Ch 17 Macro Practice Questions

take the value at the peak (the intial value in the contraction) and subtract that from the value at the trough 12.2−12.4= −0.2

(The graph shows one full business cycle for Growthland) Over the course of the year, Growthland experiences a full business cycle. What is the change in GDP during contractions?

How do you caculate the output gap?

(actual output - potential)/ potential

expansion

The movement from point B to point C is called a(n):

A negative output gap implies an unemployment rate that is:

above the equilibrium rate

What is Okun's rule of thumb?

for every 1% the output gap rises, the unemployment rate falls %0.5

A recession does not lead to:

higher employment

The most commonly-referenced indicator of the state of the labor market is:

the unemployment rate

What is the point at which a recession ends and an expansion begins?

trough

take the initial value of the expansion and subtract it from the final value of the expansion: ((12.4−12.1) + (12.8−12.2))= 0.9

(The graph shows one full business cycle for Growthland) Over the course of the year, Growthland experiences a full business cycle. What is the change in GDP during expansions?

Change in GDP formula

(change in GDP/ inital GDP)100

True or False: Recessions are related to GDP, and therefore, are unrelated to business cycles.

False

What is the general trend observed among economic indicators?

Many economic indicators rise and fall together.

A firm's real sales rise by 3% this quarter. Is this a sign of a booming economy?

No, the sales growth might have been negative in the previous quarter.

True or False: Economic growth is typically steady and occurs without many short term fluctuations between expansion and contraction.

True

True or False: It is possible that the economic output associated with a nation's most recent business‑cycle trough is higher than the economic output associated with an earlier business‑cycle peak.

True

True or False: The point at which an economy turns from contraction to expansion is called a business‑cycle depression.

True

True or False: The point at which an economy turns from expansion to contraction is called a business‑cycle peak.

True

What is a leading indicator?

a variable that tends to predict the future path of the economy

You work as an analyst for the Council of Economic Advisors. Your current project is to develop strategies to drive the currently high unemployment rate down to the equilibrium level. This project is necessary because:

actual GDP is below potential GDP

Analysts in your consulting firm concluded that the current rate of unemployment is less than the equilibrium rate, which leads you to conclude that:

actual GDP is greater than potential GDP

How do you caculate cyclical unemployment?

actual unemployment rate − natural rate of unemployment

How is real GDP caculated?

adding all the spending in the economy

What is the consumer price index?

an index of the variation in prices paid by typical consumers for retail goods and other items.

What will fall when the economy is expanding?

applications for unemployment benefits

For the past several months, per capita output has grown more and more slowly, and unemployment has fallen, but both trends appear to have leveled off. Where in the business cycle is the economy?

at a peak

When the output gap is positive, the unemployment rate is:

below the equilibrium unemployment rate

Which indicator is a good predictor of investment?

buisness confidence

Which indicator might be a good predictor of investment?

buisness confidence

Suppose that aggregate output is equal to potential output; the actual unemployment rate is:

equal to the equilibrium unemployment rate

Suppose that an economy is in a recession. You would expect to see real GDP:

fall below potential GDP

What is Okun's rule of thumb for cyclical unemployment and the output gap?

for each 1% increase in cyclical unemployment, the economy loses 2% of output

An economic expansion in the United States is typically associated with a(n):

increase in output

What is the buisness cycle?

short term fulnctuations in economic activity

What is a narrow indicator?

the stock price for JPMorgan Chase & Co.

add the two values to get the total change 0.9+(−0.2)= 0.7

(The graph shows one full business cycle for Growthland) Over the course of the year, Growthland experiences a full business cycle. What is the general trend of GDP over time in Growthland?

How do you caculate the (estimated) unemployment rate from actual and potential output?

(output gap x (- 0.5)) + natural or equilibrium unemployment rate

If the median value of initial unemployment claims is 400,000, which value of initial unemployment claims indicates a particularly strong economy? 335,000; 450,000 or 780,000

335,000 (least ammount)

The relationship between the output gap and cyclical unemployment is expressed by:

Okun's rule of thumb.

What are the 3 leading indicators?

buisness confidence, consumer confidence, the stock market

Which economic indicator tells you weather real wages rise or fall?

consumer price index

Which economic indicator will tell you whether real wages will rise or fall?

consumer price index

Suppose the natural rate of unemployment is 6.6%, and the economy's unemployment rate is at 9.2%. Using Okun's rule of thumb, calculate the output gap.

(output gap= −2 × (cyclical unemployment)) (−2 ×( 9.2% − 6.6%)) -5.2%

The median annual growth in the stock index is 7%. Which annual stock index growth rate indicates a particularly strong economy? (6.8%, 10% or 12.9%)

12.9% (higher annual stock index growth = more flourising economy)

2018

Based on the information in the graph, in which year was the economy MOST likely in an expansion?

2010

Based on the information in the graph, in which year was the output gap probably the most negative?

2020

Based on the information in the graph, in which year(s) did the United States probably have the largest negative output gap?

True or False: Unemployment is typically increasing in the time leading up to a peak.

False

If an economy has a negative output gap of 2%, this means:

GDP is 2% below potential GDP

A firm's real sales rise by 2% this quarter. Is this a sign of a booming economy?

No, this could be a seasonal effect if the data is not seasonally adjusted.

2.1%

Refer to the following table. What was the approximate output gap in 1971?

1.9%

Refer to the following table. What was the approximate output gap in 1999?

If the economy is in a recession, actual output will be _____ potential output.

less than

What is a recession?

period between the peak and the trough of declining economic activity

What is an expansion?

period of increasing economic activity

Which economic indicator tells you how fast the economy is growing?

real GDP growth

Which will rise when the economy is expanding?

real GDP growth

Periods in which output and employment are falling in many industries are called:

recessions

Based on Okun's rule of thumb, if you forecast that the output gap will decline from −2% to −3%, the unemployment rate will:

rise by 0.5%

What are the steps of a buisness cycle?

runs from a peak, through a recession, to a trough, then into an expansion

What is the typical relationship between recessions and expansions in buisness cycles?

short and sharp recessions, followed by long and gradual expansions

As part of your work in the economic forecasting office in the governor's administration, you and another analyst independently produce weekly statements on the state of the labor market. You use moving averages of filings for unemployment to analyze the labor market, whereas your teammate prefers to use weekly data. The result is that your:

summaries reveal more about underlying trends

Which economic indicator tells you how fast wages and benefits are rising?

the employment cost index

What are peaks and troughs?

the high and low points of economic activity

Nonfarm payroll is an important indicator because it tells you how _____ is doing.

the labor market

Potential output is the level of real GDP that:

the level of output that occurs when all resources are fully employed

What are nonfarm payrolls?

the number of jobs in the private sector and government agencies

Which is a narrow indicator?

the stock price for JPMorgan Chase & Co

What are 4 lagging indicators?

unemployment and intrest rates, real GDP, non-farm payrolls

What is a lagging indicator?

variables that follow the business cycle with a delay

How do you find the change in output gaps? (estimated unemployment rate)

△OG(-1/2)