ECO 111 Ch. 10

When there is a recessionary gap, capital and labor resources are: A. misallocated. B. producing beyond their capacity. C. not being fully utilized. D. decreasing in number.

C. not being fully utilized. When there is a recessionary gap, capital and labor resources are not being fully utilized, and output and employment are below maximum sustainable levels.

Indicators of economic activity that move at the same time as the overall economy are called ________ indicators. A. real B. short-term C. long-term D. coincident

D. coincident "Coincident indicators" of economic activity go up when the economy expands and go down when the economy contracts.''

In reference to short-term economic fluctuations, the "trough" refers to: A. the low point of economic activity prior to a recovery. B. the low point of economic activity prior to a downturn. C. a period in which the economy is growing at a rate significantly below normal. D. a particularly strong and protracted recession.

''The trough of a business cycle is the end of a recession (the low point of economic activity prior to a recovery) and the beginning of an expansion. A. the low point of economic activity prior to a recovery.

The economy of Omega operates according to Okun's law. In Omega, the actual and the natural rates of unemployment both equal 5 percent, and potential GDP equals $10 trillion. What is real GDP in Omega? A. $10.0 trillion B. $10.5 trillion C. $9.5 trillion D. $9.0 trillion

A. $10.0 trillion Since the actual rate of unemployment in Omega equals the natural rate of unemployment, the economy is operating at its potential, so real GDP is $10.0 trillion.

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. (A) July 1953 1992.2 (B) May 1954 1941.0 (C) Apr. 1957 2182.7 (D) Apr. 1958 2117.4 (E) Apr. 1960 2391.0 A. (A), (C), and (E) B. (B) and (D) C. (C), (D), and (E) D. (A), (B), and (C)

A. (A), (C), and (E)

The economy of Alpha operates according to Okun's law. In Alpha, potential GDP equals $500 billion, actual GDP equals $480 billion, and the natural rate of unemployment is 5 percent. What is the actual rate of unemployment in Alpha? A. 7 percent B. 4 percent C. 1 percent D. 3 percent

A. 7 percent Alpha's potential GDP is $500 billion, but actual GDP is 4 percent less than this because ($480 billion ÷ $500 billion) - 1 = -0.04. Using Okun's law, a 4 percent negative output gap means that actual unemployment is 2 percentage points higher than the natural rate of 5 percent.

In the figure, a business cycle trough is shown by which point(s)? A. A and C and E. B. B and D C. A only D. D only

A. A and C and E. Points A, C and E are local minimums in the business cycle, thus they are troughs

In the figure, which interval represents a business cycle recession? A. B to C B. A to C C. A to B D. B to D

A. B to C The interval B to C shows the period a peak and a trough, which is the definition of a business cycle recession.

Which of the following does not describe a characteristic of short-term economic fluctuations? Select one: A. Expansions and recessions are irregular in length and severity. B. The unemployment rate rises during recessions. C. Expansions and recessions are felt in only a few sectors of the economy. D. Durable-goods industries are more sensitive to short-term fluctuations than service and non-durable industries.

A. Expansions and recessions are irregular in length and severity.

The proposition each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output, is known as: A. Okun's law. B. the Fisher effect. C. the recessionary gap. D. the expansionary gap.

A. Okun's law. Okun's law describes the relationship between cyclical unemployment and the output gap: each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output.

Which of the following workers is least likely to lose his/her job during a recession? A. Police officer B. Carpenter C. Roofer D. Automobile assembly line worker

A. Police officer Some sectors are less adversely affected by recession than others. Government and service workers are less likely to lose their jobs or work fewer hours during a recession.

A depression is: A. a particularly severe and protracted recession. B. a particularly strong and protracted expansion. C. the high point of economic activity prior to a downturn. D. the low point of economic activity prior to a recovery.

A. a particularly severe and protracted recession. A particularly strong and protracted recession is known as a depression.

A boom is: A. a particularly strong and protracted expansion. B. a particularly severe and protracted recession. C. the high point of economic activity prior to a downturn. D. a period in which the economy is growing at a rate significantly below normal.

