Econ Ch. 13 Test

Question 1

List the phases of the business cycle

Answer 1

Trough, Expansion, Peak, Recession

Question 2

Characteristics of a Trough

Answer 2

Bottom of business cycle, low prices, high unemployment, depressed incomes

Question 3

Characteristics of an Expansion

Answer 3

Rising GDP, More jobs, low unemployment, national income expands, more credit purchases

Question 4

Characteristics of a Peak

Answer 4

Price of labor is up, borrowing money begins to cost more (higher interest rates), economy expands, sales increase, halt in rapid expansion due to limited raw materials, labor, and capital, shortages of natural resources, low unemployment

Question 5

Characteristics of a Recession

Answer 5

Unemployment rises, Big ticket items purchased less, businesses produce less

Question 6

Periodic upswings and downturns of business activity in a market economy

Answer 6

Business cycle

Question 7

What is the sunspot theory

Answer 7

Theory that business cycle is related to sunspots on the sun (a change in weather –> change in agricultural market)

Question 8

What is the psychological theory?

Answer 8

Theory that the business cycle is related to the level of confidence people have in the economy

Question 9

What is the monetary theory?

Answer 9

Theory that change sin money supply cause ups and downs of business cycle

Question 10

What is the technological theory?

Answer 10

Theory that new development in technology causes changes in business cycle

Question 11

What is the political theory?

Answer 11

Theory that the political party in power influences the business cycle (liberals overspend –> inflation, conservatives underspend –> recession)

Question 12

5 theories of what affects the business cycle

Answer 12

Political theory, technological theory, monetary theory, psychological theory, sunspot theory

Question 13

Nation’s with long lasting periods of unemployment more likely to have…

Answer 13

Spousal/Child abuse, suicides, heart attacks, divorces, homicides, psychological problems

Question 14

What 2 phases of business cycle is unemployment most common?

Answer 14

Recession and Trough

Question 15

What is/is not included in unemployment figures

Answer 15

IS included: 16-64 year olds, not military, not institutionalized,

IS NOT: people under 16, over 64, people in military or institutionalized

Question 16

Why is knowing the unemployment rate helpful?

Answer 16

It indicates what part of the business cycle the country is in

Question 17

What can skew unemployment figures?

Answer 17

• Workers not counted as employed (homemakers, military)
• Discouraged workers
• They count underemployed and employed as the same thing
• Temporarily off jobs counted as unemployed (people between jobs)

Question 18

4 Types of unemployment

Answer 18

1) Frictional: People between jobs
2) Structural: Workers skills dont match available jobs
3) Seasonal: Labor force needed expands/contracts seasonally
4) Cyclical: Caused by downside of business cycle

Question 19

How has government tried to react to unemployment

Answer 19

• Employment Act of 1946 made it the government’s priority to maximize employment
• job training programs
• encourage work to be spread out, not so much seasonal
• control business cycle
• implement financial penalties

Question 20

What is the free market solution to unemployment?

Answer 20

Allow supply and demand to work and regulate the market (jobs/wages)

Question 21

ESSAY question STudy own notes Link monetary and political theory

Answer 21

The monetary theory is the theory that changes in the money supply cause the ups and downs of the business cycle. The political theory is the belief that the political party in charge controls the business cycle. Money supply can cause expansion and recession in business cycle. The people associated with changing the money supply are the leaders of the FED and FOMC. These are appointed by the president and approved by Congress. Political leaders can somewhat control the business cycle because they choose the people who shrink and grow the money supply.

Question 22

Percentage of labor force that is not employed but looking for work

Answer 22

Unemployment rate

Question 23

Includes employed and unemployed actively looking for job

Answer 23

Labor Force

Question 24

Chronically unemployed people

Answer 24

Discouraged Workers