Econ 2010 Chapter 10

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

B

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

B

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 high point of economic activity prior to a downturn. D. the low point of economic activity prior to a recovery.

B

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

B

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. A. cyclical; frictional B. frictional; structural C. structural; frictional D. frictional; cyclical

B

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

DD

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

A

A recession occurs when either ______ or _______, or both. A. potential output grows slowly; actual output falls below potential output B. potential output grows slowly; actual output rises above potential output C. potential output grows rapidly; actual output equals potential output D. potential output grows rapidly; actual output falls below potential output

A

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

A

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

A

All of the following are characteristics of short-term economic fluctuations EXCEPT: A. expansions and recessions are felt in only a few sectors of the economy. B. expansions and recessions are irregular in length and severity. C. unemployment rises during recessions. D. durable-goods industries are more sensitive to short-term fluctuations than service and non-durable industries.

A

An expansion occurs when either ______ or _______, or both. A. potential output grows rapidly; actual output rises above potential output B. potential output grows slowly; actual output rises above potential output C. potential output grows rapidly; actual output equals potential output D. potential output grows rapidly; actual output falls below potential output

A

An informal definition of a recession is at least ______ consecutive quarters of declining real GDP. A. 2 B. 4 C. 6 D. 8

A

If actual output equals potential output, but potential is growing unusually slowly, then an economy: A. is in a recession. B. is in an expansion. C. has an output gap. D. has a recessionary gap.

A

If all prices adjusted immediately to balance the quantities supplied and demanded for all goods and services: A. output gaps would not exist. B. output gaps would be positive more often than they would be negative. C. cyclical unemployment would be positive. D. potential GDP would rise much more quickly.

A

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

A

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

A

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

A

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

A

The duration of a recession is from: A. peak to trough. B. trough to peak. C. peak to peak. D. trough to trough.

A

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

A

The longest and most severe recession in the United States since 1925 began in _____. A. 1929 B. 1945 C. 1957 D. 1982

A

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

A

Two possible explanations for the decline in the natural rate of unemployment in the United States over the past twenty years are: A. the changing age structure of the population and more efficient labor markets. B. advances in computer technology and globalization. C. increasing wage inequality and skill-biased technological change. D. greater quantities of human capital and increased average labor productivity.

A

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

A

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

A

Which worker is most likely to lose his/her job during a recession? A. construction worker B. baker C. farmer D. barber

A

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

B

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

B

For policymakers the problem with a recessionary gap is ______ and the problem with an expansionary gap is _____. A. a tendency for inflation to develop; wasted resources B. wasted resources; a tendency for inflation to develop C. an increase in cyclical unemployment; an increase in structural unemployment D. an increase in structural unemployment; an increase in cyclical unemployment

B

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

B

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. potential output is less than real GDP. D. there is a recessionary gap.

B

If the natural rate of unemployment is 4 percent, what is the actual rate of unemployment if output is 2 percent below potential? A. 3 percent B. 5 percent C. 6 percent D. 8 percent

B

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

B

In the United States since 1929 the duration of recessions on average has been: A. longer than the duration of expansions. B. shorter than the duration of expansions. C. about the same duration as expansions. D. shorter than the duration of expansions before World War II, but longer afterwards.

B

Recessionary gaps are: A. efficient. B. inefficient. C. periods when actual output exceeds potential output. D. the result a decrease in the growth rate of potential output.

B

Recessions tend to be ______ by ______ in the rate of inflation. A. followed; an increase B. followed; a decline C. preceded; a decline D. preceded immediately; a stabilization

B

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

B

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

B

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

B

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

B

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

C

A country's actual output ______ potential output. A. can never exceed B. can never be below C. can temporarily exceed D. will always be approximately equal to

C

According to Okun's Law, each extra percentage point of ______ unemployment is associated with a ______ percentage point increase in the output gap. A. frictional; 2 B. frictional; 4 C. cyclical; 2 D. cyclical; 4

C

According to the Congressional Budget Office, over the past twenty years, the natural rate of unemployment in the United States has: A. increased. B. remained constant. C. fallen. D. fallen to zero, and is now becoming negative.

