ECO 372T Wk 2 – Practice: Business Cycles, Unemployment, and Inflation Quiz 

In each of the following examples, identify whether the individual is experiencing cyclical unemployment, frictional unemployment, structural unemployment, or no unemployment.

1. Eduardo has recently moved to a new city with his wife who was offered a great job there. He is trying to find a position in the same industry he worked in before relocating.

1. Derek worked for a large telecommunications firm that went bankrupt last year due to a recent recession. He has since tried to find work with one of the firm’s competitors, but good jobs are currently hard to come by.

1. Drew lost his job at a car manufacturer last year. He spent 6 months applying for every job possible before giving up 2 months ago. He now spends his day playing Xbox.

1. Paula has 20 years of experience in manufacturing. Her employer, and many other manufacturing firms, recently closed their U.S. plants. She would like to find a similar job but is unable to find anything that utilizes her skills.

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

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

1. Mike is a contractor who has been unable to find work, since most businesses are delaying or canceling their construction plans due to economic uncertainty in the coming year.

1. Meg used to own and run her own bookstore. Her sales declined due to competition from online retailers. She has not been able to find any work related to her skills in the diminishing retail industry for books.

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

1. Tuition payments to your university:
2. A new desk for your dorm room or apartment:
3. An airline ticket to Florida to be used during spring break:
4. A 12-pack of beer to be used during spring break:
5. Tickets to a local concert:
6. A late night visit to the emergency room:

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?

Instructions: Enter your answer as a whole number.

burritos

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

1. Cynthia owns and operates her own retail store.

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

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

1. 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.

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

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

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

1. John and his wife just had their second child. They decided that it was best for John to leave his job and care for their new child.

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

1. A time period when the economy is growing toward full employment is known as

It is depicted in the graph as

1. A time period characterized by full or near-full employment is known as

It is depicted in the graph as

1. A time period with two consecutive quarters of declining output is known as

It is depicted in the graph as

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

It is depicted in the graph as

Historical data show that during the recession of 1990–1991, the natural rate of unemployment was about 5.9% while the actual unemployment rate was 7.0%. A decade later, during the 2001 recession, the natural rate of unemployment fell to 4.8% while actual unemployment was 6.0%.

Using this information, which of the following statements is  regarding these two short recessions?

Both the actual unemployment rate and cyclical unemployment were higher during the 2001 recession.

Both the actual unemployment rate and cyclical unemployment were higher during the recession of 1990−1991.

The actual unemployment rate was higher during the recession of 1990−1991, while cyclical unemployment was higher in 2001.

The actual unemployment rate was higher in 2001, while cyclical unemployment was higher from 1990−1991.

The natural rate of unemployment

Multiple Choice

means that the economy will always operate at that rate.

is a fixed unemployment rate that does not change over time.

means that the economy will always realize its potential output.

is equal to the total of frictional and structural unemployment.

Use the following diagram to answer the next question.

The diagram illustrates the pattern of

Multiple Choice

economic growth patterns.

business cycles.

wage movements over time.

price level movements.

Full employment” refers to the situation when there is

Multiple Choice

100% employment of the labor force.

no cyclical unemployment.

no frictional or structural unemployment.

a 0% unemployment rate.

The unemployment rate is interpreted as the percentage of the

Multiple Choice

able-bodied population who are not working.

adult population who are unemployed.

workforce that have been laid off.

labor force that are not employed.

A recession is a decline in

Multiple Choice

the inflation rate that lasts six months or longer.

the unemployment rate that lasts six months or longer.

real GDP that lasts six months or longer.

potential GDP that lasts six months or longer.

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

Multiple Choice

frictional rate of unemployment.

structural rate of unemployment.

full-employment rate of unemployment.

natural rate of unemployment.

Use the table below to answer the next question.

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

Multiple Choice

-100

100

0

200

Use the table below to answer the next question.

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

Multiple Choice

100

0

200

-100

A mismatch between the geographic location of workers and the location of job openings would result in which type of unemployment?

Multiple Choice

cyclical

structural

wait

frictional

Unemployment that occurs when there is deficient demand for the goods and services of an economy is called

Multiple Choice

cyclical unemployment.

structural unemployment.

frictional unemployment.

natural unemployment.

A peak in the business cycle

Multiple Choice

occurs when the unemployment rate is its greatest.

is a temporary maximum point.

is a temporary minimum point.

occurs when the inflation rate is its lowest.

Which of the following is the  way to calculate the unemployment rate?

Multiple Choice

(labor force/unemployed) x 100

(unemployed/labor force) x 100

(labor force/population) x 100

(unemployed/population) x 100

The Great Recession that started in 2007 was triggered by shocks in which of the following economic sectors?

