Business Cycles
Suppose that nominal income is $ 5,000 and the CPI is 115. Real income is equal to
$ 4348
If the unemployment rate was ___ there would be no frictional unemployment and no structural unemployment
0
The CPI is computed by the U.S. Bureau of Labor Statistics through interviews and weekly diaries for more than _____ families around the country .
10,000
An economy operating at full employment does not employ ___ percent of workers in the labor force .
100
The CPI will always be ___ for the base year because we are comparing the value of the basket to itself
100
What is the value of the Consumer Price Index in the base year ?
100
The labor force does not include individuals who are under the age of
16
If nominal income increases by 5 percent and prices by 3 percent , the percentage change in real income will be
2 percent .
If the CPI was 240 in Year 1 and 245.1 in Year 2 , what is the inflation rate between year 1 and year 2 ?
2.13 %
The CPI represents more than ___ categories ( not items ) of goods and services , each of which can be included in one of eight major groups .
200
calculate the inflation rate between years 1 and 2 . Year 1 2 CPI 97.00 100.00
3.09 %
If the labor force is 160 million and the number of employed is 125 million , the number of unemployed equals ___ million workers .
35
Suppose there are 150 million workers in the labor force of an economy . Out of those workers , 2.5 million are frictionally unemployed and 3.5 million are structurally unemployed . The natural rate of unemployment in the economy is ___ percent .
4
If the labor force equals 143 million workers and of those 135.5 million workers are employed and 7.5 million are unemployed , the unemployment rate equals ___ percent
5.2
The Bureau of Labor Statistics estimates the size of the labor force each month by surveying approximately _____ households and _____ businesses .
60,000 ; 140,000
The natural rate of unemployment for an economy experiencing frictional unemployment of 3 percent and structural unemployment of 4 percent is ___ percent .
7
Which one of the following persons would not be considered unemployed ?
A construction worker who has given up looking for work after 18 months without a job
Recession
A decline in real output for at least two consecutive quarters .
Inflation
A general increase in the prices of goods and services .
Depression
A long - lasting and severe recession .
Expansion
A phase of the business cycle characterized by increasing real GDP , income , and employment .
Peak
A point in the business cycle where real GDP reaches a maximum . The peak marks the end of an expansion .
Producer Price Index ( PPI )
A price index that measures the average change over time in the selling prices received by producers of goods and services .
Deflation .
A situation in which the inflation rate is negative .
Hyperinflation
A situation in which the inflation rate is positive and greater than 50 % per month .
Disinflation
A situation in which the inflation rate is positive but declining over time .
Seasonal Unemployment
A type of frictional unemployment resulting from workers searching and waiting for jobs due to seasonal fluctuations in demand for certain types of workers .
Consumer Price Index ( CPI )
An economic indicator used to measure over time the average price of a market basket of goods and services purchased by the typical consumer .
Which of the following does the Bureau of Labor Statistics compute ?
CPI
[ ( Value of a market basket in Year T / Value of a market basket in base year ) X 100 ] =
CPI
Consumer Price Index Formula
CPI for year t = Value of a Market Basket in year t / Value of Same Basket in Base Year * 100
Purchases of capital equipment by firms or military equipment by the government are not included in the _____ Price Index , but are included in the _____ Price Index .
Consumer ; GDP
Which of the following can be used to compare today's income levels to those of earlier years ?
Consumer Price Index
An economic indicator used to measure the average price of a market basket of goods and services over time is the :
Consumer Price Index .
To determine your real wage , you should divide your nominal wage by the :
Consumer Price Index .
_____ unemployment , which results from fluctuations in the business cycle , generally lasts longer than _____ unemployment .
Cyclical ; frictional
The ___ Price Index is the broadest measure of prices in the economy ; it considers prices for all goods and services produced in it .
GDP
Labor Force
Individuals 16 years of age and older who are not institutionalized ( e.g. , in correctional facilities or mental hospitals ) and who either are employed or are unemployed but actively seeking employment .
_____ results in a reduction in someone's ability to buy goods and services .
Inflation
Vegetables are purchased by a restaurant . Which major group of the CPI does this purchase belong to ?
It is not included in any CPI category
Which of the following people illustrates a case of cyclical unemployment ?
Joe who has recently been laid off due to a fall in demand
The CPI is computed by the U.S. Bureau of ____ Statistics .
Labor
_____ unemployment may sound like a desirable outcome , but it is not a reasonable or even a beneficial goal for an economy .
No.
