ECON201 CHapter 9

Inflation means that

prices on average are rising although some particular prices may be falling

The phase of the business cycle in which real GDP declines is called

recession

Full-Time Employed = 80 Part-Time Employed = 25 Unemployed = 15 Discouraged Workers = 5 Members of Underground Economy = 6 Consumer Price Index = 110 Refer to the given information about a hypothetical economy. The unemployment rate is

12.5 percent

If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is a) $510 billion b) $490 billion c) $10 billion d) $990 billion

a) $510 billion

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is a) 11 percent b) 33 percent c) 91 percent d) 10 percent

a) 11 percent

The GDP gap measures the difference between

actual GDP and potential GDP

The aggregate cost of unemployment can be measured by the

amount by which potential GDP exceeds actual GDP.

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

expansion

Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 The table contains information about the hypothetical economy of Scoob. All figures are in millions. The labor force in Scoob is a) 95 million b) 102 milliom c) 105 million d) 145 million

b) 102 million

According to the Bureau of Labor Statistics, to be officially unemployed a person must

be in the labor force

Recurring upswings and downswings in an economy's real GDP over time are called

business cycles

If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is a) $360 billion b) $660 billion c) $320 billion d) $20 billion

c) $320 billion

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about a) 2.8 percent b) 3.4 percent c) 1.6 percent d) 4.1 percent

c) 1.6 percent

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is a) 8 percent b) 5 percent c) 3 percent d) 2 percent

c) 3 percent

Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 The table contains information about the hypothetical economy of Scoob. All figures are in millions. If the natural rate of unemployment in Scoob is 5 percent, then a) structural unemployment is about 3 percent b) frictional unemployment is about 2 percent c) cyclical unemployment is about 2 percent d) hidden unemplyment is about 5 percent

c) cyclical unemployment is about 2 percent

The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are

capital goods and durable consumer goods.

The MPC can be defined as that fraction of a

change in income that is spent

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to

consume is three-fifhs

Inflation initiated by increases in wages or other resource prices is labeled

cost-push inflation

Rising per-unit production costs are most directly associated with

cost-push inflation

The type of unemployment associated with recessions is called

cyclical unemployment

Suppose the nominal annual interest rate on a two-year loan is 8 percent and lenders expect inflation to be 5 percent in each of the two years. The annual real rate of interest is a) 6 percent b) 8 percent c) 2 percent d) 3 percent

d) 3 percent

Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 The table contains information about the hypothetical economy of Scoob. All figures are in millions. The unemployment rate in Scoob is a) 2.5 percent b) 3.2 percent c) 5.0 percent d) 6.9 percent

d) 6.9 percent

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced a) inflation of 4 percent b) inflation of 3.33 percent c) defaltion of 3.33 percent d) deflation of 4 percent

deflation of 3.33 percent

The phrase "too much money chasing too few goods" best describes

demand-pull inflation

An unexpected increase in total spending will cause an increase in GDP

if prices are sticky

demand-pull inflation

occurs when total spending exceeds the economy's ability to provide output at the existing price

Okun's Law

shows the relationship between the unemployment rate and the size of the negative GDP gap

Innovations such as the microchip and the Internet lead to business cycle variations because

significant innovations occur irregularly and unexpectedly.

Which of the following constitute the types of unemployment occurring at the natural rate of unemployment?

structural and frictional unemployment

Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon, where she anticipates that a new job will be available. We can say that Susie is faced with

structural unemployment

At the economy's natural rate of unemployment,

the economy achieves its potential output.

The phase of the business cycle in which real GDP is at a minimum is called

the trough