Macroeconomics Chapter 9
calculate the number of years required for the price level to double.
Given the annual rate of inflation, the "rule of 70" allows one to
8 to 9 years.
If Fred's annual real income rises by 8 percent each year, his annual real income will double in about
$320 billion.
If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is
$510 billion.
If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is
the actual unemployment rate will be higher than the natural unemployment rate.
If actual GDP is less than potential GDP,
$360 billion.
If potential GDP is $330 billion and there is a positive GDP gap of $30 billion, actual GDP is
$385 billion.
If potential GDP is $400 billion and there is a negative GDP gap of $15 billion, actual GDP is
11 percent.
If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is
deflation of 3.33 percent.
If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced
5.8 years.
If the rate of inflation is 12 percent per year, the price level will double in about
cyclical unemployment rate is 4 percent.
If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the
rising real GDP.
In the United States, business cycles have occurred against a backdrop of a long-run trend of
African-American teenagers.
In the United States, the rate of unemployment is highest for
25 percent.
In the depth of the Great Depression, the unemployment rate in the United States was about
capital goods
In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output?
expansion.
In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?
cost-push inflation.
Inflation initiated by increases in wages or other resource prices is labeled
significant innovations occur irregularly and unexpectedly.
Innovations such as the microchip and the Internet lead to business cycle variations because
frictionally unemployed.
Kara voluntarily quit her job as an insurance agent to return to school full time to earn an MBA degree. With degree in hand, she is now searching for a position in management. Kara presently is
B. 12.5 percent.
Members of Underground Economy = 6 Consumer Price Index = 110. Refer to the given information about a hypothetical economy. The unemployment rate is
an unexpected change in the level of total spending.
Most economists agree that the immediate cause of most business cycle variation is
level of total spending.
Most economists agree that the immediate determinant of the volume of output and employment is the
fully employed, and therefore the official unemployment rate may understate the level of unemployment.
Part-time workers who want full-time work are counted as
may involve a locational mismatch between unemployed workers and job openings.
Structural unemployment
Bureau of Labor Statistics.
The government agency responsible for collecting and reporting unemployment data is the
capital goods and durable consumer goods.
The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are
employed workers and persons who are officially unemployed.
The labor force includes
that rate of unemployment occurring when the economy is at its potential output.
The natural rate of unemployment is
B. full-employment unemployment rate.
The natural rate of unemployment is the
a recession.
The phase of the business cycle in which real GDP declines is called
the trough.
The phase of the business cycle in which real GDP is at a minimum is called
demand-pull inflation.
The phrase "too much money chasing too few goods" best describes
may cause the official unemployment rate to understate the true amount of unemployment.
The presence of discouraged workers
durable purchases of durables are postponable.
The production of durable goods varies more than the production of nondurable goods because
FALSE
True / False Questions 132. The production of durable goods is more stable than the production of nondurables over the business cycle.
structural unemployment.
Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called
vary considerably from each other.
Unemployment rates in industrialized nations
is self-limiting.
Unlike demand-pull inflation, cost-push inflation
frictional unemployment.
Wait unemployment and search unemployment are both types of
Prices are sticky in the short run.
What is the primary reason that changes in total spending lead to cyclical changes in output and employment?
structural and frictional unemployment
Which of the following constitute the types of unemployment occurring at the natural rate of unemployment?
A. During the Great Recession, unemployment rates for men rose above those of women.
Which of the following is correct about the Great Recession?
All of these are identified as causes of business cycle changes.
Which of the following is not seen by economists as an underlying cause of business cycle fluctuations?
There are a wide range of theories as to the underlying causes of business cycle movements.
Which of the following statements is true about causes of business cycle fluctuations?
cyclical unemployment
Which of the following types of unemployment is directly associated with insufficient overall demand for goods and services?
high core inflation and low CPI inflation
Which of the following would most likely concern policymakers?
the central bank printing less money than was anticipated.
Which of the following would most likely move the economy into a recession in the short term?
A. demand-pull inflation
Which of the following would most likely occur during the expansionary phase of the business cycle?
B. real income approximates percentage change in nominal income minus percentage change in price level.
100. Which of the following formulas is correct? Percentage change in
D. deflating nominal income for inflation.
101. Real income can be determined by
B. No, because real income may fall if prices increase more proportionately than the increase in nominal income.
103. 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?
