Macroeconomics chapter 9

18. If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is:

$510 billion.

34. 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:

. 3 percent.

9. Unemployed 7 , Total Population 145, Employed 95, Discouraged workers. Refer to the above information. The unemployment rate in Scoob is:

. 6.9 percent.

3. The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are:

. capital goods and durable consumer goods.

29. Cost-of-living adjustment clauses (COLAs):

. tie wage increases to changes in the price level.

22. The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:

1.6 percent.

8. Unemployed 7 , Total Population 145, Employed 95, Discouraged workers. Refer to the above information. The labor force in Scoob is:

102 million.

7. Which of the following would most likely move the economy into a recession in the short term?

The central bank printing less money than was anticipated.

16. Which of the following is correct?

The unemployment rates of men and women workers are roughly the same

31. Who is least likely to be hurt by unanticipated inflation?

a disabled laborer who is living off accumulated savings

4. The phase of the business cycle in which real GDP declines is called:

a recession.

21. Inflation means that:

prices on average are rising, although some particular prices may be falling.

33. If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is:

3 percent.

23. Between 1980 and 2000 the price level approximately doubled. The average annual rate of inflation over this 20-year period was about:

3.5 percent.

15. Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is:

6 percent.

24. If Fred's annual real income rises by 8 percent each year, his annual real income will double in about:

8-9 years.

6. Which of the following is not seen by economists as an underlying cause of business cycle fluctuations?

All of these are identified as causes of business cycle changes.

19. The relationship between the size of the negative GDP gap and the unemployment rate is:

direct.

20. 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:

Okun's law

26. 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 acquiring increases in the nominal incomes of its members through collective bargaining. Is the critic correct?

No, because real income may fall if prices increase more proportionately than the increase in nominal income.

28. In which of the following cases would real income rise?

Nominal income rises by 2 percent, and the price level remains unchanged.

10. The United States' economy is considered to be at full employment when:

about 4-5 percent of the labor force is unemployed.

30. Inflation is undesirable because it:

arbitrarily redistributes real income and wealth.

1. Recurring upswings and downswings in an economy's real GDP over time are called:

business cycles.

37. (Last Word) A burst stock market bubble might adversely affect the economy by:

causing a severe negative wealth effect, leading to pessimism about the economy's future.

36. (Last Word) Changes in stock market prices:

do not greatly impact the macroeconomy and used alone are not reliable predictors of the future health of the economy.

17. 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:

employed.

5. In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

expansion

14. Part-time workers are counted as:

fully employed and therefore the official unemployment rate may understate the level of unemployment.

32. A lender need not be penalized by inflation if the:

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

12. Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is:

not in the labor force

25. 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:

rise by about 15 percent.

2. In the United States, business cycles have occurred against a backdrop of a long-run trend of:

rising real GDP.

27. In 2005, 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:

rose by approximately 3 percent.

35. (Last Word) Declines in stock prices measured by the Dow Jones average:

sometimes precede recessions; sometimes do not.

11. The unemployment rate of:

teenagers is much higher than that of adults.

13. Official unemployment statistics:

understate unemployment because discouraged workers are not counted as unemployed.