A. a particularly strong and protracted expansion. ''A boom is a particularly strong and protracted expansion.

A country's actual output ________ its potential output. A. can only temporarily exceed B. can never exceed C. is always be approximately equal to D. can never fall below

A. can only temporarily exceed For limited periods, a country's actual output can exceed its potential output, but this condition is not sustainable.

According to Okun's law, each extra percentage point of ________ unemployment is associated with a ________ widening of a negative output gap, measured in relation to potential output. A. cyclical; 2 percent B. cyclical; 0.5 percent C. frictional; 2 percent D. frictional; 0.5 percent

A. cyclical; 2 percent Okun's law describes the relationship between cyclical unemployment and the output gap: each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output.

The aging of the labor force in the United States is likely to ________ the natural rate of unemployment; an increase in the efficiency of the labor market is likely to ________ the natural rate of unemployment. A. decrease; decrease B. increase; decrease C. decrease; increase D. increase; increase

A. decrease; decrease Older workers are less likely to be unemployed than are younger workers, and more efficient labor markets are better at matching workers to jobs. Both of these tend to reduce the natural rate of unemployment.

When actual output is greater than potential output there is a(n): A. expansionary gap. B. budget deficit. C. budget surplus. D. recessionary gap.

A. expansionary gap. A positive output gap or "expansionary gap" occurs when actual output is higher than potential output (Y > Y*).''

The unemployment rate for younger workers is usually ________ the unemployment rate for older workers. A. higher than B. approximately equal to C. lower than D. more predictable than

A. higher than Younger workers have less experience in the workplace and their bouts of unemployment are more frequent.

In a recession, cyclical unemployment: A. is rising. B. is falling. C. equals the natural rate of unemployment. D. exceeds the natural rate of unemployment.

A. is rising. In a recession, the actual unemployment rate exceeds the natural unemployment rate, so cyclical unemployment, u - u*, is positive.

In the short run, total spending affects ________, and in the long run total spending affects ________. A. output; prices B. prices; output C. output; unemployment D. prices; unemployment

A. output; prices In the short run, total spending can influence real variables like output. In the long run, however, total spending can only influence nominal variables like prices.

Economic activity moves from a period of expansion to a ________ and then moves into a period of ________ until it reaches a ________. A. peak, recession; trough B. trough; recession; peak C. trough; expansion; peak D. peak; expansion; trough

A. peak, recession; trough The sequence of activity in the business cycle is from expansion to peak, falling into recession and finally reaching a trough.

A recession occurs when ________, when ________, or when both of these occur. A. potential output grows slowly; actual output falls below potential output B. potential output grows rapidly; actual output equals potential output C. potential output grows slowly; actual output rises above potential output D. potential output grows rapidly; actual output falls below potential output

A. potential output grows slowly; actual output falls below potential output When potential output grows more slowly than desired, conditions are ripe for a recession. A more obvious cause of a recession is when actual output falls below potential output.

When actual output is less than potential output there is a(n): A. recessionary gap. B. budget surplus. C. budget deficit. D. trade deficit.

A. recessionary gap. A negative output gap or ''recessionary gap'' occurs when potential output exceeds actual output (Y < Y*).

If real GDP is less than potential GDP, then: A. the actual unemployment rate is greater than the natural rate of unemployment. B. the actual unemployment rate equals zero. C. the output gap is positive. D. the actual unemployment rate is less than the natural rate of unemployment.

A. the actual unemployment rate is greater than the natural rate of unemployment. If real GDP is less than potential GDP, there is a recessionary output gap and the actual unemployment rate exceeds the natural rate of unemployment.

In reference to short-term economic fluctuations, the "peak" refers to: A. the high point of economic activity prior to a downturn. B. a period in which the economy is growing at a rate significantly above normal. C. the high point of economic activity prior to a recovery. D. a particularly strong and protracted expansion.

A. the high point of economic activity prior to a downturn. ''The peak of a business cycle is the end of an expansion and the beginning of a recession; the high point of economic activity prior to a downturn.

The end of a recession is called the: A. trough. B. boom. C. expansion. D. peak.

