Ch. 26 Test Questions Flashcard Example #73356

As it relates to economic growth, the term long-run trend refers to:
the long-term expansion or contraction of of business activity that occurs over 50 or 100 years
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 phase of the business cycle in which real GDP declines is called:
a recession
The phase of the business cycle in which real GDP is at a minimum is called:
the trough
The production of durable goods varies more than the production of nondurable goods because:
durables purchases are postponable
Most economists agree that the immediate cause of most business cycle variation is:
an unexpected change in the level of total spending
What is the primary reason that changes in total spending lead to cyclical changes in output and employment?
prices are sticky in the short run
Kara voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she in now searching for a position in management. Kara presently is:
frictionally unemployed
The natural rate of unemployment is:
that rate of unemployment occurring when the economy is at its potential output
The labor force includes:
employed workers and persons who are officially unemployed
If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the:
cyclical unemployment rate is 4 percent
Official unemployment statistics:
understate unemployment because discouraged workers are not counted as unemployed
Part-time workers are counted as:
fully employed and therefore the official unemployment rate may understate the level of unemployment
Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed. The unemployed rate is:
6 percent
Cyclical unemployment results from:
a deficiency of aggregate spending
A college graduate using the summer following graduation to search for a job would best be classified as:
a part of frictional unemployment
Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called:
structural unemployment
At the economy’s natural rate of unemployment:
the economy achieves its potential output
In the depth of the Great Depression, the unemployment rate in the United States was about:
25 percent
The GDP gap measures the difference between:
actual GDP and potential GDP
A large negative GDP gap implies:
a high rate of unemployment
If the U.S. unemployment rate is 9 percent, we can infer that:
potential GDP is in excess of actual GDP
If potential GDP is $330 billion and there is a positive GDP gap of $30 billion, real GDP
$360 billion
Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun’s law, the negative GDP gap as a percent of potential GDP is:
8 percent
Inflation means that:
prices in the aggregate are rising, although some particular prices may be falling
If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:
deflation of 3.33 percent
The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:
1.6 percent
As applied to the price level, the “rule of 70” indicates that number of years required for the price to double can be found by:
dividing the annual rate of inflation into “70”
Demand-pull inflation:
occurs when total spending exceeds the economy’s ability to provide output at the existing price level
Inflation initiated by increases in wages or other resource prices is labeled:
cost-push inflation
Cost-push inflation may be caused by:
a negative supply shock
Which of the following would most likely occur during the expansionary phase of the business cycle?
demand-pull inflation
Real income is found by:
dividing nominal income by the price index (in hundredths)
Which of the following is correct?
inflation reduces the purchasing power of the dollar, but does not necessarily reduce one’s real income
Cost of living adjustment clauses (COLAs):
tie wage increases to changes in the price level
During a period of hyperinflation:
people tend to hold goods rather than money
Which of the following statements is correct? Unanticipated inflation:
arbitrarily “taxes” fixed-income groups
A lender need not be penalized by inflation if the:
lender correctly anticipates inflation and increases the nominal interest rate accordingly
If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is:
3 percent
(Last Word) Changes in stock market prices:
do not greatly impact the macroeconomy and used alone are not reliable predictors of the future health of the economy
Which of the following statements exemplifies the concept of structural unemployment? (AP Question)
workers are fired because their skills are no longer indemand
Which of the following would be true if the actual rate of inflation were less than the expected rate of inflation? (AP question)
people who had borrowed funds at the nominal interest rate during this time period would lose
The unemployment rate measures the percentage of (AP question)
people in the labor force who do not have jobs
The official unemployment rate is not an accurate indicator of actual unemployment in the economy because (AP question)
the official rate does not include persons who have given up looking for work
The unemployment rate for country X is (AP question)
6.0%
If a worker’s nominal wage rate increased from $10 to $12 per hour and at the same time the general price level increases by 10 percent, the worker’s real wage has (AP question)
approximately increased by 10%
The annual inflation rate is expected to be 5 percent over the next 3 years. Robert Bearkat plans to take out a 3-year loan to purchase an automobile. If Robert decides not to take out the loan if the real interest rate exceeds 3 percent, the highest nominal interest rate he is willing to pay is (AP question)
8 percent
An industry historically used employees with specific skills. If this industry experiences technological advances that require new skills, there will mostly likely be (AP question)
structural unemployment
Which of the following would cause the official unemployment rate to understate the problem of unemployment (AP question)
all of the above
(the limited hours for some part-time workers; the plight of discouraged workers; the plight of people who have given up looking for a job)

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