rates as do adults.

23. Which of the following is not correct? A. The Canadian unemployment rates of male and female workers are roughly the same. B. The unemployment rate for teenagers is higher than that of adults. C. Teenagers experience approximately the same unemployment rates as do adults. D. lower-skilled workers are more vulnerable to unemployment than are higher-skilled workers

D. higher are the education level and the skill of workers

24. The rate of unemployment tends to be lower the: A. slower the economy grows. B. the younger the workers are. C. lower are the education level and the skill of workers. D. higher are the education level and the skill of workers.

B. measures changes in the prices of a market basket of some 600 goods and services purchased by urban consumers.

25. The consumer price index (CPI): A. is an average of the prices of all consumer goods purchased each year. B. measures changes in the prices of a market basket of some 600 goods and services purchased by urban consumers. C. measures prices of goods, but not services since services don't fit into a market basket. D. is also known as the GDP price index.

B. dividing the annual rate of inflation into "70."

26. As applied to the price level, the "rule of 70" indicates that the number of years required for the price to double can be found by: A. dividing "70" into the annual rate of inflation. B. dividing the annual rate of inflation into "70." C. subtracting the annual change in nominal incomes from "70." D. multiplying the annual rate of inflation by "70."

D. calculate the number of years required for the price level to double.

27. Given the annual rate of inflation, the "rule of 70" allows one to: A. determine whether the inflation is demand-pull or cost-push. B. calculate the accompanying rate of unemployment. C. determine when the value of a real asset will approach zero. D. calculate the number of years required for the price level to double.

A. can occur before the economy has reached its full-employment output.

28. Demand-pull inflation: A. can occur before the economy has reached its full-employment output. B. can occur only after the economy has reached its full-employment output. C. can be present even during an economic depression. D. is self-limiting.

B. No, because real income may fall if price increases are more proportionately than the increase in nominal income.

29. Recently a labour 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 acquiring significant 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. No, because real income may fall if price increases are more proportionately than the increase in nominal income. C. No, because real income may fall if price increases are less proportionately than the increases in nominal income. D. Yes, because real income may fall if price increases are less proportionately than the increases in nominal income.

B. recession

3. Which phase of the business cycle would be most closely associated with an economic contraction? A. peak B. recession C. trough D. expansion

C. lender correctly anticipates inflation and increases the nominal interest rate accordingly.

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

C. is a temporary maximum point.

4. A peak in the business cycle: A. occurs when the unemployment rate is its greatest. B. occurs when the inflation rate is its lowest. C. is a temporary maximum point. D. is a temporary minimum point.

D. real domestic output falls.

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

D. peak, recession, trough, expansion.

7. Refer to the above diagram. The phases of the business cycle from points A to D are, respectively: A. peak, recession, expansion, trough. B. trough, expansion, expansion, peak. C. expansion, recession, trough, peak. D. peak, recession, trough, expansion.

B. growth trend.

8. Refer to the above diagram. The straight line E drawn through the wavy lines would provide an estimate of the: A. recession fluctuation. B. growth trend. C. natural rate of unemployment. D. expansion trend.

D. the machinery and equipment

9. During a serious recession we would expect output to fall the most in: A. the alcoholic beverage industry. B. the clothing industry. C. agriculture industry. D. the machinery and equipment industry.