OL_ECON_chapter 6

If the average level of nominal income in a nation is $45,000 and the price level index is 180, the average real income would be about:

$25,000

If the average level of nominal income in a nation is $44,000 and the price level index is 175, the average real income would be about:

$25,143

What has been the range of the decline in real output for U.S. recessions since 1950?

- 0.5 percent to - 4.9 percent

Use the information below to answer the following question(s): 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?

1 and 3

The Consumer Price Index was 247 in year 1 and 272 in year 2. The rate of inflation in year 2 was:

10 percent

With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6%. But, if the rate of inflation was anticipated to be 4%, the bank would most likely charge the firm an annual interest rate of:

10 percent

If the annual inflation rate is 5 percent a year, about how many years will it take for the price level to double?

14 years

If the GDP gap is positive, then:

Actual GDP is greater than potential GDP

At the full-employment unemployment rate there is only:

Frictional and structural unemployment

A recession is a decline in:

GDP that lasts six months or longer

A peak in the business cycle:

Is a temporary maximum point

What is the main problem with mild inflation according to some economists?

It diverts productive time towards activities to hedge against inflation

Refer to the above diagram. The phases of the business cycle from points A to D are, respectively:

Peak, recession, trough, expansion

A worker who loses a job at a call center because business firms switch the call center to another country is an example of:

Structural unemployment

Which is a correct statement?

Structural unemployment is unemployment resulting from changes in the structure of consumer demand or technology

Inflation is a rise in:

The general level of prices over time

The percentage change in one's real income can be approximated by:

The percentage change in nominal income minus the percentage change in the price level

Official unemployment rate statistics may:

Understate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment

In what circumstances would lenders most benefit?

When there is an unanticipated decrease in inflation

Which is the correct way to calculate the unemployment rate?

[(unemployed)/(labor force)] x 100

The recurrent ups and downs in the level of economic activity extending over several years are a description of:

a business cycle

Cost-push inflation may be caused by:

a negative supply shock

A college graduate using the summer following graduation to search for a job would best be classified as:

a part of frictional unemployment

The above diagram is best described as an idealized:

business cycle

Real income can be determined by:

deflating nominal income for inflation

Inflation that occurs when total spending is greater than the economy's ability to produce output at the existing price level is:

demand-pull inflation

In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are:

excluded

An annual rate of inflation of 7 percent will double the price level in about 15 years

false

During the past ten years the annual rate of inflation in the United States has averaged less than 1 percent

false

From one year to the next, the Consumer Price Index rose from 140.3 to 144.5. The rate of inflation was therefore 7.1%

false

If the rate of inflation is 7 percent per year, then the price level will double in fourteen years.

false

The economy's GDP gap is negative when actual GDP is greater than potential GDP.

false

The unemployment rate for managerial and professional workers tends to be high

false

Unemployment that is the result of deregulation, corporate downsizing, and the closure of military bases is best categorized as frictional unemployment

false

A cumulative wage-price spiral which produces a rapid increase in the price level of over 100 percent can be characterized as:

hyperinflation

After the First World War, Germany experienced an economic condition which can be best described as:

hyperinflation

Which phase of the business cycle would be most closely associated with an economic contraction?

recession

The higher the rate of unemployment:

the larger is the GDP gap

Deflation is a decline in the price level

true

Economists who are willing to accept mild inflation consider it to be a necessary by-product of high and growing spending that produces high levels of output, full employment, and economic growth

true

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

The unemployment rate in an economy is 7.5 percent. The total population of the economy is 250 million and the size of the civilian labor force is 180 million. The number of employed workers in this economy is:

166.5 million

Use the information below to answer the following question(s): 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 is frictionally unemployed?

1

Use the information below to answer the following question(s): 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 is cyclically unemployed?

