Business Cycles In Millions

1. U.S. Economic growth in output since about 1890 has averaged: Civilian Population 270
a. 0 to 1 percent. People Incapable of Working 70
b. 3 to 4 percent. People Not Looking for Work 60
c. 6 to 7 percent. Employed Workers 133
d. 9 to 10 percent.
14. Using the table above, the unemployment rate is:
2. During the business cycle, an economic expansion occurs: a. 3 percent.
a. At the peak of the business cycle. b. 5 percent.
b. At the trough of a business cycle. c. 7 percent.
c. In between the peak and trough. 9. 9 percent.
d. In between the trough and peak.
15. Suppose more men decided to stay at home and raise their pre-school aged
3. Leading indicators are: children. We would expect:
a. Used to gauge current economic conditions. a. The labor force participation rate for males to increase.
b. Used to roughly approximate future economic conditions. b. The labor force participation rate for males to decrease.
c. Used to predict future economic conditions. c. The labor force participation rate for males to remain the same.
d. Good at predicting expansions and recessions. d. The impact on the labor force participation rate for males to be unpredictable.
Unemployment
16. The total population (aged 16 and older) of Pageland is 48 million. Of this total, 4
4. Which of the following would be included as a member of the labor force? million are unemployed and 36 million currently hold jobs. What are the rates of
a. A full time college student. unemployment and labor force participation of Pageland?
b. A recent high school graduate looking for a first job. a. The rate of unemployment is 11 percent, and the labor force participation rate is
c. A homemaker contributing 15 hours per week as a volunteer worker in a hospital. 83 percent.
d. A retired school teacher collecting social security benefits. b. The rate of unemployment is 10 percent, and the labor force participation rate is
75 percent.
5. Which of the following people would be considered unemployed? c. The rate of unemployment is 10 percent, and the labor force participation rate is
a. A full-time college student. 83 percent.
b. A recent high school graduate looking for a first job. d. The rate of unemployment is 11 percent, and the labor force participation rate is
c. A retired school teaching collecting social security benefits. 90 percent.
d. A homemaker contributing 15 hours per week as a volunteer worker in a hospital.
17. Which of the following are consequences of unemployment?
6. Which one of the following persons would NOT be considered unemployed? a. A rising price level, which reduces the purchasing power of consumers.
a. An auto worker vacationing in Florida during the layoff period, before the b. A rising aggregate output and income.
production of new models begins next month. He does not know for sure whether he c. An increase in the money supply which increases inflation.
will be called back to work when this happens, and looked for a new job last week. d. A decline in output and income.
b. A college student actively searching for a summer job. Inflation
c. A construction worker who has given up looking for work after 18 months without a
job. 18. The price index used to calculate most cost-of-living adjustments (COLA�s) is
d. A retiree actively looking for part-time work to supplement Social Security income. the:
a. consumer price index.
7. The labor force participation rate measures the number of people: b. producer price index.
a. In the labor force. c. GDP deflator.
