Inflation, business cycle and unemployment

Question 1

Inflation / Deflation

Answer 1

Persistent increase / decrease in the general price level

Question 2

Disinflation

Answer 2

Persistent increase in the general price level but at a declining rate

Question 3

GDP deflator

Answer 3

(Nominal GDP / Real GDP) x 100

Question 4

Consumer price index (CPI)

Answer 4

covers only a specific basket of consumer goods generally purchased by households

Question 5

GDP deflator

Answer 5

covers all final goods and services included in the calculation of GDP

Question 6

Redistributive effect during unanticipated inflation

Answer 6

● Payers gain because purchasing power of fixed payment decreases
● Recipients lose because purchasing power of fixed payment decreases

Question 7

Business cycles

Answer 7

Short run fluctuations of economic activity about its long run trend

Question 8

Peak

Answer 8

● Real GDP growth at the highest level
● High inflation rate
● Low unemployment rate

Question 9

Recession

Answer 9

● Decreasing real GDP growth rate
● Decreasing inflation rate
● Increasing unemployment rate

Question 10

Trough

Answer 10

● Real GDP growth at the lowest level
● Low inflation rate
● High unemployment rate

Question 11

Recovery

Answer 11

● Increasing real GDP growth rate
● Increasing inflation rate
● Decreasing unemployment rate

Question 12

Labour force

Answer 12

employed population + unemployed population

Question 13

Unemployment rate

Answer 13

(unemployed population / labour force) x 100%

Question 14

Costs of unemployment (to society)

Answer 14

● Loss of output & loss of human capital
● Social and political unrest

Question 15

Costs of unemployment (to government)

Answer 15

● Heavier financial burden
● Less salaries tax collected

Question 16

Costs of unemployment (personal)

Answer 16

● Loss of skills
● Lower living standard