A. trough. The trough of a business cycle is the end of a recession and the beginning of an expansion.''

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. (A) July 1953 . 1992.2 (B) May 1954 . 1941.0 (C) Apr. 1957 2182.7 (D) Apr. 1958 2117.4 (E) Apr. 1960 2391.0 Which of the turning points are troughs? A. (A), (C), and (E) B. (B) and (D) C. (A), (B), and (C) D. (C), (D), and (E)

B. (B) and (D) Troughs are followed by an expansion. Higher real GDP at the turning points immediately after (B) and (D) show the results of the expansions.

According to Okun's law, when cyclical unemployment increases from 2 to 3 percent, the recessionary gap widens from ________. A. -2 percent to -3 percent B. -4 percent to -6 percent C. 0 percent to 1 percent D. 4 percent to 6 percent

B. -4 percent to -6 percent According to Okun's law, each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap. In this case, the original recessionary gap must have been -4 percent. When cyclical unemployment rises 1 percent, the recessionary gap widens by 2 percent to -6 percent.

If the natural rate of unemployment equals 5 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals: A. 1.2 percent. B. 1 percent. C. -1 percent. D. 11 percent.

B. 1 percent. Cyclical unemployment is the difference between the actual rate of unemployment (u) and the natural rate of unemployment (u*); in this case u - u* equals 1 percent.

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 3 percent, then the output gap equals: A. 1 percent. B. 2 percent. C. -2 percent. D. -1 percent

B. 2 percent. Okun's law states that each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output. In this case the economy is operating with -1 percent cyclical unemployment, so it has a +2 percent output gap.

In Okunland, a country whose economy operates according to Okun's law, real GDP equals $7,520 billion, potential GDP equals $8,000 billion, and the actual unemployment rate is 8 percent. What is the natural rate of unemployment in Okunland? A. 11 percent B. 5 percent C. 6 percent D. 2 percent

B. 5 percent This problem applies Okun's law. Output is 6 percent below its potential because $7,520 billion ÷ $8,000 billion = 0.94. Each percentage point of unemployment above its natural rate translates to a 2 percentage point negative output gap, so the unemployment rate must be 3 percentage points above the natural rate.

If the actual rate of unemployment equals the natural rate of unemployment, then: A. potential output is greater than real GDP. B. potential output equals real GDP. C. there is a recessionary gap. D. potential output is less than real GDP.

B. potential output equals real GDP. If the actual rate of unemployment equals the natural rate of unemployment, there are no output gaps and the economy is operating at its potential GDP.

Which of the following is most likely to occur in the labor market during a recession? A. The supply of labor increases dramatically. B. The growth rate of real wages declines. C. Bonuses and promotions become more frequent. D. New entrants to the labor market have an easier time finding jobs.

B. The growth rate of real wages declines. During a recession there is falling demand for labor, and this creates slack in employment levels and causes the growth rate of real wages to decline.

An expansion is: A. a period in which the economy is growing at a rate significantly below normal. B. a period in which the economy is growing at a rate significantly above normal. C. the low point of economic activity prior to a recovery. D. the high point of economic activity prior to a downturn.

B. a period in which the economy is growing at a rate significantly above normal. Expansion is the phase of a business cycle characterized by above-normal economic growth.

Cyclical unemployment is equal to zero when: A. there is no expansionary gap. B. actual GDP and potential GDP are equal. C. there is no recessionary gap. D. frictional unemployment equals structural unemployment.

B. actual GDP and potential GDP are equal. There is no cyclical unemployment when actual GDP and potential GDP are equal because in this case the actual unemployment rate equals the natural rate of unemployment.

Contrary to behavior that would be required to eliminate output gaps, many firms in the economy: A. only change the amount of output they produce in the long run, not in the short run. B. adjust their prices only periodically. C. have fully-flexible prices that change constantly. D. intentionally set prices below equilibrium prices in order to create shortages.

B. adjust their prices only periodically. Prices are 'sticky' in many cases, which reduces the economy's ability to adapt to changing demand conditions.

Economic activity moves from a trough into a period of ________ until it reaches a ________ and then into a period of ________. A. recession; peak; expansion B. expansion; peak; recession C. recession; trough; expansion D. expansion; trough; recession.

B. expansion; peak; recession Starting with the trough, the economy experiences an expansion until a peak is reached, and then it falls into recession.