Multiple Choice

consumer and government spending

international trade and foreign exchange markets

real estate and financial markets

gold market and stock market

In the expansion phase of a business cycle

Multiple Choice

employment and output increase.

the inflation rate and productive capacity decrease.

the inflation rate decreases, but productive capacity increases.

employment increases, but output decreases.

In calculating the unemployment rate, part-time workers are

Multiple Choice

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

counted as employed because they are receiving payment for work.

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

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

The labor force includes

Multiple Choice

permanent employees but excludes temporary employees.

employed workers but excludes persons who are officially unemployed.

full-time workers but excludes part-time workers.

employed workers and persons who are officially unemployed.

Wait unemployment and search unemployment are both types of

Multiple Choice

frictional unemployment.

cyclical unemployment.

hidden unemployment.

structural unemployment.

Use the table below to answer the next question.

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

Multiple Choice

220

170

0

150

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

Multiple Choice

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

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

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

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

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

Multiple Choice

stagnant productivity growth.

rising real GDP.

rising inflation.

declining unemployment.

The unemployment rate of full-employment is also called the

Multiple Choice

cyclical rate of unemployment.

natural rate of unemployment.

potential rate of unemployment.

frictional rate of unemployment.

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

Multiple Choice

be 21 years of age or older.

be in the labor force.

be waiting to be called back from a layoff.

have lost a job.

The recurrent ups and downs in the level of economic activity extending over several years are referred to as

Multiple Choice

business cycles.

economic phases.

business startups.

noncyclical fluctuations.

In calculating the unemployment rate, “discouraged” workers who are not actively seeking employment are

Multiple Choice

included as part of the unemployed.

excluded from the labor force.

used to determine the size of the labor force.

treated the same as part-time workers.

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.

The GDP gap measures the amount by which

rev: 11_14_2016_QC_CS-69055

Multiple Choice

nominal GDP exceeds real GDP.

actual GDP exceeds equilibrium GDP.

potential GDP differs from actual GDP.

actual GDP exceeds national income.

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

recession fluctuation.

recovery trend.

natural rate of unemployment.

economic growth trend.

Which of the following groups declares the start and end of recessions in the U.S.?

Multiple Choice

The Business Cycle Dating Committee of the National Bureau of Economic Research.

The Business Cycle Monitoring Committee of the Federal Reserve System.

The Business Cycle Tracking Agency of the Department of Commerce.

The Committee on Business Cycles of the Council of Economic Advisers.

A trough in the business cycle occurs when

Multiple Choice

the inflation rate is at its lowest level.

employment and output reach their lowest levels.

cyclical unemployment is at a minimum point.

the natural rate of unemployment is at a minimum point.

Search and wait unemployment is another way to describe

Multiple Choice

structural unemployment.

noncyclical unemployment.

frictional unemployment.

cyclical unemployment.

Unexpected inflation arbitrarily

Multiple Choice

“penalizes” those who borrow money.

“taxes” those who receive fixed money incomes.

“benefits” those who save money.

“subsidizes” those who receive fixed money incomes.

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

Multiple Choice

interest rate.

unemployment rate.

inflation rate.

foreign exchange rate.

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

Multiple Choice

It reduces the inflation premium.

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

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

It helps to close the GDP gap.

Core inflation refers to the inflation picture after stripping away the

Multiple Choice

government-regulated prices.

service-sector prices.

capital goods prices.

food and energy prices

Which of the following groups has traditionally benefited from unexpected inflation?

Multiple Choice

federal government

foreign sector

consumers

business firms

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 Consumer Price Index

the GDP Price Index

the Wholesale Price Index

the Retail Trade survey

Inflation caused by an increase in aggregate spending is referred to as

Multiple Choice

demand-pull inflation.

cost-push inflation.

hyperinflation.

expected inflation.

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

Multiple Choice

hyperinflation.

demand-pull inflation.

unexpected inflation.

cost-push inflation.

The inflation rate measures the percentage growth rate of

Multiple Choice

the CPI from one year to the next.

real GDP from one year to the next.

the CPI from the base period 1982-84 to a given year.

real GDP from the base period 1982-84 to a given year.

Inflation is a rise in

Multiple Choice

the general level of prices over time.

the standard of living over time.

real GDP over time.

unemployment over time.

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

100

115

110

120

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

Multiple Choice

It leads to unexpected deflation.

It diverts productive time towards activities to hedge against inflation.

It increases frictional and structural unemployment in the economy.

It reduces the size of the GDP gap.

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

Multiple Choice

demand-pull inflation.

expected inflation.

unexpected inflation.

cost-push inflation.

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.

both lenders and borrowers are hurt.

borrowers are hurt, but lenders benefit.

lenders are hurt, but borrowers benefit.