b. In the labor force as a percentage of the total population. d. NDP deflator.
c. In the labor force as a percentage of the population at least sixteen years old.
d. Who are working as a percentage of the labor force. 19. The consumer price index is computed by comparing the cost of the typical market
basket of goods purchased during a base year (evaluated at base year prices) with:
8. Unemployment caused by a recession is called: a. The cost of the same market basket evaluated at current prices.
a. Frictional unemployment. b. The cost of the current market basket evaluated at base-year prices.
b. Cyclical unemployment. c. The cost of the current market basket evaluated at current prices.
c. Natural unemployment d. The cost of the same market basket evaluated at base year prices.
d. Structural unemployment.
20. A price index in years after the base year:
9. Frictional unemployment often occurs when: a. Is never 100.
a. The economy enters a recession. b. Is always greater than 100.
b. People first enter the labor force. c. Is always less than 100.
c. People are discriminated against. d. Can be less than, greater than, or equal to 100.
d. People lose a job because their skills are no longer needed.
21. If the CPI increased from 80 to 84, the rate of inflation is:
10. Workers at a steel plant are laid off because the economy is weak and the demand a. 4 percent.
for products requiring steel has fallen. What type of unemployment best describes the b. 5 percent.
workers� situation? c. 10 percent.
a. Cyclical unemployment. d. 20 percent.
b. Full unemployment.
c. Structural unemployment. 22. In 1969, the United States CPI was 37 (1982-84=100) and in 1999 it was
d. Frictional unemployment. 166. From these figures we can conclude that in the United States prices increased
about ______ percent between 1969 and 1999.
11. Which of the following types of unemployment is considered to be the most a. 80
controllable through macroeconomic policy? b. 125
a. Frictional unemployment. c. 210
b. Natural unemployment. d. 350
c. Cyclical unemployment.
d. Structural unemployment. 23. If the consumer price index (CPI) at the end of 1990 was 125 and the CPI at the
end of 2000 was 133, then the rate of inflation over the time period was:
12. Workers at a car-manufacturing plant in Flint, Michigan are laid off because the a. zero (prices were stable during this period).
economy is weak and GM cars aren't selling well. GM isn't sure when the plant will b. 4.8 percent.
reopen. What type of unemployment describes the workers' situation? c. 6.4 percent.
a. Cyclical unemployment. d. 8 percent.
b. Full unemployment.
c. Structural unemployment. 24. Inflationary expectations are important because widespread changes in inflationary
d. Frictional unemployment. expectations affect:
a. The distribution of income.
In Millions b. Relative prices.
Civilian population 210 c. Actual inflation.
People incapable of working 50 d. Unexpected inflation.
People not looking for work 60 Real and Nominal
Employed workers 95
25. Suppose that both real GDP and prices double. We can conclude that nominal
output:
13. Using the table above, the unemployment rate is: a. More than doubled.
a. 3 percent. b. Doubled.
b. 5 percent. c. Rose by less than double.
c. 7 percent. d. Did not increase.
d. 9 percent.
26. Suppose that nominal GDP is $6,000 billion and
real GDP is $3,000 billion. What is the GDP price deflator? 9. Technological Advance:
a. 125. a. is the ability to produce more output per resource
b. 150. b. destroys jobs
c. 200. c. both of the above
d. 250. d. neither of the above