Short-term economic fluctuations are ________ in length and severity and ________ to predict. A. regular; easy B. irregular; difficult C. irregular; easy D. regular; difficult

B. irregular; difficult Because the causes of recessions are not always clear, they are unpredictable and their depth and length vary.

According to Okun's law, when cyclical unemployment is positive, the output gap: A. equals the rate of cyclical unemployment. B. is negative. C. equals zero. D. is positive.

B. is negative. When cyclical unemployment is positive the output gap is negative because the actual unemployment rate exceeds the natural unemployment rate.

According to Okun's law, when cyclical unemployment is negative, the output gap: A. is negative. B. is positive. C. equals zero. D. equals the rate of cyclical unemployment.

B. is positive. When cyclical unemployment is negative the economy is performing above its potential and the output gap is positive.

According to Okun's law, when the output gap is negative, cyclical unemployment: A. is negative. B. is positive. C. equals structural unemployment. D. equals frictional unemployment.

B. is positive. When the output gap is negative, cyclical unemployment is positive because the actual unemployment rate exceeds the natural unemployment rate.

The beginning of a recession is called the: A. trough. B. peak. C. depression. D. expansion.

B. peak. The peak of a business cycle is the end of an expansion and the beginning of a recession.''

An expansion occurs when ________, when ________, or when both of these occur. A. potential output grows slowly; actual output rises above potential output B. potential output grows rapidly; actual output rises above potential output. C. potential output grows rapidly; actual output equals potential output D. potential output grows slowly; actual output equals potential output

B. potential output grows rapidly; actual output rises above potential output. When potential output grows rapidly, conditions are ripe for an economic expansion. Also, when actual output rises above potential output, an expansion occurs.

A period in which the economy is growing at a rate significantly below normal is called a(n): A. peak. B. recession. C. expansion. D. boom.

B. recession. A period in which the economy is growing at a rate significantly below normal is called a recession or a contraction.''

If potential output for an economy equals $8 billion, and actual output equals $7 billion, then this economy has a(n): A. trade deficit. B. recessionary gap. C. budget deficit. D. expansionary gap.

B. recessionary gap. A negative output gap or "recessionary gap" occurs when potential output exceeds actual output (Y < Y*).

If actual GDP equals potential GDP, then: A. the actual unemployment rate is less than the natural rate of unemployment. B. the actual unemployment rate equals the natural rate of unemployment. C. the actual unemployment rate is greater than the natural rate of unemployment. D. there is a recessionary gap.

B. the actual unemployment rate equals the natural rate of unemployment. If actual GDP equals potential GDP, there are no output gaps and the economy is at full employment.

In determining the beginning of recessions, the NBER Business Cycle Dating Committee looks for evidence of decline in: A. the stock market. B. the entire economy. C. specific sectors of the economy. D. the rate of inflation.

B. the entire economy. The NBER Business Cycle Dating Committee looks for evidence from the entire economy, not just individual sectors.

Potential output is: A. also known as the output gap. B. the maximum sustainable amount of output. C. equal to actual output. D. the same as the natural rate of unemployment.

B. the maximum sustainable amount of output. "Potential output" is the maximum sustainable amount of output that an economy can produce.

If the output gap equals 1.8 percent, then: A. cyclical unemployment equals the sum of structural and frictional unemployment. B. there is an expansionary gap. C. there is significant cyclical unemployment. D. potential GDP exceeds actual GDP.

B. there is an expansionary gap. When the output gap is positive, the economy is producing beyond its potential. This is called an expansionary gap.

The economy of Alpha operates according to Okun's law. In Alpha, potential GDP equals $500 billion, actual GDP equals $520 billion, and the natural rate of unemployment is 5 percent. What is the actual rate of unemployment in Alpha? A. 1 percent B. 4 percent C. 3 percent D. 7 percent

C. 3 percent Alpha's potential GDP is $500 billion, but actual GDP is 4 percent more than this because ($520 billion ÷ $500 billion) - 1 = 0.04. Using Okun's law, a 4 percent positive output gap means that actual unemployment is 2 percentage points lower than the natural rate of 5 percent.