C

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

C

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

C

Falling growth rates during the 2007-2009 recession occurred: A. only in the high-tech sectors of the U.S. economy. B. only in the United States. C. in the United States, Canada, Germany, the United Kingdom and Japan. D. in the United States and Canada, but not in Germany, the United Kingdom or Japan.

C

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

C

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

C

In an expansion, the cyclical rate of unemployment is most often: A. positive. B. zero. C. negative. D. equal to the natural rate of unemployment.

C

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

C

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

C

In the long run, output gaps are eliminated by: A. reducing potential output. B. increasing potential output. C. price changes. D. increased efficiency in labor markets.

C

In the long-run total spending affects ______, and output is determined by _______. A. inputs and productivity; prices B. inputs and productivity; total spending C. prices; inputs and productivity D. prices; meeting demand at preset prices

C

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

C

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

C

Recession in the United States typically are: A. limited to a few industries. B. limited to specific regions of the country. C. widely felt outside the United States. D. confined to the domestic economy.

C

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

C

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

C

The cyclical unemployment rate is zero when: A. there is not a recessionary gap. B. there is not an expansionary gap. C. actual GDP and potential GDP are equal. D. frictional unemployment equals structural unemployment.

C

The dates of the "official" peaks and troughs of business cycles in the United States are determined by the: A. Federal Reserve. B. Congressional Budget Office. C. National Bureau of Economic Research. D. Council of Economic Advisers.

C

The difference between the economy's potential output and its actual output relative to its potential output at a point in time is called the: A. budget deficit. B. trade deficit. C. output gap. D. full-employment rate.

C

The unemployment rate for younger workers is usually ______ the unemployment rate for older workers. A. less than B. approximately equal to C. greater than D. more predictable than

C

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

C

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

C

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

D

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

D

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

D

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

D

All of the following are characteristics of short-term economic fluctuations EXCEPT: A. expansions and recessions are felt throughout the economy. B. expansions and recessions are irregular in length and severity. C. unemployment rises during recessions. D. durable-goods industries are less sensitive to short-term fluctuations than service and non-durable industries.

D

During recessions, the change in real GDP is: A. always positive. B. always negative. C. usually positive, but can be negative. D. usually negative, but can be positive.

D

If firms maintain preset prices in the short run, then the primary cause of outputs gaps is changes in: A. potential output. B. prices. C. capital and technology. D. economy wide spending.

D

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

D

If potential output equals $8 billion and actual output equals $7 billion, then this economy has an output gap equal to: A. -$1 billion. B. $1 billion. C. 12.5 percent. D. -12.5 percent.

D

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

D

If the actual rate of unemployment is 4 percent, what is the natural rate of unemployment if output equals potential output? A. 0 percent B. 2 percent C. 3 percent D. 4 percent

D

If the frictional rate of unemployment equals 2 percent, the structural rate of unemployment equals 3 percent, and the cyclical rate of unemployment equals 1 percent, then the natural rate of unemployment equals: A. 6%. B. 1%. C. 3%. D. 5%.

D

If the frictional rate of unemployment equals 3 percent, the structural rate of unemployment equals 4 percent, and the cyclical rate of unemployment equals -2 percent, then the natural rate of unemployment equals: A. 1%. B. 5%. C. 6%. D. 7%.

D

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

D

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

D

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

D

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

D

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

D

The natural rate of unemployment is the unemployment rate when there is only: A. structural unemployment. B. frictional unemployment. C. cyclical unemployment. D. structural and frictional unemployment.

D

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

D

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

D

Which worker is least likely to lose his/her job during a recession? A. carpenter B. automobile assembly line worker C. roofer D. police officer

D

______ post-World War II ______ have been preceded by increases in inflation. A. Many; expansions B. Few; recessions C. All; expansions D. Many; recessions

D