Macroeconomics Chapter 9

Which of the following are categories by which unemployment rates are broken down?

(1) Education (2) Age (3) Occupation (4) Gender (5) Race and ethnicity (6) Duration

When prices are sticky in the short-run, the economy is forced to respond to shocks in the economy with changes in:

(1) Employment (2) Output

Identify all of the results of unexpected higher total spending in the short-run when prices are sticky.

(1) GDP rises (2) More goods and services are purchased (3) Employment rises (4) Output rises

Which of the following could be considered a cost of unemployment?

(1) Higher crime, suicide, and divorce rates (2) Wasted resources because a worker is not being utilized (3) Severe psychological costs to the job loser

Why do unemployment rates differ among nations at any given time?

(1) Nations may be in a different phase of the business cycle (2) Nations have different natural rates of unemployment

Which of the following explains why the BLS official unemployment rate could be understated?

(1) Part-time workers are considered fully employed

Which of the following explain why flexible-income receivers may be unaffected or benefit by unanticipated inflation?

(1) They receive COLAs (2) Demand-pull inflation may cause some nominal incomes to increase faster than inflation and lead to real income increases (3) Their incomes may automatically increase when CPI increases (4) Business owner's profits may rise if product prices rise faster than resource prices

According to McConnell, which of the following are reasons why teenagers have a much higher unemployment rate than adults?

(1) more frequently "fired" (2) quit more frequently (3) lower skill levels (3) less geographic mobility

An expansion is a period in which:

(1) output rises (2) the price level may rise

Which of the following are hurt by unanticipated inflation?

(1) savers (2) creditors (3) fixed-income recipients

Several possible sources of shocks that can cause business cycles include

(1) unexpected political events (2) monetary factors (3) irregular innovation (4) productivity changes

What describes how to calculate the unemployment rate?

(unemployed/ labor force) x 100%

In the short-run, when prices are sticky an unexpected decrease in total spending will cause:

- A reduction in the number of items that are purchased - Unemployment to rise - GDP to decline - Firms to cut back on production - Firms to sell fewer units of output

Identify all the results of unexpected higher total spending in the short run when prices are sticky.

- GDP rises - Employment Rises - Output rises - More goods and services are purchased

If the inflation rate is 3% and the real interest is 5%, then the nominal interest rate is:

8%

GDP Gap=

Actual GDP- potential GDP

Which of the following explain why flexible-income receivers may be unaffected or benefit by unanticipated inflation?

All but cost-push

When prices are sticky in the short run, which of the following is a result of an unexpected increase in total spending?

An increase in income

The official unemployment rate is understated because it does not count which of the following as unemployed?

Discouraged workers

When the economy experiences negative shocks, in the short run, the economy responds primarily through changes in prices. T/F

False

Which of the following is a consequence of unexpected lower total spending in the shirt-run when prices are sticky ?

Firms sell fewer units of output

Winners and losers

Fixed-Income Recievers - Losers - real earnings deteriorate Savers - Losers - real value of their assets goes away Creditors - losers- see above Flexible income receivers - winners - long Debtors - winners - real income increases

Which of the following is inevitable and, at least in part, desirable?

Frictional unemployment

__________ unemployed workers live in areas where jobs exist and they have marketable skills while __________ unemployed workers do not.

Frictionally; Structurally

The economy attains ____ when the unemployment rate eaquals the natural rate of unemployment.

Full employment

If the level of total spending unexpectedly sinks,

GDP will fall, output, employment and income will fall.

On average, unemployment rate among less- educated workers are ____ than workers with more education.

Greaater

The long-run trend of the U.S economy is expansion and economic _____.

Growth

__________ redistributes total real income.

Inflation

__________ reduces the purchasing power of money.

Inflation

The number of persons unemployed for long periods as a percentage of the labor force is ____ the overall unemployment rate.

Lower than

Why the economy sees business cycle fluctuations rather than slow, smooth growth is a central issue of:

Macroeconomics

Business cycles are:

Movements of GDP above or below trends

The basic economic cost of unemployment is forgone______.