Suppose the natural rate of unemployment is 4 percent. What is the actual rate of unemployment if actual output is 2 percent above potential output? A. 2 percent B. 0 percent C. 3 percent D. 6 percent

C. 3 percent This problem applies Okun's law. If output is 2 percent above its potential, then unemployment is one percent below its full-employment level of 4 percent.

In the figure, which interval represents a business cycle expansion? A. A to C B. B to D C. A to B D. B to C

C. A to B The interval A to B shows the period between a trough and a peak, which is the definition of a business cycle expansion.

Which of the following workers is most likely to lose his/her job during a recession? A. Farmer B. Baker C. Construction worker D. Barber

C. Construction worker Some sectors are more adversely affected by recession than others. Construction workers are more likely to lose their jobs or work fewer hours during a recession, because construction projects can be delayed

The increase in the unemployment rate during a recession is associated with which type of unemployment? A. Nominal unemployment B. Frictional unemployment C. Cyclical unemployment D. Structural unemployment

C. Cyclical unemployment ''Cyclical unemploymen't' is the deviation of employment from its normal (non-recession) level.

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. (A) July 1953 1992.2 (B) May 1954 1941.0 (C) Apr. 1957 2182.7 (D) Apr. 1958 2117.4 (E) Apr. 1960 2391.0 The economy experienced an expansion that lasted from: A. May 1954 to April 1958. B. July 1953 to May 1954. C. May 1954 to April 1957. D. July 1953 to April 1957.

C. May 1954 to April 1957.

Recessions begin at ________ and end at ________. A. a trough; a peak B. the lowest unemployment rate; the highest unemployment rate C. the highest unemployment rate; the lowest unemployment rate D. a peak; a trough

D. a peak; a trough A recession is the period of time from the peak of economic activity to the trough; changes in the unemployment rate tend to lag behind the business cycle.

Industrial production, total sales, nonfarm employment, and after-tax household income are examples of ________ indicators of economic activity. A. real B. lagged C. coincident D. preceding

C. coincident ''Coincident indicators'' of economic activity go up when the economy expands and go down when the economy contracts.

A period in which the economy is growing at a rate significantly above normal is called a(n): A. peak. B. depression. C. expansion. D. recession.

C. expansion. ''Expansion is the phase of a business cycle characterized by above-normal economic growth.

If potential output equals $8 billion and actual output equals $9 billion, then this economy has a(n): A. trade deficit. B. recessionary gap. C. expansionary gap. D. budget deficit.

C. expansionary gap. When actual output exceeds potential output, there is an expansionary gap.

According to the Congressional Budget Office, from the 1970s to the 2000s, the natural rate of unemployment in the United States: A. increased. B. remained relatively stable. C. fell. D. fell to zero, and has since become negative.

C. fell. The natural rate of unemployment in the United States fell steadily from 6.3 percent in 1979 to about 4.8 percent in 2007

Recessions tend to be ________ by ________ the rate of inflation. A. preceded; a decrease in the stability of B. followed; an increase in C. followed; a decrease in D. neither preceded nor followed; any change in

C. followed; a decrease in A decrease in the rate of inflation indicates that demand has weakened. Recessions tend to be followed soon after by a decline in the rate of inflation.

In the long run, total spending only influences: A. actual output. B. productive capacity. C. inflation. D. potential output.

C. inflation. In the long run, changes in total spending do not influence real variables like economic capacity, but only influence nominal variables like inflation.

Workers in durable-goods industries are ________ workers in service industries to lose their jobs during a recession. A. less likely than B. much less likely than C. more likely than D. equally likely as

C. more likely than Durable goods purchases can often be postponed until a recession is over. Thus, industries that make durable goods, like cars and appliances, are more vulnerable to business cycles than are other industries, such as service industries.

Typically, the unemployment rate ________ during a recession and ________ during an expansion. A. rises; does not change B. falls; rises C. rises; falls D. rises; rises even more

C. rises; falls The unemployment rate usually rises during a recession and falls during an expansion, albeit with a lag.

The decline in the natural rate of unemployment between the 1970s and the 2000s might be the result of: A. greater quantities of human capital and increased average labor productivity. B. increasing wage inequality and skill-biased technological change. C. the changing age structure of the population and more efficient labor markets. D. advances in computer technology and globalization.

