Exam 2 - Practice Problems & Notes Flashcards
(108 cards)
1) In the expansion phase of a business cycle
A) the inflation rate decreases, but productive capacity increases. B) employment and output increase.
C) the inflation rate and productive capacity decrease.
D) employment increases, but output decreases.
B. Employment and output increase
During a severe recession, we would expect output to fall the most in
A) agriculture.
B) the construction industry. C) the clothing industry.
D) the health care industry.
The construction industry
Full-time homemakers and retirees are classified in the BLS data as
A) employed.
B) part of the labor force. C) not in the labor force. D) unemployed.
Not in the labor force
The unemployment rate in an economy is 7.5%. The total population of the economy is 250 million and the size of the civilian labor force is 180 million. The number of employed workers in this economy is
A) 15.7 million. B) 166.5 million. C) 174.6 million. D) 13.5 million.
B. 166.5 million
At the economy’s natural rate of unemployment
A) only frictional unemployment exists.
B) the economy achieves its potential output.
C) only structural unemployment exists.
D) there is only a relatively small amount of cyclical unemployment.
B. The economy achieves its potential output
If the Consumer Price Index was 170 in one year and 180 in the next year, then the rate of inflation is approximately
A) 5.9%. B) 7.2%. C) 6.3%. D) 5.5%.
A. 5.9%
For a person to keep his real income steady at a certain level from one year to the next, his nominal income must
A) rise if the price index falls.
B) rise as fast as the price index.
C) fall if the price index rises.
D) stay the same as the price index rises.
B. Rise as fast as the price index
An MPC value of less than 1.0 indicates that as income increases consumption
A) also increases, and at the same rate as the increase in income. B) also increases, though not as much as income.
C) also increases, and by more than the increase in income.
D) will go in the opposite direction and decrease.
B. Also increases, though not as much as income
If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the marginal propensity to consume and the multiplier are, respectively
A) 0.2 and 1.25. B) 0.8 and 5.0.C) 0.4 and 1.67. D) 0.4 and 2.5.
B. 0.8 and 5.0
The short term fluctuations experienced in an economy due to changes in levels of economic activity
The Business Cycle
4 phases of the Business Cycle
Peak
Recession
Trough
Expansion
Highest point of business cycle
peak
Downward sloping line of business cycle
Recession
Lowest point before going back up
Trough
From lowest to growing again
Expansion
The labor force does not include individuals who (4):
- Are under the age of 16
- Are institutionalized
- Have been out of work for less than a week
- Have not actively sought employment for the past 4 weeks
The number of people in the economy that hold a full or part time job
Employed
The number of people in the economy who have not had a job for at least a week but have actively searched for employment in the past 4 weeks
Unemployed
The skills that some workers have to offer simply don’t match the skills needed by the firms in the economy
Structural unemployment
Unemployment that results from fluctuations in the business cycle
Cyclical unemployment
Workers searching and waiting for jobs
Frictional unemployment
Unemployment rate formula
(Unemployment/Labor Force) x 100
Natural rate of unemployment formula
((Number of frictionally unemployed + number of structurally unemployed)/Labor Force) x 100
An economy that is operating at its natural rate of unemployment
Fully Employed Economy
