Macroeconomics (Business) - BECN-200-0NE Chapter 9 Business Cycles, Unemployment, and Inflation

One perspective on low levels of inflation is that it can:

• have no effect on real output.

• increase real output.

• reduce real output.

• have no effect on businesses.

reduce real output.

A nation has a population of 300 million people. Of these, 80 million are retired, in the military, in institutions, or under 15 years old. There are 210 million who are employed. What is the unemployment rate?

• 3.3 percent

• 4.5 percent

• 3.6 percent

• 5.2 percent

4.5 percent

Demand-pull inflation:

• occurs when prices of resources rise, pushing up costs and the price level.

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

• is also called cost-push inflation.

• occurs only when the economy has reached its absolute production capacity.

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

The phase of the business cycle in which real domestic output declines is called:

• an expansion.

• the trough.

• a recession.

• the peak.

a recession.

"Depression means idleness. And idleness means loss of skills, loss of self-respect, plummeting morale, family disintegration, and socio-political unrest." This quote describes some of the:

• reasons for the natural rate of unemployment.

• characteristics of structural unemployment.

• consequences of the hyperinflation that accompanies a recession.

• noneconomic costs of unemployment.

noneconomic costs of unemployment.

Cost-of-living adjustment clauses (COLAs):

• tie wage increases to changes in the price level.

• apply only to demand-pull inflation.

• increase the gap between nominal and real income.

• invalidate the "rule of 70."

tie wage increases to changes in the price level.

The total population of an economy is 175 million, the labour force is 125 million, and the number of unemployed is 8 million. The unemployment rate for this economy is:

• 7.8 percent.

• 4.6 percent.

• 6.4 percent.

• 5.8 percent.

6.4 percent.

Inflation means:

• the continual rise in the general level of prices.

• all prices are rising and at the same rate.

• each unit of a currency (such as Canadian dollar) buys more goods and services.

• all prices are rising, but at different rates.

the continual rise in the general level of prices.

If the actual GDP is less than potential GDP:

• potential GDP will fall.

• the price level will rise.

• the actual unemployment rate will be higher than the natural unemployment rate.

• investment spending will fall.

the actual unemployment rate will be higher than the natural unemployment rate.

In which of the following years was the recession the most severe in terms of real GDP decline?

• 1954

• 1982

• 1945

• 2020

2020

Most economists agree that the immediate cause of the large majority of cyclical changes in the levels of real output and employment is unexpected changes in__________

1. The level of total spending

2. The level of the stock market

3. The level of the trade deficit

4. The level of unemployment

The level of total spending

Suppose that an economy has 9 million people working full-time. It also has 1 million people who are actively seeking work but currently unemployed as well as 2 million discouraged workers who have given up looking for work and are currently unemployed. What is this economy's unemployment rate?

1. 10 percent

2. 15 percent

3. 20 percent

4. 25 percent

10 percent

The unemployment rate that is consistent with full employment is known as_____

1. The natural rate of unemployment

2. The unnatural rate of unemployment

3. The status quo rate of unemployment

4. Cyclical unemployment

5. Okun's rate of unemployment

The natural rate of unemployment

A country's current unemployment rate is 11 percent. Economists estimate that its natural rate of unemployment is 6 percent. About how large is this economy's negative GDP gap?

1. 1 percent

2. 3 percent

3. 6 percent

4. 10 percent

10 percent

Cost-push inflation occurs when there is

1. Excess inventory

2. A trade deficit

3. Rising per-unit production costs

4. Excess demand for goods and services

Rising per-unit production costs

Zion's nominal income will go up by 10 percent next year. Inflation is expected to be -2 percent next year. By approximately how much will Zion's real income change next year?

1. -2 percent

2. 8 percent

3. 10 percent

4. 12 percent

12 percent

Kaitlin has $10,000 of savings that she may deposit with her local bank. She wants to earn a real rate of return of at least 4 percent and is expecting inflation to be exactly 3 percent. What is the lowest nominal interest rate that Kaitlin would be willing to accept from her local bank?

1. 4 percent

2. 5 percent

3. 6 percent

4. 7 percent

7 percent

Economists agree that_____________inflation reduces real output.

1. Cost-push

2. Demand-pull

3. Push-pull

cost-push