D. rise by about 1 percent.
104. Suppose that a person's nominal income rises by 5 percent and the price level rises from 125 to 130. The person's real income will
C. rose by approximately 3 percent.
105. In 2010, Tatum's nominal income rose by 4.6 percent and the price level rose by 1.6 percent. We can conclude that Tatum's real income (1+ nominal)= (1 + Real)* (1+Inflation)4.65 = 3 % + 1.6%
B. Nominal income rises by 2 percent, and the price level remains unchanged.
106. In which of the following cases would real income rise?
A. Nominal income falls by 2 percent, and the price level falls by 10 percent.
107. Under which of the following circumstances would we observe the greatest increase in real income?
A. reduces real output.
108. Cost-push inflation
D. tie wage increases to changes in the price level.
109. Cost-of-living adjustment clauses (COLAs)
B. people tend to hold goods rather than money.
110. During a period of hyperinflation,
A. arbitrarily redistributes real income and wealth
111. Inflation is undesirable because it..
B. an owner of a small business
112. Who is least likely to be hurt by unanticipated inflation?
C. lender correctly anticipates inflation and increases the nominal interest rate accordingly.
113. A lender need not be penalized by inflation if the
A. reduces the real burden of the public debt to the federal government.
114. Unanticipated inflation
A. both the level and the distribution of income.
115. Inflation affects
C. 3 percent.
116. If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is
A. inflation premium is zero.
117. If both the real interest rate and the nominal interest rate are 3 percent, then the
D. 3 percent.
118. 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
D. 7 percent.
119. 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. inflation premium is zero.
120. If the real interest rate and the nominal interest rate are both negative and equal to each other, then the
D. encourage consumption by discouraging saving.
121. Governments imposing negative nominal interest rates are attempting to
C. Wages are flexible upward but sticky downward.
122. (Consider This) Which of the following best explains why unemployment rises significantly during a recession?
A. fewer layoffs during recessions.
123. (Consider This) If wages were more downwardly flexible, then we would expect
A. taxation through inflation.
124. (Consider This) The feudal practice of clipping coins illustrates the idea of
C. inflation imposes a "hidden tax" on those who hold money.
125. (Consider This) The main point of the Consider This box on clipping coins is that
B. during the recessionary phase of the business cycle.
126. (Consider This) Deflation is most likely to occur
C. Deflation can lead to bankruptcies that trigger a downward deflationary spiral.
127. (Consider This) Which of the following statements is most accurate about economists’ concerns about deflation?
Okun's law.
For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of
cannot be determined from the data.
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 rate of inflation
potential output.
Full-employment output is also called
Cost-push inflation
moves the economy inward from its production possibilities curve.
Demand-pull inflation
occurs when total spending exceeds the economy's ability to provide output at the existing price level.
Demand-pull inflation
occurs when total spending in the economy is excessive.
Official unemployment statistics
understate unemployment because discouraged workers are not counted as unemployed.
B. Recovery would take longer than usual because the recession was preceded by a credit bubble.
128. (Last Word) Which of the following statements best represents economists’ predictions about recovery from the Great Recession?
A. 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.
129. (Last Word) Which of the following statements best describes employment changes since the Great Recession?
D. The number of jobs held by people 55 or older increased.
130. (Last Word) Which of the following statements is true about employment during the Great Recession?
C. has favored older employees over younger workers, as employers could hire someone with more experience at the same salary.
131. (Last Word) Growth in employment since the Great Recession
FALSE
133. The business cycle is so named because upswings and downswings in business activity are predictably equal in terms of duration and intensity.
FALSE
134. People who work part time, but desire to work full time, are considered to be officially unemployed.
TRUE
135. The natural rate of unemployment in the United States today is about 5 to 6 percent.
FALSE
136. An annual rate of inflation of 7 percent will double the price level in about 15 years.
FALSE
137. During the past 10 years, the annual rate of inflation in the United States has averaged less than 1 percent.
TRUE
138. If the price level doubled in a 23-year period, we can conclude that the average annual rate of inflation over that period was about 3 percent.
TRUE
139. Unanticipated inflation benefits debtors at the expense of creditors.
TRUE
140. Unanticipated inflation helps some groups in the economy.
FALSE
141. If the nominal interest rate is 8 percent and the real interest rate is 5 percent, then the inflation premium is 13 percent.
