Question 1

Using the graph below, identify the different stages of the business cycle. Assume that A, B, and C represent consecutive years.

a. A time period when the economy is growing toward full employment is known as an expansion.

It is depicted in the graph as B through C .

b. A time period characterized by full or near-full employment is known as a peak 

It is depicted in the graph as A.

c. A time period with two consecutive quarters of declining output is known as a recession .

It is depicted in the graph as A through B 

d. A time period when employment and real output are at their lowest levels is known as a trough 

It is depicted in the graph as B 

Question 2

Suppose Marcus eats nothing but burritos for dinner. He buys 30 burritos each month. During the last couple of weeks, Marcus noticed an increase in the price of burritos. The price of burritos rose from $5.50 per burrito last month to $6.60 per burrito this month. Assume that Marcus has a fixed income of $165 that he can spend on burritos.

How many burritos can Marcus afford to buy at the new price of $6.60?

25 burritos

Question 3

In each of the following examples, identify whether the person is counted in the official labor force or not.

a. Cynthia owns and operates her own retail store.

In the labor force 

b. Elder has recently moved to a retirement community in Florida where he enjoys his “golden years” as a retiree.

Not in the labor force 

c. Drew lost his job at the bank last year. He spent 6 months applying for every job possible before giving up 2 months ago.

Not in the labor force 

d. Katherine works part-time at a small retail store. She would like to work full-time, but her employer is unable to extend her hours.

In the labor force 

e. Latisha is an ambitious 15-year-old who spends her summer working as a lifeguard at a local pool.

Not in the labor force

f. Bill is currently serving a prison sentence, and works making license plates.

Not in the labor force 

g. Tyrell just graduated college with a business degree. He is currently looking for a banking job in the major city he just moved to.

In the labor force

Question 4

For each of the following items, indicate to which major group of the CPI the item belongs:

a. Tuition payments to your university: Education and communication Correct

b. A new desk for your dorm room or apartment: Housing 

c. An airline ticket to Florida to be used during spring break: Transportation 

d. A 12-pack of beer to be used during spring break: Food and beverages 

e. Tickets to a local concert: Recreation 

f. A late night visit to the emergency room: Medical 

Question 5

In the United States, business cycles have occurred against a backdrop of a long-run trend of

Multiple Choice

rising inflation.

rising real GDP.

stagnant productivity growth.

declining unemployment.

Question 6

Use the table below to answer the next question. 

  

Year

Employed

Structural

Frictional

Cyclical

Unemployed

 

2003

1,800

50

100

50

200

 

2004

2,400

100

100

300

 

2005

2,000

150

180

500

 

2006

2,660

40

0

140

Determine the number of people frictionally unemployed for the year 2006.

Multiple Choice

0

 100

-100

200

Question 7

The unemployed are those people who

Multiple Choice

are not employed but are seeking work.

are not working.

do not have jobs.

are not in the workforce.

Question 8

A trough in the business cycle occurs when

Multiple Choice

cyclical unemployment is at a minimum point.

employment and output reach their lowest levels.

the inflation rate is at its lowest level.

the natural rate of unemployment is at a minimum point.

Question 9

The unemployment rate of full-employment is also called the

Multiple Choice

frictional rate of unemployment.

potential rate of unemployment.

natural rate of unemployment.

cyclical rate of unemployment.

Question 10

The rate of unemployment when the economy is fully employed is called the

Multiple Choice

full-employment rate of unemployment.

natural rate of unemployment.

frictional rate of unemployment.

structural rate of unemployment.

Question 11

The labor force includes

Multiple Choice

employed workers and persons who are officially unemployed.

full-time workers but excludes part-time workers.

permanent employees but excludes temporary employees.

employed workers but excludes persons who are officially unemployed.

Question 12

Use the table below to answer the next question.

  

Year

Employed

Structural

Frictional

Cyclical

Unemployed

 

2003

1,800

50

100

50

200

 

2004

2,400

100

100

300

 

2005

2,000

150

180

500

 

2006

2,660

40

0

140

Determine the number of people cyclically unemployed for the year 2004.

