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Business Cycles, Unemployment, Inflation

Terms in this set (97)

business cycle
the short term fluctuations experienced in the economy due to changes in levels of economic activity

ex: employment, production
expansion
A period of economic growth as measured by a rise in real GDP
peak
the height of an economic expansion, when real GDP stops rising. End of expansion
Recession
a decline in real output for at least two consecutive quarters , slow economic decline
Depression
Long-lasting severe recession
Trough
Lowest point of economic activity on the business cycle, where real GDP reaches minimum. Marks end of recession.
Short-term fluctuations (changes) experienced in the economy due to changes in levels of economic activity:

can vary in severity but the duration is consistent.
can vary in duration but the severity is usually the same.
can vary in duration and severity.
usually become long-term fluctuations.
can vary in duration and severity.
Labor force statistics are collected by the:

U.S. Bureau of Census.
U.S. Bureau of Labor Statistics.
state departments of labor.
regional economic development agencies.
U.S. Bureau of Labor Statistics.
In the _____ stage of the business cycle, real output levels grow toward an economy's full capacity.
expansion
Not everyone is counted in the labor force. (True or False)
True
The labor force does not include individuals who are under the age of
16, sixteen
labor force
individuals 16 years of age and older

who are not institutionalized (in correctional facilities or mental hospitals)

and who either are employed or are unemployed but actively seeking employment.
employed
the number of people in the economy who hold a full- or part-time position
unemployed
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 for weeks.
labor force participation rate
the percentage of the population aged 16 or older that is in the labor force
labor force participation rate formula
labor force/working age population x 100
What does the LFPR tell us?
of the population 16 years of age and older that is willing to supply labor, either because those people already have a job or because they are actively searching for one.
Fictional unemployment
unemployment that occurs when people take time to find a job
structual unemployment
occurs when the skills that some workers have to offer simply don't match the skills needed by the firms in the economy.
cyclical unemployment
unemployment that rises during economic downturns and falls when the economy improves
_____ unemployment results from fluctuations in the business cycle.
Cyclical
Which of the following people would be considered unemployed?

A full-time college student
A homemaker contributing 15 hours per week as a volunteer worker in a hospital
A recent high school graduate looking for a first job
A retired school teacher collecting Social Security benefits
A recent high school graduate looking for a first job
To get a comprehensive picture at both the city and state levels, the Bureau of Labor Statistics includes in its sample around _____ households from all over the country.
60,000
A(n) _____ worker is someone who wants to work but is not actively looking for a job.
discouraged, discourage
A long-lasting and severe _____ is also known as a depression.
recession
Which of the following offers an example of structural unemployment?

The unemployment associated with workers changing jobs
The rise in unemployment among farm workers when they move from processing apples to processing oranges
The increase in unemployment during recessions
The rise in unemployment for stable workers after the development of gasoline-powered automobiles and the resulting long-term decline in horse-and-buggy transportation
The rise in unemployment for stable workers after the development of gasoline-powered automobiles and the resulting long-term decline in horse-and-buggy transportation
Someone needs to be working or actively searching for a job to:

be included in the labor force.
be part of a job network.
receive unemployment.
receive job training.
be included in the labor force.
_____ unemployment, which results from fluctuations in the business cycle, generally lasts longer than ______ unemployment.
Blank 1: Cyclical
Blank 2: frictional
Unemployment that results from fluctuations in the business cycle is:

structural unemployment.
cyclical unemployment.
frictional unemployment.
industrial unemployment.
cyclical unemployment.
If the labor force is 170 million and the number of employed is 25 million, the number of unemployed equals _____ million workers. (Enter just the number.)
145
The labor force consists of the _____ and the ____ . (Use one word for each blank.)
Blank 1: employed
Blank 2: unemployed
The unemployment rate equals the:

number of unemployed workers multiplied by the sum of the employed and unemployed workers and multiplied by 100.
percentage of employed workers divided by the sum of the employed and unemployed workers and multiplied by 100.
number of unemployed workers divided by the sum of the employed and unemployed workers and multiplied by 100.
percentage of unemployed workers divided by the sum of the employed and unemployed workers and multiplied by 100.
number of unemployed workers

divided by the sum of the employed

and unemployed workers

and multiplied by 100.
Which one of the following persons would not be considered unemployed?

A construction worker who has given up looking for work after 18 months without a job
A retiree actively looking for part-time work to supplement Social Security income
A college grad who has applied for many jobs
A college student actively searching for a summer job
A construction worker who has given up looking for work after 18 months without a job
Which of the following offers an example of cyclical unemployment?