C. the changing age structure of the population and more efficient labor markets. The natural rate of unemployment in the United States fell steadily from 6.3 percent in 1979 to about 4.8 percent in 2007. This is probably due to an older, more experienced workforce and better information about job availability.

An informal definition of a recession is at least ________ consecutive quarters of declining real GDP. A. eight B. six C. two D. four

C. two A recession is sometimes defined informally as two consecutive quarters of declining real GDP.''

According to Okun's law, when cyclical unemployment increases by one percentage point, the recessionary gap ________ by ________ percent of potential output. A. widens; one B. closes; one C. widens; two D. closes; two

C. widens; two Okun's law states that each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output.

In Macroland, a country whose economy operates according to Okun's law, potential GDP equals $10 trillion, the actual rate of unemployment is 8 percent, and the natural unemployment rate is 6 percent. What is real actual GDP in Macroland? A. $9.8 trillion B. $10 trillion C. $10.2 trillion D. $9.6 trillion

D. $9.6 trillion This problem applies Okun's law. Actual unemployment is 2 percentage points above the natural rate. This results in a 4 percent negative output gap. Since GDP potential is $10 trillion, actual GDP is 96 percent of this, or $9.6 trillion.

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 5 percent, then real GDP must be: A. $104 trillion. B. $96 trillion. C. $102 trillion. D. $98 trillion.

D. $98 trillion.

If potential output for an economy equals $8 billion and actual output equals $7 billion, then this economy's output gap should be expressed as: A. -$1 billion. B. 12.5 percent. C. $1 billion. D. -12.5 percent.

D. -12.5 percent. An output gap is measured relative to potential output and it is calculated according to the formula [(Y - Y*) ÷ Y*] ×100. In this case, the output gap is [($7 billion - $8 billion) ÷ $8 billion] ×100 = -12.5 percent.

According to Okun's law, when cyclical unemployment increases from 1 percent to 2 percent, the recessionary gap increases from ________. A. 2 percent to 4 percent B. 1 percent to 2 percent C. -1 percent to -2 percent D. -2 percent to -4 percent

D. -2 percent to -4 percent According to Okun's law, each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap. In this case, the original recessionary gap must have been -2 percent. When cyclical unemployment rises 1 percent, the recessionary gap widens by 2 percent to -4 percent.

Since 1925, the longest expansion in the United States lasted: A. 60 months. B. 21 months. C. 43 months. D. 120 months.

D. 120 months. Since 1925, the longest expansion in the United States began in 1991 and lasted 10 years.

The longest expansion of the United States economy since 1925 began in: A. 1982. B. 1945. C. 1961. D. 1991.

D. 1991. The economy grew for 120 months between 1991 and 2001, with particularly strong growth from 1995 to 2000.

If there is 3 percent frictional unemployment, 4 percent structural unemployment, and -2 percent cyclical unemployment, then the natural rate of unemployment equals: A. 1%. B. 2%. C. 5%. D. 7%.

D. 7%. The natural rate of unemployment is the part of the total unemployment rate that is attributable to frictional and structural unemployment; in this case it is 3 + 4 = 7 percent.

Which of the following does not describe a characteristic of short-term economic fluctuations? A. Expansions and recessions are irregular in length and severity. B. Expansions and recessions are felt throughout the economy. C. The unemployment rate rises during recessions. D. Durable-goods industries are less sensitive to short-term fluctuations than service and non-durable industries.

D. Durable-goods industries are less sensitive to short-term fluctuations than service and non-durable industries. Durable goods purchases can often be postponed until the recession has passed. Thus, industries that produce durable goods, like cars and appliances, are more sensitive to the business cycle than are other industries.

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. (A) July 1953 1992.2 (B) May 1954 1941.0 (C) April 1957 2182.7 (D) April 1958 2117.4 (E) April 1960 . 2391.0 The economy experienced a recession that lasted from: A. May 1954 to April 1958. B. July 1953 to April 1957. C. May 1954 to April 1957. D. July 1953 to May 1954.