2

The price level has doubled in 35 years. The approximate annual percentage rate of increase in the price level over this period has been:

2 percent

You are given the following information about the economy: (1) nominal interest = 8 percent; (2) real rate of interest = 6 percent. The inflation premium is:

2 percent

The economy has an annual inflation rate of 3.5%. It will take approximately how many years for the price level to double?

20 years

Use the information below to answer the following question(s): 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 is structurally unemployed?

3

If the Consumer Price Index was 166.6 in one year and 172.2 in the next year, then the rate of inflation from one year to the next was:

3.4%

In an economy, 35 million workers are employed, the labor force is 50 million, and total population is 70 million. The unemployment rate is:

30 percent

If the Consumer Price Index was 115 in one year and 120 in the next year, then the rate of inflation from one year to the next was:

4.3 percent

The Consumer Price Index was 115 one year and 120 the next year. The rate of inflation from one year to the next was approximately:

4.3 percent

A nation has a population of 300 million people. Of these, 80 million are retired, in the military, in institutions, or under 16 years old. There are 210 million who are employed and 10 million who are unemployed. What is the unemployment rate?

4.5%

The Great Depression of the 1930s resulted in a decline in real GDP of about:

40 percent

The unemployment rate in an economy is 12 percent. The civilian labor force is 50 million. The number of employed workers in the economy is:

44 million

If the Consumer Price Index was 170 in one year and 180 in the next year, then the rate of inflation from one year to the next was approximately:

5.9 percent

What has been the range for the duration in months of U.S. recessions since 1950?

6 months to 16 months

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?

6 percent

If the Consumer Price Index was 165 in one year and 175 in the next year, then the rate of inflation from one year to the next was approximately:

6.1 percent

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:

7 percent

Assuming the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, the unemployment rate is:

8 percent

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

8-9 years

The unemployment rate in an economy is 6%. The total population of the economy is 290 million, and the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is:

9 million

In which industry or sector of the economy is output least likely to be affected by the business cycle?

Agricultural commodities

In calculating the unemployment rate, part-time workers are:

Counted as employed because they are receiving payment for work

When unanticipated inflation occurs:

Creditors are hurt, but debtors benefit

Some economists prefer to use the term business fluctuations rather than business cycles to describe the historical growth record in the United States because:

Cycles imply regularity while fluctuations do not

Inflation caused by an increase in aggregate spending is referred to as:

Demand-pull inflation

In the expansion phase of a business cycle:

Employment and output increase

A trough in the business cycle occurs when:

Employment and output reach their lowest levels

Clipping coins created inflation because:

It increased the money supply

What is an advantage of mild inflation according to some economists?

It makes it easier for firms to adjust real wages downward as demand for their products falls

What are the primary effects of cost-push inflation?

It reduces real output and redistributes a decreased level of real income

A high unemployment rate most likely means that there is a:

Large GDP gap in the economy

Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unanticipated inflation occurs in the economy, then:

Lenders are hurt, but borrowers benefit

The level of total spending is the immediate determinant of the:

Level of real output and employment

The full-employment rate of unemployment is also called the:

Natural rate of unemployment

Unanticipated inflation tends to penalize:

People who save money in financial institutions

The GDP gap measures the amount by which:

Potential GDP exceeds actual GDP

A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment?

cyclical

Inflation caused by a rise in per unit production costs is referred to as:

cost-push inflation

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

A headline reads: "Economy Still in Recession." The type of unemployment most closely associated with this economic condition would be:

cyclical

Proponents of zero inflation argue that even mild inflation (1 to 3 percent) reduces the economy's real output

true

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

rising real GDP

When a group of workers finds that their job skills and work experience have become obsolete and are not needed by industry, this type of unemployment is:

structural

Working as an elevator operator used to be a common job in the workforce four decades ago, but today few jobs remain. The unemployment created by the introduction of automatic elevators would be considered:

structural

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

The nominal interest rate is the sum of the real interest rate and the premium paid to the lender to offset the expected rate of inflation

true

Unanticipated inflation benefits some groups in the economy

true