Chapter 29: Business Cycles, Unemployment, and InflationAssignment

What is the formula for the CPI?

(Price of the most recent market basket/price estimate of the market basket in 1982-1984) x 100

Which of the following describes how to calculate the unemployment rate?

(unemployed/labor force) x 100%

Which of the following are reasons why teenagers have a much higher unemployment rate than adults?

-"Fired" more frequently -Have less geographic mobility -Have lower skill levels -Quit more frequently

Frictional unemployment is inevitable and, in part, desirable because many workers who are voluntarily between jobs are moving to higher-paying, more productive positions that will result in which of the following?

-A higher income for the workers -An increase in GDP -A better allocation of labor resources

Which statements describe how even low levels of inflation may negatively affect real output?

-Businesses incur the costs of changing prices to reflect inflation. -Households and businesses spend time and effort distinguishing between real and nominal wages and interest rates.

Which of the following are excluded from core inflation so that it better reflects the general trend in overall prices?

-Energy products -Food items

According to some economists, which of the following are positive effects of mild inflation?

-Firms will have a strong demand for labor. -Firms have an incentive to expand their plants and equipment.

Which of the following describe why unemployment rates are higher for African Americans and Hispanics than for whites?

-Greater concentration in lower-skilled occupations -Lower rates of educational attainment

What are common characteristics of less-educated workers that contribute to their having higher unemployment rates than workers with more education?

-Having more time between jobs -Working jobs that are vulnerable to cyclical layoff -Working lower-skilled jobs

Which of the following are characteristics of lower-skilled workers?

-Less likely to be self-employed -Longer spells of structural unemployment

Which of the following are consequences of the widespread joblessness of cyclical unemployment?

-Lower morale -Greater ethnic tensions -Increased poverty

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

-Political upheaval -Higher crime, suicide, and divorce rates -Severe psychological costs to the job loser

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

-output -employment

The formula for the rule of 70 that calculates the number of years it will take for the price level to double is ___.

70 divided by the annual percentage increase in the rate of inflation

Those who are working are defined as _____(one word) and those who are not working but actively seeking work are defined as -------(one word).

: employed : unemployed

The formula for the Price Index is the price of the most recent market basket in a particular year divided by the price estimate of the market basket in 1982-1984 multiplied by 100.

Consumer

True or false: The unemployment rate for African Americans and Hispanics is lower than that for whites.

False; The unemployment rate is higher for African American and Hispanics than for whites.

True or False: When an economy experiences negative shocks, in the short run, the economy responds primarily through changes in prices.

False; When an economy experiences negative shocks, the economy is forced to respond to these shocks in the short run primarily through changes in output and employment rather than through changes in prices.

The difference between actual and potential GDP is called a ______ gap.

GDP

How is cost-push inflation unique?

It reduces the overall quantity of real output.

Which of the following is a major factor in preventing the economy from rapidly adjusting to shocks?

Sticky prices

What does the Consumer Price Index (CPI) measure?

The prices of a fixed "market basket" of goods and services

True or false: Hyperinflation is extraordinarily rapid inflation.

True

Which of the following are normally very similar between men and women?

Unemployment rates

Price stickiness is

a major factor preventing the economy from rapidly adjusting to shocks.

The formula for a GDP gap is:

actual GDP minus potential GDP

Business cycles are ______.

alternating increases and decreases in economic activity

A business cycle consists of ______.

alternating rises and declines in the level of economic activity

A key issue in macroeconomics is why the economy sees ______.

business cycle fluctuations rather than slow, smooth growth

The index most widely used by the government and the private sector to measure changes in the cost of living is the:

consumer price index

The rate of inflation is equal to the percentage change of the ______ from one year to the next.

consumer price index

Economists say that the economy is at "full employment" when the ______ unemployment rate is zero.

cyclical

Inflation caused by an excess of total spending beyond the economy's capacity to produce is called:

demand-pull inflation

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

Economic theories are founded on the idea that economic fluctuations are driven by ______.

economic shocks

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

employed; unemployed

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

equals the structural and frictional unemployment rate

Demand-Pull inflation is caused by:

excess total spending

During hyperinflation, the value of money:

falls rapidly

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

fewer

Workers that are unemployed because they are "between jobs" are:

frictionally unemployed

The difference between actual and potential GDP is called a GDP .

gap

One reason teenagers have a higher unemployment rate than adults is because they:

have lower skill levels

Frictional unemployment is ______.

inevitable and, in part, desirable

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

Food and energy prices often complicate the measurement of inflation because supply and demand for these products ______.

often change, creating temporary changes in prices

The basic economic cost of unemployment is forgone ______.

output

Recessions are periods when ______.

output and employment are falling

The phase of the business cycle at which the economy is at or near full employment is known as a(n) .

peak

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

A GDP gap equals actual GDP minus GDP. (Enter one word in the blank)

potential

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

recession

Cost-push inflation can contribute to a recession by increasing prices, which ______.

reduces output and leads to lower employment

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

shocks

The unemployment rates for men and women are normally:

similar

The labor force is the ______.

sum of employed and unemployed

Inflation is a problem because when it occurs:

the "purchasing power" of money is reduced

The unemployment rate equals the percentage of ______.

the labor force that is unemployed

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

the overall unemployment rate

The rate of inflation is equal to:

the percentage growth of CPI from one year to the next.

What is the unemployment rate?

the percentage of the labor force that is unemployed

Frictional unemployment is defined as a type of unemployment that is caused by workers who ______

unemployed as they actively search for a new job.

The portion of the labor force that is not working but is willing and able to work and actively seeking work is defined as ______, and the portion of the labor force that is working part-time or full-time is defined as ______.

unemployed; employed

The unemployment rate is calculated by dividing the number of ______ by the ______ times 100.

unemployed; labor force

Forgone output is a basic economic cost of ______.

unemployment

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

unemployment