Chapter 2 Test Review

As a general rule, a recession occurs when there is a 6 consecutive month fall in:

Real GDP

Economic growth is measured by the annual percentage increase in a nations level of

Real GDP

Define Real GDP

Real GDP adjusts for changes in general level of prices due to inflation

What happens in a recovery phase in the business cycle?

Real GDP rises, and unemployment falls. Recovery- mass employment, high income, high real GDP

Increased production, but not increased inflation, will result in higher:

Real gdp

The largest component of household consumption spending is expenditures on:

Services

The real interest rate is defined as the

nominal interest rate minus the inflation rate `

According to the expenditure approach, the largest component of GDP is

personal consumption expenditures

The consumer price index compares the:

prices of consumer goods and services that a household purchases to the price of those goods and services purchased in a base year

If a sizable number of workers were switched from full time to part time then the unemployment rate would

remain unchanged unemployment rate does not include full time vs. part time

When people become unemployed because of a higher minimum wage this type of unemployment is called

structural

In periods of high inflation

the purchasing power of money is decreasing

National income includes:

the sum of all payments made to resource owners for the use of their resources

Losers from inflation include

those on fixed income and savers

The portion of the four circular flow model which shows the flow of funds from savers to borrowers is the

Financial market

What is true about four sector circular models?

Money flows from government to firms for goods and services

The lower portion of the circular flow model contains factor markets in which households provide:

Natural resources, labor, capital

The unemployment rate will increase whenever there is

an increase in the number of unemployed persons relative to the size of the labor force

Price indexes like CPI are calculated using a base year. The term base year refers to

arbitrarily chosen reference year

The natural rate of unemployment occurs if there is no

cyclical unemployment NRU = Frictional + Structural

The likely result of a economy operating at full employment is

demand pull inflation

cost push inflation is due to

increases in production costs

Frictional unemployment is for people that are

new, reentrants, contract, cyclical workers