Multiple Choice

100

200

-100

0

Question 13

According to the Bureau of Labor Statistics, to be officially unemployed a person must

Multiple Choice

be in the labor force.

be 21 years of age or older.

have lost a job.

be waiting to be called back from a layoff.

Question 14

Use the following diagram to answer the next question.

The straight line E drawn through the wavy lines would provide an estimate of the

Multiple Choice

natural rate of unemployment.

economic growth trend.

recovery trend.

recession fluctuation.

Question 15

In calculating the unemployment rate, part-time workers are

Multiple Choice

used to determine the size of the labor force, but not the unemployment rate.

counted as unemployed because they are not working full-time.

counted as employed because they are receiving payment for work.

treated the same as “discouraged” workers who are not actively seeking employment.

Question 16

Search and wait unemployment is another way to describe

Multiple Choice

frictional unemployment.

structural unemployment.

cyclical unemployment.

noncyclical unemployment.

Question 17

Use the table below to answer the next question.  

  

Year

Employed

Structural

Frictional

Cyclical

Unemployed

 

2003

1,800

50

100

50

200

 

2004

2,400

100

100

300

 

2005

2,000

150

180

500

 

2006

2,660

40

0

140

Determine the number of people structurally unemployed for the year 2005.

Multiple Choice

150

0

220

 170

Question 18

The GDP gap measures the amount by which

Multiple Choice

potential GDP differs from actual GDP.

actual GDP exceeds equilibrium GDP.

nominal GDP exceeds real GDP.

actual GDP exceeds national income.

Question 19

The unemployment rate is interpreted as the percentage of the

Multiple Choice

adult population who are unemployed.

workforce that have been laid off.

able-bodied population who are not working.

labor force that are not employed.

Question 20

Which of the following statements is true about causes of business cycle fluctuations?

Multiple Choice

Economists all agree that productivity shocks are the cause of most business cycle changes.

There are a wide range of theories as to the underlying causes of business cycle movements.

Economists all agree that monetary changes are primarily responsible for business cycle fluctuations.

Economists all agree that supply shocks are the cause of most business cycle fluctuations.

Question 21

What is an advantage of mild inflation according to some economists?

Multiple Choice

It helps to close the GDP gap.

It reduces frictional, structural, and cyclical unemployment in the economy to make the economy more productive.

It reduces the inflation premium.

It makes it easier for firms to adjust real wages downward as demand for their products falls.

Question 22

In an economy, the total expenditures for a market basket of goods in year 1 (the base year) was $5,000 billion. In year 2, the total expenditure for the same market basket of goods was $5,500 billion. What was the Consumer Price Index for the economy in year 2?

Multiple Choice

110

100

120

115

Question 23

Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unexpected inflation occurs in the economy, then

Multiple Choice

both lenders and borrowers benefit.

borrowers are hurt, but lenders benefit.

lenders are hurt, but borrowers benefit.

both lenders and borrowers are hurt.

Question 24

Inflation is a rise in

Multiple Choice

the standard of living over time.

real GDP over time.

unemployment over time.

the general level of prices over time.

Question 25

Inflation that occurs when total spending is greater than the economy’s ability to produce output at the existing price level is

Multiple Choice

unexpected inflation.

cost-push inflation.

demand-pull inflation.

expected inflation.

Question 26

Which of the following measures the changes in the prices of a “market basket” of some 300 goods and services purchased by typical urban consumers?

Multiple Choice

the Retail Trade survey

the GDP Price Index

the Wholesale Price Index

the Consumer Price Index

Question 27

The CPI compiled by the Bureau of Labor Statistics is used in the computations for the

Multiple Choice

inflation rate.

interest rate.

unemployment rate.

foreign exchange rate.

Question 28

Inflation caused by a rise in the prices of inputs is referred to as

Multiple Choice

hyperinflation.

cost-push inflation.

unexpected inflation.

demand-pull inflation.

Question 29

What is the main problem with mild inflation according to some economists?

Multiple Choice

It diverts productive time towards activities to hedge against inflation.

It leads to unexpected deflation.

It reduces the size of the GDP gap.

It increases frictional and structural unemployment in the economy.

Question 30

Core inflation refers to the inflation picture after stripping away the

Multiple Choice

service-sector prices.

food and energy prices.

government-regulated prices.

capital goods prices.