The unemployment associated with workers changing jobs
The rise in unemployment among farm workers when they move from processing apples to processing oranges
The increase in unemployment during recessions
The rise in unemployment for stable workers after the development of gasoline-powered automobiles and the resulting long-term decline in horse-and-buggy transportation
The increase in unemployment during recessions
People who are ______ unemployed tend to have the shortest lengths of unemployment.
frictionally, friction, or frictional
Both ____ and _____ unemployment occur naturally in both growing and contracting economies.
Blank 1: frictional
Blank 2: structural
Which of the following offers an example of frictional unemployment?

The unemployment associated with workers changing jobs
The rise in unemployment for stable workers after the development of gasoline-powered automobiles and the resulting long-term decline in horse-and-buggy transportation
The increase in unemployment during recessions
The unemployment associated with workers changing jobs
An economy operating at _____ employment does not employ 100 percent of workers in the labor force.
full
If the labor force is 160 million and the number of employed is 125 million, the number of unemployed equals _____ million workers.
35
If 155.2 million workers are employed and 6.8 million are unemployed, then the unemployment rate equals ___ percent. (Give your answer up to one decimal place.)
4.2
The natural rate of ____ equals the sum of the frictional and structural unemployment rates.
unemployment
Jamie has been out of work for a full year. She has given up searching for work. She is:
a discouraged worker.
The natural rate of unemployment for an economy experiencing frictional unemployment of 3 percent and structural unemployment of 4 percent is ____ percent.
7%
Which of the following people illustrates a case of cyclical unemployment?

John who has lost his job because his skills have become obsolete
Joe who has recently been laid off due to a fall in demand
Jane who has resigned following a work dispute and is currently searching for a similar line of employment
Jean who works part-time at an employment agency but would like to work full-time if given the opportunity
Joe who has recently been laid off due to a fall in demand
Comparing the actual unemployment rate with the ____ rate of unemployment can help us gauge the current state of the economy relative to normal times.
natural
A fully employed economy is one that is operating at what economists call the ____ rate of unemployment.
natural
The unemployment rate is the proportion of the _____ ______ that is unemployed.
Blank 1: labor, labour, or work
Blank 2: force
Economists define inflation as a general increase in the _____ of goods and services.
price, prices
There will always be _____ (choose your answer from frictionally/structurally) unemployed workers searching for positions or in between jobs.
frictionally
If 150 million workers are in the labor force, and, of those workers, 2.5 million are frictionally unemployed and 3.5 million are structurally unemployed, the natural rate of unemployment is _____ percent.
4%
Changing demographics as well as increases in worker mobility may generate additional ____ unemployment and increase the _____ rate of unemployment all else held constant.
frictional, natural
_____ unemployment and _____ unemployment are unavoidable and occur naturally.
Blank 1: Structural or structural
Blank 2: frictional or Frictional
Economists define ____ as a general increase in the prices of goods and services.
inflation
The natural rate of unemployment equals the sum of the ____ and ____ unemployment rates.
Blank 1: frictional
Blank 2: structural
Inflation is caused by increases in aggregate _____ .
demand
If 160 million workers are in the labor force and of those workers 2.5 million are frictionally unemployed and 3.5 million are structurally unemployed, to two decimal places the natural rate of unemployment is ____ percent. (Round off your answer to two decimal places.)
3.75%
The natural rate of unemployment changes over time because:

the economy is always growing.
frictional unemployment structural unemployment and the labor force change on a continuous basis.
the population is increasing.
the actual unemployment rate changes.
frictional unemployment structural unemployment and the labor force change on a continuous basis.
A fully employed economy is one that is operating at what economists call the:

usual rate of unemployment.
average rate of unemployment.
natural rate of unemployment.
expected rate of unemployment.
natural rate of unemployment.
_____ results in a reduction in someone's ability to buy goods and services.
Inflation
Economists define inflation as a general increase in the ____ of goods and services.
price, prices
In general, an increase in the money supply causes:

no verifiable change in economic variables.
inflation.
an increase in aggregate demand.
deflation.
inflation
Inflation represents a(n) _______ (increase/decrease) in someone's ability to buy goods and services.
decrease
CPI (Consumer Price Index)
a measure of the overall cost of the goods and services bought by a typical consumer
The consumer price index (CPI) measures:

the average price of a market basket of goods.
the total price of all goods and services.
the average price of all goods and services.
the total price of a market basket of goods.
the average price of a market basket of goods.
The price of a good is a measure of how much money it takes to buy that good. T or F
True
The U.S. Bureau of Labor Statistics also collects information on prices every ____ to compute the Consumer Price Index.
month
The CPI consumption categories that account for the second and third largest proportions of consumer spending are:

transportation and housing.
transportation and food and beverage.
housing and food and beverage.
education and communication and housing.
transportation and food and beverage.
CPI is computed by
U.S. Bureau of Labor Statistics
An economic indicator known as the CPI is the:

Consumer Product Index.
Consumer Price Index.
Cost Price Index.
Cost Product Index.
Consumer Price Index.
The CPI is computed by the U.S. Bureau of Labor Statistics through interviews and weekly diaries for more than _____ families around the country.
10000 or 10,000
Vegetables are purchased by a restaurant. Which major group of the CPI does this purchase belong to?

Other goods and services
Recreation
It is not included in any CPI category
Food and beverage
It is not included in any CPI category
The CPI consumption category that accounts for the largest proportion of consumer spending is ____ .
housing
[(Value of a market basket in Year T / Value of a market basket in base year) X 100] = __________

PPI
GDP price index
GDP deflator
CPI
CPI
The CPI will always be ____ for the base year because we are comparing the value of the basket to itself. (Answer in number.)
hundred, 100, or one hundred
The Consumer Price Index measures _____ price for a market basket of goods and services purchased by the typical consumer from one year to the next.
average
The CPI is constructed using the goods and services purchased by the ____ household.
average
When comparing periods of time separated by decades or generations:

usually over all incomes have kept pace with inflation.
income comparisons are quite exact because of advanced information technology.
income comparisons are not exact because of the different goods and services that can be purchased in different eras.
there is little validity in the information because the information is not consistent.
income comparisons are not exact because of the different goods and services that can be purchased in different eras.
A percentage change in a value equals the:
value in the later year minus the value in the earlier year divided by the value in the earlier year and multiplied by 100.
We distinguish between nominal income and real income because receiving a salary increase is better than not getting one, but the additional dollars may not allow you to buy as many goods and services as last year due to ___ .
inflation
From 1979 to 2019, real earnings decreased for those having only a high school education or less. Among the possible explanations for this trend offered by economists are:

the educational system in the U.S. has lost ground to other countries.
inflation affects those with less education more than it does those with more education.
globalization has helped those with greater education more than those with less education.
technological change occurring in recent decades has increased the demand for people with more education.
globalization has helped those with greater education more than those with less education.

technological change occurring in recent decades has increased the demand for people with more education.
The inflation rate equals the:

value of the CPI in the later year minus the value of the CPI in the earlier year divided by the value of the CPI in the earlier year and multiplied by 100.
value of the CPI in the earlier year minus the value of the CPI in the later year divided by the value of the CPI in the later year and multiplied by 100.
value of the CPI in the later year minus the value of the CPI in the earlier year divided by the value of the CPI in the earlier year and divided by 100.
value of the CPI in the earlier year minus the value of the CPI in the later year divided by the value of the CPI in the later year and divided by 100.
value of the CPI in the later year minus the value of the CPI in the earlier year divided by the value of the CPI in the earlier year and multiplied by 100.
The measure of the purchasing power of what you earn every month is:

real income.
average income.
marginal income.
nominal income.
real income.
The number of dollars you receive for your labor is:

nominal income.
marginal income.
average income.
real income.
Nominal Income
_____ income measures the purchasing power of what you earn every month.
real
Real income equals ___ income divided by the Consumer Price Index times 100.
nominal
The percentage change in real income is approximately the percentage change in nominal income minus the percentage change in _____ level.
price
____ income is the number of dollars you receive for your labor.
nominal
If nominal income increases by 3 percent and prices by 1 percent, the percentage change in real income will be ____ percent.
2
income is the the amount of goods and services that can be purchased with actual income.
Real
In the base year, ____ income and ___ income are the same.
nominal, real
In general, the greater your education level, the ____ your average weekly nominal earnings.
more
The percentage change in real income is approximately the percentage change in nominal income ____ (plus/minus) the percentage change in prices.
minus
If nominal income increases by 5 percent and prices by 3 percent, the percentage change in real income will be _____ percent.
2
The measure of the purchasing power of what you earn every month:
real income
____ income measures the purchasing power of what you earn every month.
real
In general, the greater your education level, ____ your average weekly nominal earnings.
higher
The amount of goods and services that can be purchased with actual income is:

average income.
nominal income.
marginal income.
real income.
real income
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