Macro Chapter 9: Business Cycles, Unemployment, and Inflation
What is the formula for the CPI?
(Price of the most recent market basket/price estimate of the market basket in 1982-1984) x 100
Which of the following is the formula for calculating the unemployment rate?
(unemployed/labor force) x 100%
Which statements describe how even low levels of inflation may negatively affect real output?
- Businesses incur the costs of changing prices to reflect inflation. - Households and businesses spend time and effort distinguishing between real and nominal wages and interest rates.
Which of the following are excluded from core inflation so that it better reflects the general trend in overall prices?
- Energy products - Food items
According to some economists, which of the following are positive effects of mild inflation?
- Firms have an incentive to expand their plants and equipment. - Firms will have a strong demand for labor.
Which of the following describe why unemployment rates are higher for African Americans and Hispanics than for whites?
- Greater concentration in lower-skilled occupations - Lower rates of educational attainment
Which of the following are the reasons why teenagers have a much higher unemployment rate than adults?
- Have less geographic mobility - Have lower skill levels - Quit more frequently - "Fired" more frequently
What are common characteristics of less-educated workers that contribute to their having higher unemployment rates than workers with more education?
- Having more time between jobs - Working lower-skilled jobs - Working jobs that are vulnerable to cyclical layoff
Which of the following are consequences of the widespread joblessness of cyclical unemployment?
- Increased poverty - Lower morale - Greater ethnic tensions
Which of the following are possible sources of the demand and supply shocks that can cause business cycles?
- Irregular innovation - Monetary factors - Financial instability
Which of the following are characteristics of lower-skilled workers?
- Less likely to be self-employed - Longer spells of structural unemployment
What are the effects of unanticipated deflation?
- The purchasing power of savings will increase. - Creditors will benefit at the expense of debtors. - The real incomes of people with fixed nominal incomes will increase.
What are the results of unanticipated inflation?
- Wealth and real income are redistributed - Some people are harmed and others are helped.
Which of the following group of people are hurt by unanticipated inflation?
- creditors - fixed-income recipients -savers
When prices are sticky in the short run, the economy is forced to respond to shocks in the economy with changes in ______.
- employment - output
Frictional unemployment means that many workers are voluntarily between jobs as they are moving to higher-paying, more productive positions. Which of the following are desirable results of this movement?
- increase in GDP - better allocation of labor resources - higher income for the workers
Which of the following are the most likely sources of shocks that can cause business cycles?
- unexpected political events - monetary factors - irregular innovation - productivity changes
Which of the following could be considered a cost of cyclical unemployment?
-Higher crime, suicide, and divorce rates -Political upheaval -Severe psychological costs to the job loser
Why do economists almost universally condemn hyperinflation?
-It causes businesses to stockpile materials. - It reduces real output. - It has a negative effect on employment.
If real economic growth is 3%, the inflation rate is 5%, and the nominal interest rate is 7%, then what is the real rate of interest?
2%
The formula for the rule of 70 that calculates the number of years it will take for the price level to double is ______.
70 divided by the annual percentage increase in the rate of inflation
What type of inflation allows people to plan ahead and avoid or lessen the redistribution effects of inflation?
Anticipated inflation
In 2020, an unusual type of recession was triggered by the _____ pandemic.
COVID-19
The formula for the _____ Price Index is the price of the most recent market basket in a particular year divided by the price estimate of the market basket in 1982-1984 multiplied by 100
Consumer
Why does the business cycle affect output and employment in capital and durable goods industries more severely than in industries producing non-durable goods?
During a recession, business investment in new capital goods and consumer spending on new durable goods can be postponed.
True or False: When an economy experiences negative shocks, in the short run, the economy responds primarily through changes in prices.
False
True or false: The unemployment rate for African Americans and Hispanics is lower than that for whites.
False
Which statement about real income is true?
It has been adjusted for changes in prices over time.
How is cost-push inflation unique?
It reduces the overall quantity of real output.
Which statement best describes U.S. inflation between 1982 and 2000?
It was neither very high nor very low.
Why does investment decline during periods of hyperinflation?
Lenders know that the value of their loan will decline.
What is the formula for real income?
Nominal income / CPI current x 100
The phase of the business cycle at which the economy is at or near full employment is known as a(n) ______.
Peak
What is the phase of the business cycle when the economy is near or at full employment and the level of real output is at or near capacity?
Peak
______ is a major factor preventing the economy from rapidly adjusting to shocks.
Price stickiness
____ income will be affected if the change in the price level differs from the change in a person's nominal income.
Real
The phase of the business cycle that describes a decline in total output, income, and employment is called a(n) ____.
Recession
What was the state of the world economy before the start of the COVID-19 pandemic?
Robust growth
Unexpected events that drive economic cycles and fluctuations are called economic _____.
Shocks
Which of the following is a major factor in preventing the economy from rapidly adjusting to shocks?
Sticky prices
Which type of unemployment occurs as a direct result of a mismatch between skills and jobs?
Structural
What is the unemployment rate?
The percentage of the labor force that is unemployed
What does the Consumer Price Index (CPI) measure?
