Macro Midterm Module 8

An informal definition of a recession is at least ____ consecutive quarters of declining real GDP.

2

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:

2%

If firms maintain preset prices in the short run, then the primary cause of outputs gaps is changes in:

Economy-wide spending

A period in which the economy is growing at a rate significantly above normal is called a(n):

Expansion

Which of the following does not describe a characteristic of short-term economic fluctuations?

Expansions and recessions are felt in only a few sectors of the economy.

Compared to older workers, younger workers change jobs more frequently, so they are more prone to _ unemployment and have fewer skills, so they are more prone to ____ unemployment.

Frictional; structural

In Macroland, a country that 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 GDP in Macroland?

$9.6 trillion

According to Okun's Law, when cyclical unemployment increases from 1 to 2 percent, the output gap increases from ___ percent.

-2 to -4

If potential output equals $8 billion and actual output equals $10 billion, then this economy's output gap should be expressed as:

25%

If the natural rate of unemployment is 4 percent, what is the actual rate of unemployment if output is 2 percent below potential?

5%

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?

5%

The economy of Omega operates according to Okun's law. In Omega, potential GDP and real GDP both equal $7 trillion, and the natural rate of unemployment equals 6 percent. What is the actual rate of unemployment in Omega?

6%

If the cyclical rate of employment equals 1% and the actual rate of unemployment equals 8%, then the natural rate of unemployment must equal:

7%

A depression is:

A particularly severe and protracted recession

If actual output equals potential output, unusually slow potential output growth would tend to result in:

A recession

Refer to the accompanying figure. In the figure, which interval represents a business cycle expansion?

A to B

Cyclical unemployment is equal to zero when:

Actual GDP and potential GDP are equal.

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. Which of the turning points are troughs?

B and D

Among the most important indicators used by the NBER Business Cycle Dating Committee to determine the beginning of the 2007-2009 recession was all of the following except: A) Industrial production B) Total sales in manufacturing, wholesale trade, and retails trade C) The consumer price index D) Nonfarm equipment

C

Industrial production, total sales, nonfarm employment, and after-tax household income are examples of _ indicators of economic activity.

Coincident

Industrial production, total sales, nonfarm employment, and after-tax household income are examples of ____ indicators of economic activity.

Coincident

According to Okun's Law, each extra percentage point of _ unemployment is associated with a __ percentage point increase in the output gap, measured in relation to potential output

Cyclical; 2

Varying the quantity of output produced and sold at preset prices is called:

Meeting demand

Workers in durable-goods industries are ____ workers in non-durable goods industries to lose their jobs during a recession.

More likely than

In an expansion, the cyclical rate of unemployment is often:

Negative

If all prices adjusted immediately to balance the quantities supplied and demanded for all goods and services:

Output gaps would not exist

The beginning of a recession is called the:

Peak

Economic activity moves from a period of expansion to a ___ and then moves into a period of ___ until it reaches a _.

Peak, recession, trough

If the actual rate of unemployment equals the natural rate of unemployment, then:

Potential output equals real GDP

An expansion occurs when ____, when ____, or when both of these occur.

Potential output grows rapidly; actual output rises above potential output.

In the long run, output gaps are eliminated by:

Price changes

In the long run, total spending affects ____, and output is determined by ____.

Prices; input and productivity

When recessions are the result of slowing growth in potential output, the government's best response is a policy to:

Promote savings and investment

When actual output is less than potential output there is a(n):

Recessionary gap

In Macroland potential GDP equals $20 billion and real GDP equals $19.2 billion. Macroland has a(n) ____ gap equal to ____ percent of potential GDP.

Recessionary; -4%

Changes in the growth rate of potential output and deviations of actual output from potential output are two logical explanations for:

Short-term economic fluctuations

The decline in the natural rate of unemployment between the 1979 and the 2000s might be the result of:

The changing age structure of the population and more efficient labor markets.

Two possible explanations for the decline in the natural rate of unemployment in the United States over the past twenty years are:

The changing age structure of the population and more efficient labor markets.

Which of the following is most likely to occur in the labor market during a recession?

The growth rate of real wages declines.

Potential output is:

The maximum sustainable amount of output

If the output gap equals -$200 million, then

There is a recessionary gap

The end of a recession is called the:

Trough

The duration of an expansion is measured from:

Trough to peak