_____ income is the actual number of dollars received in exchange for the different resources available in the economy .
Nominal
____ income is the the amount of goods and services that can be purchased with actual income .
Real
____ income measures the purchasing power of what you earn every month .
Real
Discouraged Worker
Someone who wants to work but is not actively searching for a job . Jim used to work at a large automobile manufacturer but was laid off during the Great Recession. He searched unsuccessfully for employment for years . He lost hope and has since given up searching for a job - he is a discouraged worker .
_____ unemployment calls for more specific intervention because someone's skills are now obsolete .
Structural
Which agency determines when recessions begin and end ?
The National Bureau of Economic Research
Nominal Income
The actual number of dollars received in exchange for the different resources available in the economy .
Real Income
The amount of goods and services that can be purchased with nominal income ; the inflation - adjusted measure of income . Real Income = Nominal Income / CPI * 100
Full Employment
The employment an economy experiences when it is operating at the natural rate of unemployment
Which of the following offers an example of cyclical unemployment ?
The increase in unemployment during recessions
Trough
The lowest point of economic activity in the business cycle , where real GDP reaches a minimum . The trough marks the end of a recession .
Unemployed
The number of people in the economy who have not had a job for at least a week but have actively searched for employment in the past 4 weeks .
Employed
The number of people in the economy who hold a full- or part - time position .
Inflation Rate
The percentage change in the overall price of goods and services in the economy from one time period to another . Inflation Rate Year t= CPI Year t - CPI Year before t / CPI Year before t * 100
Unemployment Rate
The percentage of workers in the labor force who are unemployed ; a good indicator of the overall health of the economy . Unemployment Rate = Unemployed / (Employed + Unemployed) * 100 Employed + Unemployed = Labor Force
Natural Rate of Unemployment
The rate of unemployment equal to the sum of the frictional and structural unemployment rates . A fully employed economy operates at this rate .
Business Cycle
The short - term fluctuations experienced in the economy due to changes in levels of economic activity .
Which of the following offers an example of frictional unemployment ?
The unemployment associated with workers changing jobs
Not everyone is counted in the labor force . ( True or False )
True
The price of a good is a measure of how much money it takes to buy that good .
True
The state of the economy might not completely determine presidential races , but data suggest that there is a connection between the two . ( True or False )
True
Unemployment benefits have nothing to do with the unemployment calculations conducted by the Bureau of Labor Statistics . ( True or False )
True
Labor force statistics are collected by the :
U.S. Bureau of Labor Statistics .
Structural Unemployment
Unemployment occurring when the skills that some workers have to offer don't match the skills needed by the firms in the economy .
Cyclical Unemployment
Unemployment resulting from fluctuations in the business cycle .
Frictional Unemployment
Unemployment resulting from workers searching and waiting for jobs .
When you sell a stock , you must pay taxes on the gain in value . Why ?
You must pay this tax based on the nominal change in value .
Jamie has been out of work for a full year . She has given up searching for work . She is :
a discouraged worker .
The CPI is constructed using the goods and services purchased by the _____ household .
average
The Consumer Price Index ( CPI ) is constructed using the goods and services purchased by the _____ household .
average
The Consumer Price Index measures the _____ price for a market basket of goods and services purchased by the typical consumer from one year to the next
average
In computing the Consumer Price Index , the reference year is also known as the
base year .
The _____ cycle consists of the short - term fluctuations experienced in an economy due to changes in the levels of economic activity .
business
Short - term fluctuations experienced in the economy due to changes in levels of economic activity :
can vary in duration and severity .
A sluggish economy will generate some _____ unemployment .
cyclical
Because _____ unemployment is caused by fluctuations in the business cycle , macroeconomic policies that avoid recessions or help the economy recover from them faster will help decrease this type of unemployment .
cyclical
For anyone receiving an annuity or any other fixed payment over time such as a pension , inflation ____ purchasing power and can have important consequences .
decreases
Inflation is caused by increases in aggregate
demand
To be included in the labor force , someone needs to be ____ or actively searching for a ( n ) ____
employed ; job
The labor force consists of the ____ and the ____
employed ; unemployed
If the CPI and the inflation rate calculated from it understate the inflation faced by retirees , then the purchasing power of retirees is :
falling over time and retirees are becoming worse off .