Output

When prices are sticky in the short-run, the economy is forced to respond to shocks in the economy with changes in :

Output and Employment

Recessions are periods when:

Output and employment are falling

The phase of the business cycle when the economy is near or at full employment and the level of real output is at or near capacity is called a :

Peak

- Irregular innovation - Unexpected political events - Productivity changes - Monetary factors - Financial instability Are possible sources of _____ that can cause business cycles include

Shocks

Unexpected events that drive economic cycles and fluctuations are called economic_____

Shocks

Which of the following is a major factor in preventing the economy from rapidly adjusting to shocks? A)Sticky Inflation B) Inflation C)Unemployment

Sticky prices

The natural rate of unemployment is generally thought of as the :

Sum of the frictional unemployment and structual unemployment rates

What does the Consumer Price Index (CPI) measure?

The cost of living over time

It is widely accepted that the immediate cause of large cyclical changes in the levels of output and employment is the level of unexpected:

Total spending

Full employment is something Less than 100% employment of the labor force. T/F

True

Workers in lower-skilled occupations have higher ___ rates than workers in higher - skilled occupations.

Unemployment

A business cycle is:

a period of alternating rises and declines in the level of economic activity

An expansion usually follows what in the business cycle?

a recession

Inflation is when there is:

a rising aggregate price level

A business cycle is:

a short-run alternation between economic upturns and downturns

a discouraged worker is

a worker who, after seeking employment for some time, becomes frustrated and drops out of the labor force

Okun's law indicates that for every percentage point by which the __________ unemployment rate exceeds the __________ rate, a negative GDP gap of about 2% occurs.

actual; natural

business cycles

are movements of GDP above or below trends

Savers are hurt by unanticipated inflation because:

as price rises, the real value of savings decreases

Savers are hurt by unanticipated inflation because:

as prices rise, the real value of savings decrease

Cost-of-living adjustments are

automatic wage changes based on the CPI which are included in some union contracts

Irregular innovation, monetary factors, unexpected changes in the levels of total spending, political events, financial instability and productivity changes are all sources of __________ __________ fluctuations.

business cycle

A key issue in macroeconomics is why the economy sees:

business cycle fluctuations rather than slow, smooth growth.

Inflation caused by an increase in the per-unit production costs at each level of total spending is called:

cost-push

Changes in unemployment that occur as the economy expands and contracts is called:

cyclical unemployment

full employment occurs when there is no

cyclical unemployment

Economists say that the economy is at " Full employment" when the:

cyclical unemployment rate is zero

Economists say that the economy is at "full employment" when the:

cyclical unemployment rate is zero

Unanticipated inflation benefits debtors because:

debtors pay back loans with less valuable dollars

Too much spending chasing too few goods is the essence of __________-__________ inflation.

demand-pull

A worker who, after unsuccessfully seeking employment for some time, becomes frustrated and drops out of the labor force is defined as a __________ worker.

discouraged

official unemployment rate is understated because it does not count

discouraged workers

The rule of 70 says that the number of years it will take for some metric to double, given its annual percentage increase, can be found by

dividing 70 by the annual percentage increase

The labor force is the sum of the __________ and __________.

employed; unemployed

When prices are sticky in the short-run, the economy is forced to respond by changes in

employment and output

An economy is " fully employed" when the unemployment rate ____.

equals the structural and frictional unemployment rate

The long-run trend of the us economy is

expansion and growth

When inflation occurs, each dollar of income will buy __________ goods and services than before.

fewer

What is a consequence of unexpected lower total spending in the short-run when prices are sticky?

firms sell fewer units of output

When inflation occurs, people with __________ incomes see their real incomes fall.

fixed

When inflation occurs _________, people with incomes see their real incomes ________.

fixed and fall

The basic economic cost of unemployment is

forgone output

Workers that are unemployed because they are "between jobs" are a part of:

frictional unemployment

workers that are unemployed because they are "between jobs" are

frictionally unemployed

The Bureau of Labor Statistics lists all part-time workers as:

fully employed

The difference between actual and potential GDP is the GDP:

gap

The long-run trend of the U.S. economy is expansion and __________.

growth

On average, less-educated workers have _________ unemployment rates than workers with more education.

higher

workers in lower skilled occupations have

higher unemployment rates than workers in higher-skilled occupations

Real income will be affected:

if the changes in the price level differs from the change in a person's nominal income

What is the result of unexpected higher total spending in the short-run when prices are sticky?