TRUE
142. To prompt recovery from the Great Recession, some nations forced their nominal interest rates to be negative.
TRUE
143. A concern about negative nominal interest rates is that they will encourage more saving by people trying to compensate for the negative return on their money saved.
12.5 percent.
53. 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
5 percentage points.
55. 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. If members of the underground economy are currently counted as part of the unemployed when in fact they are employed, the official unemployment rate is overstated by about
C. prices on average are rising, although some particular prices may be falling.
76. Inflation means that
D. is generally more volatile than core inflation.
97. Inflation, as measured by percentage changes in the CPI,
D. dividing nominal income by the price index (in hundredths).
99. Real income is found by
frictionally unemployed.
A college graduate using the summer following graduation to search for a job would best be classified as
a high rate of unemployment.
A large negative GDP gap implies
real domestic output falls.
A recession is defined as a period in which
be in the labor force.
According to the Bureau of Labor Statistics, to be officially unemployed a person must
not in the labor force.
Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is
if prices are sticky.
An unexpected increase in total spending will cause an increase in GDP
dividing the annual rate of inflation into 70.
As applied to the price level, the "rule of 70" indicates that the number of years required for the price level to double can be found by
the long-term expansion or contraction of business activity that occurs over 50 or 100 years.
As it relates to economic growth, the term long-run trend refers to
frictionally unemployed.
Assume that Kyle is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job in two weeks with company B. Kyle will be considered as
8 percent.
Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percentage of potential GDP is
6 percent.
Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is
the economy achieves its potential output.
At the economy's natural rate of unemployment,
3.5 percent.
Between 1980 and 2000, the price level approximately doubled. The average annual rate of inflation over this 20-year period was about
neither significantly higher nor significantly lower.
Compared to other industrial nations, inflation rates in the United States are
tend to fall somewhere in the middle over time.
Compared to other industrial nations, unemployment rates in the United States
underlying increases in the CPI after removing volatile food and energy prices.
Core inflation measures
a negative supply shock.
Cost-push inflation may be caused by
a deficiency of spending on goods and services.
Cyclical unemployment results from
employed.
Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska. That year, Professor Simpson would be officially counted as
the construction industry.
During a severe recession, we would expect output to fall the most in
12 percent.
Potential Real GDP = $200 Billion Natural Rate of Unemployment = 6 Percent Actual Rate of Unemployment = 12 Percent Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable. The size of the negative GDP gap as a percentage of potential GDP for the economy is
the economy had moved from a point inside its production possibilities curve to a point on or very near the curve.
Potential Real GDP = $200 Billion Natural Rate of Unemployment = 6 Percent Actual Rate of Unemployment = 12 Percent Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable.If the unemployment rate in the economy fell to 6 percent, we could conclude that
D. $24 billion.
Potential Real GDP = $200 Billion Natural Rate of Unemployment = 6 Percent Actual Rate of Unemployment = 12 Percent Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable.The amount of output being forgone by the economy is
business cycles.
Recurring upswings and downswings in an economy's real GDP over time are called
cost-push inflation.
Rising per-unit production costs are most directly associated with
rise by about 15 percent.
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
the official unemployment rate will remain unchanged.
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. As a result,
decline.
Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, all else equal, the official unemployment rate would
structural 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
actual GDP and potential GDP
The GDP gap measures the difference between GDP gap = Potential GDP (reflects full employement) - Actual GDP
about 5 to 6 percent of the labor force is unemployed.
The United States' economy is considered to be at full employment when
amount by which potential GDP exceeds actual GDP.
The aggregate cost of unemployment can be measured by the
last year's price index from this year's price index and dividing the difference by last year's price index.
The annual rate of inflation can be found by subtracting
1.6 percent.
The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about
direct.
The relationship between the size of the negative GDP gap and the unemployment rate is
(previous question # )6.9 - 5 % cyclical unemployment is about 2 percent.
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
102 million.
The table contains information about the hypothetical economy of Scoob. All figures are in millions. The labor force in Scoob is
6.9 percent.
The table contains information about the hypothetical economy of Scoob. All figures are in millions. The unemployment rate in Scoob is
cyclical unemployment.
The type of unemployment associated with recessions is called
the percentage of the labor force that is unemployed.
The unemployment rate is
teenagers is much higher than that of adults.
The unemployment rate of
Okun's law
shows the relationship between the unemployment rate and the size of the negative GDP gap.