Cassidy recently graduated from college and is actively searching for jobs . Cassidy's employment status comes under ____ unemployment .
frictional
Countries with older working populations tend to have lower rates of
frictional unemployment
People who are _____ unemployed tend to have the shortest lengths of unemployment .
frictionally
In general , the greater your education level , the _____ your average weekly nominal earnings .
greater
The Consumer Price Index measures the average price for a market basket of goods and services purchased by the typical _____ from one year to the next .
household
The CPI consumption category that accounts for the largest proportion of consumer spending is
housing
Considering the presidential elections since 1948 , data showed that a strong economy seemed to help the :
incumbent party .
Economists define _____ as a general increase in the prices of goods and services .
inflation
In general , an increase in the money supply causes :
inflation
The U.S. Bureau of Labor Statistics uses the Consumer Price Index to track
inflation
In general , an increase in the money supply causes :
inflation .
The U.S. Bureau of Labor Statistics provides additional price indexes across many different types of goods and services . Typically there is a :
large variation in the individual price indexes for these consumption categories .
The percentage change in real income is approximately the percentage change in nominal income ____ the percentage change in prices .
minus
The Bureau of Labor Statistics estimates the size of the labor force each
month
The Consumer Price Index ( CPI ) is calculated
monthly
Comparing the actual unemployment rate with the ____ rate of unemployment can help us gauge the current state of the economy relative to normal times .
natural
The ____ rate of unemployment greatly differs across countries in part because of differences in demographics and labor policies
natural
A fully employed economy is one that is operating at what economists call the :
natural rate of unemployment .
When you sell a stock , you must pay taxes on the gain in value . You must pay this tax based on the _____ change in value .
nominal
In the base year , ____ income and ____ income are the same .
nominal ; real
We distinguish between ____ income and ____ income because receiving a salary increase is better than not getting one , but the additional dollars may not allow you to buy as many goods and services as last year due to inflation .
nominal ; real
The number of dollars you receive for your labor is :
nominal income
The unemployment rate equals the :
number of unemployed workers divided by the sum of the employed and unemployed workers and multiplied by 100 .
In the calculation of Consumer Price Index ( CPI ) , a lawyer's fee is counted in the category of :
other goods and services .
The ____ phase of the business cycle represents maximum economic activity .
peak
The unemployment rate is the _____ of the labor force that is unemployed .
percentage
The unemployment rate provides information on the ____ of the labor force that is employed and unemployed .
percentage
The percentage change in real income is approximately the percentage change in nominal income minus the percentage change in ____ level .
price
The producer price index measures changes in producers '
prices
The producer price index measures changes in _____ prices .
producer
From 1979 to 2013 , ____ earnings decreased for those having only a high school education or less .
real
The measure of the purchasing power of what you earn every month is :
real income
The ____ phase of the business cycle is characterized as a decline in real output for at least two consecutive quarters .
recession
The National Bureau of Economic Research determines when _____ begin and end
recessions , recession , depressions , or depression
Technology may also contribute to changes in the frictional and _____ rate of unemployment .
structural
Unemployment that occurs when the skills that some workers have to offer simply do not match the skills needed by firms in the economy is :
structural unemployment .
There will always be _____ unemployed workers whose skills are obsolete and thus not wanted in the economy .
structurally
The annual increase in Social Security payments is based on the inflation rate as calculated by :
the Consumer Price Index .
The consumer price index ( CPI ) measures :
the average price of a market basket of goods .
If discouraged workers see an improvement in economic conditions , they could decide to reenter the labor market start looking for work and be counted as ____
unemployed
James is a 35 - year - old teacher who lost his job . He is currently looking for work . James is :
unemployed .
The natural rate of _____ equals the sum of the frictional and structural unemployment rates .
unemployment
When more unemployed individuals find jobs , the _____ rate decreases and the labor market improves .
unemployment
The labor force is important because it is the basis for calculating the
unemployment rate .
A percentage change in a value equals the :
value in the later year minus the value in the earlier year divided by the value in the earlier year and multiplied by 100 .
The inflation rate equals the
value of the CPI in the later year minus the value of the CPI in the earlier year divided by the value of the CPI in the earlier year and multiplied by 100 .
For each of the following items , match the item to the CPI category .
•Bread: Food & Beverage •Sweater: Apparel •Bus pass: Transportation •Movie ticket: Recreation •Textbook: Education and communication •Prescription drugs: Medical care •Rent: Housing •Haircut: Other Goods and Services
Between 1960 and 2000 , the labor force participation rate increased because :
•baby boomers had come of working age and entered the labor force •women increasingly entered the labor force
Since 2000 , the labor force participation rate has decreased because :
•more people have gone into the informal economy •baby boomers are retiring and leaving the labor force •there are more discouraged workers