incomes rise

Frictional unemployment is:

inevitable and in part desirable

__________ redistributes total real income

inflation

_______________ reduces the purchasing power of money.

inflation

business cycle fluctuations include

irregular innovation, monetary factors, unexpected changes in the levels of total spending, political events, financial instability, and productivity changes

sources of shocks that cause recessions include

irregular innovation, productivity changes, monetary factors, political events, and financial instability

full employment

is something less than 100% employment of the labor force

Full employment is __________ 100 percent employment of the labor force.

less than

Since frictional and structural unemployment are mostly unavoidable, full employment is ____ 100 %employment of the labor force.

less than

why the economy sees business cycle fluctuations rather than slow, smooth growth is a central issue of

macroeconomics

When the expected rate of inflation is added to the real interest rate, the result is called the __________.

nominal interest rate

The interest rates quoted in the market are known as

nominal interest rates

durable consumer goods are more affected by the business cycle than

nondurable consumer goods

People who are __________ are hurt by unanticipated inflation.

on fixed incomes, savers, creditors

When prices are sticky in the short-run, the economy is forced to respond by changes in...

output employment

When prices are sticky in the short-run, the economy is forced to respond by changes in:

output and employment

An expansion is a period in which:

output rises & the price level may rise

If the level of spending unexpectedly rises

output, employment, and income will also rise.

It is widely accepted that the immediate cause of large cyclical changes in the levels of __________ and __________ is the level of unexpected total spending.

output; employment

The phase of the business cycle at which the economy is at full employment is known as a

peak

the phase of the business cycle at which the the economy is at full employment is know as a

peak

A GDP gap equals actual GDP minus __________ GDP.

potential

Real income equal nominal income divided by the __________ ___________.

price index

Real income equals nominal income divided by the

price level

Inflation exists when there is an increase in __________ over a sustained period of time.

prices

Deflation is a great economic problem because:

prices and wages fall but debts remain the same

__________ income will be affected if the change in the price levels differs from the change in a person's nominal income.

real

Income that has been adjusted for changes in prices over time is called:

real income

Inflation redistributes:

real income

Cost-push inflation will reduce supply and lower real output and employment which will eventually generate an economic __________.

recession

In the trough of a ____________, output and employment "bottom out" at their lowest levels.

recession

The phase of the business cycle that describes a decline in total output, income and employment is called a(n):

recession

The phase of the business cycle that describes a decline in total output, income, and employment is called a

recession

The phase of the business cycle that describes a decline in total output, income, and unemployment is called a

recession

Unexpected events that drive economic cycles and fluctuations are called economic

shocks

Unexpected events that drive economic cycles and fluctuations are called economic:

shocks

economic theories are founded on the idea that economic fluctuations are driven by

shocks

A major factor in preventing the economy from rapidly adjusting to shocks

short-term sticky prices

The portion of unemployment that is due to the mismatch between skills and jobs is called:

structural

The labor force is the

sum of the employed and unemployed

The natural rate of unemployment is generally thought of as the:

sum of the frictional unemployment and structural unemployment rates

The major source of cost-push inflation has been so called _________ shocks.

supply

The major source of cost-push inflation has been so-called __________ shocks.

supply

The number of persons unemployed for long periods as a percentage of the labor force is lower than :

the over all unemployment rate

The number of persons unemployed for long periods of as a percentage of the labor force is much lower than

the overall unemployment rate

The labor force is:

the sum of the employed and unemployed

it is widely accepted that the immediate cause of cyclical changes in the levels of output and employment is the level of unexpected

total spending

A __________ of a recession is when output and employment "bottom out" at their lowest levels.

trough

a ____ of a recession is when output and employment "bottom out" at their lowest levels

trough

by counting part-time workers as fully employedm the BLS;s official unemployment rate is

understated

The unemployment rate can be most accurately described as the number of _______ divided by the labor force multiplied by 100.

unemployed

The unemployment rate can be mostly accurately described as the number of __________ divided by the labor force multiplied by 100.

unemployed

A discouraged worked is a(n)

unemployed worker, no longer seeking actively work

Forgone output is a basic economic cost of ______ .

unemployment

Forgone output is a basic economic cost of __________.

unemployment

The economy attains full employment when the

unemployment rate equals the natural rate of unemployment