27.Suppose nominal GDP is 7700 and the GDP deflator is 110. Real GDP is: 10. Job destruction caused by technological advance:
a. $7700. a. is an economic disaster that must be prevented by job preservation legislation
b. $7000. b. allows the newly unemployed labor to be re-allocated to more valuable production
c. $847,000. c. makes economic growth possible
d. 8470. d. both b and c

28. If real output is $4.4 trillion and nominal output is $4.84 trillion, then the GDP 11. during the great depression, the U.S. economy:
deflator is: a. failed to achieve any of the 3 macroeconomic goals
a. 90.0. b. suffered from unemployment rates which averaged almost 10% for the 1930s
b. 95.6. c. suffered from high inflation from 1929 to 1933
c. 104.4. d. all of the above
d. 110.0
12. from 1983 through 2007:
29. If prices rose by 3% and nominal output rose by 5%, real output: a. the inflation rate was generally higher than it was in the 1970s
a. Rose by 2%. b. the economy suffered from frequent recessions
b. Rose by 8%. c. both of the above
c. Fell by 2%. d. neither of the above
d. Fell by 8%.
13. Which of the following would directly affect GDP?
30. In 2000 the nominal rate of interest was 7 percent. The rate of inflation was 2.7 a. a refinery buys crude oil
percent. The real rate of interest was: b. a refinery takes out a large loan from a bank
a. 9.7 percent. c. a refinery emits pollution into the air
b. 7 percent. d. none of the above
c. 4.3 percent.
d. 2.7 percent. 14. For GDP purposes, which of the following would be investment spending?
Costs of Inflation a. warren buys 100 shares of common stock for $6,000
b. Charlie buys a used lawn mower for his lawn service business
31. Unexpected inflation will: c. Lynda buys a new display case for her jewelry store
a. Hurt borrowers. d. all of the above
b. Hurt lenders.
c. Hurt borrowers and lenders equally. 15. Which of the following would directly affect GDP?
d. Have no effect on either borrowers or lenders. a. Aunt lucille receives her social security check
b. aunt lucille spends all day saturday cleaning her house
32. Which of the following statements is FALSE? c. aunt lucilles house is destroyed by a tornado
a. Whether you gain or lose during a period of inflation depends on whether your d. none of the above
income rises faster or slower than the prices of the things you buy.
b. Inflation that is higher than expected benefits borrowers, and inflation that is 16. which of the following statements is false?
lower than expected benefits lenders. a. investment does not include new residential housing
c. There are no costs or losses associated with expected inflation. b. consumption is the largest component of GDP
d. When unanticipated inflation occurs regularly, the degree of risk associated with c. Government purchases does not include transfer payments
investments in the economy increases. d. net exports = exports minus imports
1. B 2. D 3. C 4. B 5. B 17. Nominal GDP may increase:
6. C 7. C 8. B 9. B 10. A11. C a. if there is an increase in the price level
12. A 13. B 14. B 15. B 16. C b. if there is an increase in production
17. D 18. A 19. A 20. D 21. B c. even if real GDP decreased
22. D 23. C 24. C 25. A 26. C d. all of the above
27. B 28. D 29. A 30. C 31. B 32. C
18. James borrows $10,000 from the bank. By the time the loan is repaid, James has
paid the bank $10,400. What does the additional $400 represent?
1. Which of the following is not one of the macroeconomic goals? A Inflation rate B Purchasing power of money
a. full employment C. Interest D Investment
b. money supply growth
c. economic growth
d. price level stability 1. The CPI is calculated for each by
A. week; The Bureau of Economic Analysis
2. When the economy is at full employment: B. month; The Bureau of Economic Analysis
a. the unemployment rate will be zero C. month; The Bureau of Labor Statistics
b. there will still be some unemployment D. quarter; The Bureau of Economic Analysis
c. the unemployment rate will be at the natural unemployment rate E. quarter; The Bureau of Labor Statistics
d. both b and c
2. If the CPI goes to 150 from 120, then prices have
3. if the quantity of money spent decreases relative to the quantity of products A. risen 20 percent.
purchased: B. risen 25 percent.
the price level will decrease C. fallen 30 percent.
D. risen 30 percent.
4. A period of unemployment typically lasts: E. risen 150 percent.
less than 6 months
3. According to experts, the CPI
5. anyone 16 and older who does not have a paying job and is actively seeking A. overstates increases in the cost of living.
employment is: B. understates increases in the cost of living.
Unemployed C. accurately estimates changes in the cost of living.
D. could over- or underestimate changes depending on the season.
6. Cheryl graduates with an accounting degree in May. After searching for 2 months, E. should be abandoned in favor of the GDP Deflator.
she lands a job as an accountant in July. While Cheryl was looking for work, she was:
frictionally unemployed 4. When products improve in quality the CPI will