The prices of a fixed "market basket" of goods and services
Why is inflation is a problem?
The purchasing power of money is reduced.
Which of the following is a reason teenagers have a higher unemployment rate than adults?
They have lower skill levels.
True or false: In the United States, inflation reached double-digit rates in the 1970s and early 1980s but then it declined and remained relatively mild until the early 2020s.
True
True or false: The Bureau of Labor Statistics lists all part-time workers as fully employed.
True
Which of the following are normally very similar between men and women?
Unemployment rates
Which of the following statements best summarizes when inflation may lead to the redistribution of real income?
When a change in the price level differs from a change in a person's nominal income
What is the formula for a GDP gap?
actual GDP minus potential GDP
Business cycles are ______.
alternating increases and decreases in economic activity
What makes up a business cycle?
alternating rises and declines in the level of economic activity
Frictional unemployment is defined as a type of unemployment that is caused by workers who _____.
are unemployed as they actively search for a new job.
Cost-of-living adjustments are _____.
automatic wage changes that happen when the CPI rises
A key issue in macroeconomics is why the economy sees Blank______.
business cycle fluctuations rather than slow, smooth growth
Firms and industries producing capital goods are affected most by the business cycle and the negative effects of a recession because purchases of capital goods ______.
can be postponed
The rate of inflation is equal to the percentage change of the ______ from one year to the next.
consumer price index
What is the index most widely used by the government and the private sector to measure changes in the cost of living?
consumer price index
Social security payments automatically increase when the CPI goes up because of the ______.
cost of living adjustments
Economists say that the economy is at "full employment" when the ______ unemployment rate is zero
cyclical
What term describes inflation caused by an excess of total spending beyond the economy's capacity to produce?
demand-pull inflation
The rule of 70 says that the number of years it will take for some metric to double, given its annual percentage increase, can be found by ______.
dividing 70 by the annual percentage increase
Economic theories are founded on the idea that economic fluctuations are driven by _____.
economic shocks
Those who are working are defined as _____ (one word) and those who are not working but actively seeking work are defined as ______ (one word).
employed, unemployed
The labor force is the sum of the _____ and ______.
employed; unemployed
An economy is "fully employed" when the unemployment rate ______.
equals the structural and frictional unemployment rate
What causes demand-pull inflation?
excess total spending
When inflation occurs each dollar of income will buy ______ goods and services than before.
fewer
When inflation occurs, people with _____ incomes see their real incomes fall.
fixed
Which term describes workers that are unemployed because they are "between jobs"?
frictionally unemployed
The Bureau of Labor Statistics lists all part-time workers as _____.
fully employed
The difference between actual and potential GDP is called a GDP ____.
gap
The difference between actual and potential GDP is called a GDP _____.
gap
On average, unemployment rates among less-educated workers are ____ than workers with more education.
higher
Frictional unemployment is ______.
inevitable and, in part, desirable
People whose incomes are fixed see their real incomes fall when _____ occurs
inflation
What are real interest rates?
interest rates quoted in the market minus the expected inflation rate
The number of persons unemployed for long periods as a percentage of the labor force is ______ the overall unemployment rate.
lower than
Why the economy sees business cycle fluctuations rather than slow, smooth growth is a central issue of ______.
macroeconomics
Income that is received as wages and is not adjusted for inflation is called ______ income.
nominal
What is nominal income?
number of dollars received as wages, rent, interest, or profit
Food and energy prices often complicate the measurement of inflation because supply and demand for these products ______.
often change, creating temporary changes in prices
The basic economic cost of unemployment is forgone ____.
output
What happens during periods of recession?
output and employment fall
A GDP gap equals actual GDP minus ____ GDP. (Enter one word in the blank)
potential
Real income equals nominal income divided by the ___ ____
price index
Income that has been adjusted for changes in prices over time is called _____.
real income
inflation may lead to the redistribution of _____.
real income
Fixed-income recipients, savers, and creditors are hurt by unanticipated inflation because inflation ______.
redistributes real income away from them and toward others
Cost-push inflation can contribute to a recession by increasing prices. What effect does this have?
reduces output and leads to lower employment.
The unemployment rates for men and women are normally ______.
similar
An auto worker in Michigan who loses his job because the company relocated the plant to another country is an example of ______ unemployment.
structural
The labor force is the ______.
sum of the employed and unemployed
The unemployment rate equals the percentage of ______.
the labor force that is unemployed
The number of persons unemployed for long periods as a percentage of the labor force is much lower than ______.
the overall unemployment rate
The rate of inflation is equal to ______.
the percentage growth of CPI from one year to the next.
Deflation occurs when there is a decline in ______.
the price level
The portion of the labor force that is not working but is willing and able to work and actively seeking work is defined as ______, and the portion of the labor force that is working part-time or full-time is defined as ______
unemployed; employed
The unemployment rate is calculated by dividing the number of ______ by the ______ times 100.
unemployed; labor force
Forgone output is a basic economic cost of ______.
unemployment
Workers in lower-skilled occupations have higher _____ rates than workers in higher-skilled occupations
unemployment
