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