7. Cheryl is laid off from her job as an accountant due to a recession. she searches for A. automatically increase.
a job for 6 months and then is rehired by her old employer when the economy begins B. automatically decrease.
to recover. While Cheryl was looking for work, she was: C. become negative.
cyclically unemployed D. overestimate the inflation rate.
E. underestimate the inflation rate.
8. the natural unemployment rate is:
a. the sum of frictional and structural unemployment 5. The GDP Deflator
b. the lowest unemployment rate that can be sustained without causing increasing I. is used to calculate inflation rates.
inflation II. is an alternative to the CPI.
c. the rate associated with full employment III. is more accurate than the CPI.
d. all of the above
A. Only I is true.
B. I and II are true. 3.The labor force is the:
C. I and III are true. a.sum of the employed and the unemployed.
D. II and III are true. b.percentage of the labor force that is employed.
E. I, II, and III are true. c.workers employed.
d.percentage of workers employed out of the total population.
6. If nominal GDP equals $5,000 and real GDP equals $4,000, then the GDP Deflator
equals 4.The unemployment rate is the:
A. 125 a.number of people unemployed in the nation.
B. 1.25 b.percentage of the labor force that is unemployed.
C. 800 c.percentage of the population that is unemployed.
D. .8 d.number of people unemployed in a given state.
E. 300
7. If nominal GDP equals $6,000 and the GDP deflator equals 200, then real GDP 5.The normal rate of unemployment around which the unemployment rate fluctuates is
equals called the ________ rate of unemployment.
A. $30 a.cyclical
B. $3,000 b.natural
C. $12,000 c.frictional
D. $1,200 d.structural
E. $1,200,000
6.The unemployment that results because it takes time for workers to search for the
8. Which of the following is NOT a major cost of inflation? jobs that best suit their tastes and skills is called ________ unemployment.
A. Resources will be misallocated. a.cyclical
B. Wealth will be redistributed. b.natural
C. Savings will be discouraged. c.frictional
D. Real incomes will fall. d.structural
E. Financial wealth will be eroded.
7.The unemployment that results because the number of jobs available in some labor
9. The term "menu costs" refers to markets is insufficient to provide a job for everyone who wants one is called ________
A. less choices due to inflation. unemployment.
B. financial assets being worth less due to inflation. a.cyclical
C. a la carte savings falling. b.natural
D. food prices rising due to inflation. c.frictional
E. resource misallocation due to inflation. d.structural

10. Inflation 8 Which of the following statements is true?

A. encourages households to save more. a.It is possible for an economy to completely and permanently eliminate
B. does not affect savings in the economy. unemployment.
C. forces households to save more. b.It is possible for an economy to eliminate unemployment completely, but only
D. forces households to save less. temporarily.
E. discourages savings. c.It is impossible for an economy to eliminate unemployment completely.
d.It is possible for an economy to completely and permanently eliminate
11. Rising prices are a problem because unemployment, but only if the government finds a way to avoid recessions altogether.
A. money in household savings accounts can now buy fewer goods and services.
B. household incomes generally do not rise with prices. 9.Which of the following policies would be most effective in reducing the
C. the economy could run out of money. unemployment rate?
D. borrowers have to repay loans with more dollars. a.Pass laws that make it difficult for employers to fire workers.
E. households are encouraged to save more. b.Reduce the benefits to the unemployed (unemployment insurance).
c.Pass laws that force businesses to hire more workers.
12. Fisher's Hypothesis states that d.Raise taxes on imports (tariffs), to protect American producers and workers.

A. the real interest equals the nominal interest rate plus the inflation rate. 10.All of the following make it difficult for wages to go down when necessary,
B. the nominal interest rate equals the real interest rate minus the inflation rate. EXCEPT:
C. the nominal interest rate equals the unemployment rate plus the real interest rate. a.unions and collective bargaining.
D. the nominal interest rate equals the unemployment rate minus the real interest rate. b.minimum wage laws.
E. the nominal interest rate equals the real interest rate plus the inflation rate. c.efficiency wages.
d.job search time.
13. Sue loses her job at a shoe factory when the economy falls into a recession. Sue
is
A. frictionally unemployed.
B. cyclically unemployed.
C. seasonally unemployed.
D. structurally unemployed.
E. a discouraged worker.

14. There is a strong demand for welders in California but Bill, an unemployed welder,
lives in New York. Bill is
A. frictionally unemployed.
B. cyclically unemployed.
C. structurally unemployed.
D. considered to be a hidden worker.
E. not counted in the ranks of the unemployed.

15. It is unlikely that the unemployment rate will ever fall to zero because of
A. frictional unemployment.
B. cyclical unemployment.
C. government policies.
D. corporate policies.
E. the aged and infirm in our population.

1. The Bureau of Labor Statistics measures unemployment by:

a.surveying firms and asking them how many workers they have hired and fired each
month.
b.reviewing claims for unemployment benefits.
c.surveying households.
d.reviewing statistics of homeless people.

2.The Bureau of Labor Statistics surveys households to determine whether the

interviewees are:
a.earning high or low wages.
b.employed, unemployed or not in the labor force.
c.working legally or not.
d.foreign or U.S. citizens.