Chapter 11 Business Cycles, Unemployment, and Inflation

B. Cyclical

A headline reads: "Economy Still in Recession." The type of unemployment most closely associated with this economic condition would be: A. Search. B. Cyclical. C. Frictional. D. Structural.

D. Structural

A mismatch between the geographic location of workers and the location of job openings would result in what type of unemployment? A. Wait B. Cyclical C. Frictional D. Structural

B. 6 percent

A nation has a population of 260 million people. Of these, 60 million are retired, in the military, in institutions, or under 16 years old. There are 188 million who are employed and 12 million who are unemployed. What is the unemployment rate? A. 4 percent B. 6 percent C. 9 percent D. 27 percent

B. Recession

A period of decline in total output, income, employment, and trade, lasting six months or longer, is defined as a: A. Trough. B. Recession. C. Business cycle. D. Secular trend.

C. GDP that lasts six months or longer

A recession is a decline in: A. The full-employment unemployment rate over a year. B. The natural rate of unemployment. C. GDP that lasts six months or longer. D. GDP that lasts one year or longer.

C. "Too much money chasing too few goods."

A statement that is often used to describe demand-pull inflation is: A. "A rising tide lifts all boats." B. "Money is easily earned, but not easily saved." C. "Too much money chasing too few goods." D. "It's important to have some skin in the game."

D. Lenders are hurt, but burrowers benefit.

Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unanticipated inflation occurs in the economy, then: A. Both lenders and borrowers benefit. B. Both lenders and borrowers are hurt. C. Borrower's are hurt, but lenders benefit. D. Lenders are hurt, but borrowers benefit.

B. Frictional and structural unemployment

At the full-employment unemployment rate there is only: A. Cyclical and frictional unemployment. B. Frictional and structural unemployment. C. Demand-deficient unemployment. D. "Discouraged workers" unemployment.

D. It increased the money supply

Clipping coins created inflation because: A. It decreased the stock of capital goods. B. It increased the stock of capital goods. C. It decreased the money supply. D. It increased the money supply.

C. A negative supply shock

Cost-push inflation may be caused by: A. A decline in per-unit production costs. B. A decrease in wage rates. C. A negative supply shock. D. An increase in resource availability.

8-9 years

If Fred's annual real income rises by 8 percent each year, his annual real income will double in about: A. 8-9 years. B. 10-11 years. C. 5-6 years. D. 19-20 years.

D. Actual GDP is greater than potential GDP.

If the GDP gap is positive, then: A. The inflation rate is falling. B. The unemployment rate is rising. C. Potential GDP is greater than actual GDP. D. Actual GDP is greater than potential GDP.

C. 30 percent

In an economy, 35 million workers are employed, the labor force is 50 million, and total population is 70 million. The unemployment rate is: A. 15 percent. B. 25 percent. C. 30 percent. D. 50 percent.

A. 1 percent

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: A. 1 percent. B.2 percent. C. 3 percent. D. 4 percent.

B. Counted as unemployed because they are not working full time.

In calculating the unemployment rate, part-time workers are: A. Counted as unemployed because they are not working full time. B. Counted as employed because they are receiving payment for work. C. Included in the labor force but not the unemployment rate. D. Treated the same as "discouraged" workers who are not actively seeking employment.

C. 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: A. Secular unemployment. B. Cyclical unemployment. C. Structural unemployment. D. Frictional unemployment.

C. 1 and 3

The descriptions give the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. 1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month. 2. George works in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in several months when national economic conditions improve. 3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defense spending. She has been looking for similar work for a year, but no company seems interested in her aircraft design skills. 4. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work. Refer to the above information. Which individual would be included in the calculation of the full-employment unemployment rate? A. 1 only B. 2 only C. 1 and 3 D. 2 and 4

C. Wage-push view of inflation.

The view that labor unions may be a source of inflation would be best associated with the: A. Supply-shock view of inflation. B. Cost-push view of inflation. C. Wage-push view of inflation. D. Demand-pull view of inflation.

A. Nominal income falls by 2 percent, and the price level falls by percent.

Under which of the following circumstances would we observe the greatest increase in real income? A. Nominal income falls by 2 percent, and the price level falls by 10 percent. B. Nominal income rises by 8 percent, and the price level rises by 4 percent. C. Nominal income rises by 12 percent, and the price level rises by 15 percent. D. Nominal income falls by 4 percent, and the price level rises by 6 percent.

A. Is self-limiting

Unlike demand-pull inflation, cost-push inflation: A. Is self-limiting. B. Drives up the price level. C. Increases nominal income. D. Increases real income.

A. -0.5 percent to -4.9 percent

What has been the range of the decline in real output for U.S. recessions since 1950? A. -0.5 percent to -4.9 percent B. -5.0 percent to -9.9 percent C. -10.0 percent to -14.9 percent D. -15.0 percent to -19.9 percent

B. Creditors are hurt, but debtors benefit.

When unanticipated inflation occurs: A. Both creditors and debtors benefit. B. Creditors are hurt, but debtors benefit. C. Debtor's are hurt, but creditors benefit. D. Both creditors and debtors are hurt.

B. Structural unemployment results from changes in the structure of consumer demand or technology.

Which is a correct statement? A. Frictional unemployment is the result of frictions between labor and management over how best to perform work. B. Structural unemployment results from changes in the structure of consumer demand or technology. C. Cyclical unemployment is also called wait unemployment because this unemployment depends on the timing of the business cycle. D. Search unemployment is the broadest unemployment category because it covers all other types of unemployment.

B. Real income approximates percentage change in nominal income minus percentage change in price level.

Which of the following formulas is correct? Percentage change in: A. Price level approximates percentage change in real income minus percentage change in nominal income. B. Real income approximates percentage change in nominal income minus percentage change in price level. C. Nominal income approximates percentage change in price level minus percentage change in real income. D. Real income approximates percentage change in price level minus percentage change in nominal income.

C. 7 percent

With no inflation, a bank would be willing to lend a small business firm $5 million at an annual interest rate of 3 percent. But, if the rate of inflation was anticipated to be 4 percent, the bank would charge the firm an annual interest rate of: A. 3 percent. B. 4 percent. C. 7 percent. D. 10 percent.