D. July 1953 to May 1954. The economy experienced a recession from July 1953 to May 1954 because real GDP fell from $1,992.2 billion to $1,941.0 billion; from May 1954 through April 1957, the economy grew.

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. (A) Feb. 1961 2352.9 (B) Dec. 1969 3571.4 (C) Nov. 1973 3566.5 (D) Nov. 1973 4151.1 (E) Mar. 1975 4010.0 Which of the following periods was an expansion? A. November 1970 through March 1975 B. December 1969 through November 1970 C. December 1969 through November 1973 D. November 1970 through November 1973

D. November 1970 through November 1973 The period from November 1970 through November 1973 was an expansion since real GDP grew from $3,566.5 to $4,151.1.

Okun's law expresses the relationship between: A. unemployment and inflation. B. the money supply and the velocity of money. C. frictional unemployment and structural unemployment. D. cyclical unemployment and the output gap.

D. cyclical unemployment and the output gap. Okun's law describes the relationship between cyclical unemployment and the output gap: each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output.

"Smart" vending machines, which adjust prices automatically according to changes in demand factors (like time of day or outside temperature), are examples of: A. skill-biased technological change. B. meeting demand at preset prices. C. capital equipment that is less expensive than standard equipment. D. flexible price-setting.

D. flexible price-setting. ''Flexible price-setting'' allows prices to vary in response to short-term changes in demand. This is an improvement over preset prices.

Varying the quantity of output produced and sold at preset prices is called: A. spurring inflation. B. self-correcting economics. C. Okun's law. D. meeting demand.

D. meeting demand. Rather than changing prices with every variation in demand, firms tend to adjust in the short run by varying the quantity of output produced and sold. This behavior is known as ''meeting demand.''

During recessions, the change in real GDP is: A. most often positive, but occasionally negative. B. always positive. C. always negative. D. most often negative, but occasionally positive.

D. most often negative, but occasionally positive. Sometimes recessions have a "blip" of positive growth within the context of negative GDP growth.

When recessions are the result of slowing growth in potential output, the government's best policy is to: A. reduce government spending. B. decrease aggregate supply. C. increase aggregate demand. D. promote saving and investment.

D. promote saving and investment. When a recession results from slowing potential output growth, the government should try to promote growth through savings, investment and human capital formation.

Changes in the growth rate of potential output and deviations of actual output from potential output are two logical explanations for: A. skill-biased technological change. B. the decline in the natural rate of unemployment. C. increasing wage inequality. D. short-term economic fluctuations.

D. short-term economic fluctuations. Economic fluctuations are hard to predict because there can be multiple causes. Two possible causes are changes in the growth rate of potential output and deviations of actual output from potential output.

Among the most important indicators used by the NBER Business Cycle Dating Committee to determine the beginning of the 2007-2009 recession were all of the following except: A. total sales in manufacturing, wholesale trade, and retail trade. B. nonfarm employment. C. industrial production. D. the consumer price index.

D. the consumer price index.

The changing age structure of the US population and more efficient labor markets are both possible explanations for: A. the increase in the cyclical rate of unemployment. B. the 2001 recession. C. the stagnation of real wages. D. the decline in the natural rate of unemployment.

D. the decline in the natural rate of unemployment. CorrectThe natural rate of unemployment in the United States fell steadily from 6.3 percent in 1979 to about 4.8 percent in 2007. This is probably due to an older, more experienced workforce and better information about job availability.

If the output gap equals -3.2 percent, then: A. potential GDP is lower than actual GDP. B. cyclical unemployment equals the sum of structural and frictional unemployment. C. there is no cyclical unemployment. D. there is a recessionary gap.

D. there is a recessionary gap. When the output gap is negative, the economy is producing less than its potential. This is a called a recessionary gap.

In the short run, ________ determines output, and in the long run ________ determines output. A. total spending; prices B. potential output; total spending C. potential output; prices D. total spending; potential output

D. total spending; potential output In the short run, aggregate demand determines output. In the long run, however, the economy's ability to produce, or its potential output, determines output.

The duration of an expansion is measured from: A. trough to trough. B. peak to trough. C. peak to peak. D. trough to peak.

D. trough to peak. An expansion starts at a trough and continues until the next peak.