Midterm 2

Question 1

Recurring upswings and downswings in an economy’s real GDP over time are called:

Answer 1

Business Cycles

Question 2

The phase of the business cycle in which real GDP declines is called:

Answer 2

A Recession

Question 3

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

Answer 3

Expansion

Question 4

Which of the following is not seen by economists as an underlying cause of business cycle fluctuations?

Answer 4

Unexpected financial bubbles that eventually burst
Shocks to the money supply by the nation’s central bank
Supply shocks caused by major innovations

Question 5

True or False

The production of durable goods is more stable than the production of nondurables over the business cycle

Answer 5

False

Question 6

True or False
The business cycle is so named because upswings and downswings in business activity are predictably equal in terms of duration and intensity

Answer 6

False

Question 7

Kara voluntarily quit her job as an insurance agent to return to school full time to earn and MBA degree. With degree in hand, she is now searching for a position in management. Kara presently is:

Answer 7

Frictionally unemployed

Question 8

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

Answer 8

Be in the labor force

Question 9

The labor force includes:

Answer 9

Employed workers but excludes persons who are officially unemployed

Question 10

The unemployment rate of:

Answer 10

Teenagers group is much higher than that of adults

Question 11

Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is:

Answer 11

Not in the labor force

Question 12

The presence of discouraged workers:

Answer 12

May cause the official unemployment rate to understate the true amount of unemployment.

Question 13

Part-time workers who want full-time work are counted as

Answer 13

Fully employed and therefore the official rate may understate the level of unemployment

Question 14

Structural unemployment:

Answer 14

May involve a locational mismatch between unemployed workers and job openings

Question 15

The type of unemployment associated with recessions is called:

Answer 15

Cyclical unemployment

Question 16

Inflation means that:

Answer 16

Prices on average are rising, although some particular prices may be falling

Question 17

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

Answer 17

Business cycles

Question 18

A peak in the business cycle:

Answer 18

Is a temporary maximum point.

Question 19

A trough in the business cycle occurs when:

Answer 19

Employment and output reach their lowest levels.

Question 20

The unemployment rate in an economy is 6%. The total population of the economy is 290 million, and the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is?

Answer 20

9 Million

Question 21

The unemployed are those people who:

Answer 21

Are not employed but are seeking work.

Question 22

The best example of a “frictionally unemployed” worker is one who:

Answer 22

Is in the process of voluntarily switching jobs

Question 23

A worker who loses a job at a call center because the company moved the call center to another country is an example of:

Answer 23

Structural unemployment

Question 24

Unemployment rates for skilled workers compared to unemployment rates for unskilled workers are:

Answer 24

Lower, because skilled workers tend to be employed in less cyclically vulnerable industries, such as the services and nondurable goods industries

Question 25

When inflation occurs:

Answer 25

The purchasing power of money decreases

Question 26

With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6%. But if the rate of inflation was anticipated to be 4%, the bank would most likely charge the firm an annual interest rate of:

Answer 26

10%

Question 27

The consumption schedule directly relates:

Answer 27

Consumption to the level of disposable income

Question 28

The relationship between consumption and disposable income is such that:

Answer 28

A direct and relatively stable relationship exists between consumption and income

Question 29

Tessa’s break-even income is $10,000 and her MPC is 0.75. If her actual disposable income is $16,000, her level of:

Answer 29

Consumption spending will be $14,500

Question 30

In trent’s MPC is .80, this means that he will

Answer 30

Spend eight-tenths of any increase in his disposable income

Question 31

Dissaving means

Answer 31

That households are spending more than their current incomes

Question 32

If the marginal propensity to consume is .9, then the marginal propensity to save must be:

Answer 32

0.1

Question 33

Given the expected rate of return on all possible investment opportunities in the economy:

Answer 33

An increase in the real rate of interest will reduce the level of investment.

Question 34

In the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:

Answer 34

12%

Question 35

During the Great Recession of 2007-2009

Answer 35

Real interest rates increased, choking off investment spending.

Question 36

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. we would expect this to:

Answer 36

Increase aggregate demand

Question 37

In aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that:

Answer 37

The price level is inflexible downward and a recession has occurred

Question 38

If aggregate demand increases and aggregate supply decreases, the price level:

Answer 38

Will increase, but real output may increase, decrease, or remain unchanged

Question 39

In which of the following sets of circumstances can we confidently expect inflation?

Answer 39

Aggregate supply decreases and aggregate demand increases.

Question 40

Prices and wages tend to be:

Answer 40

Flexible upward, but inflexible downward

Question 41

Fiscal policy refers to the:

Answer 41

Deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

Question 42

Expansionary fiscal policy is so named because it:

Answer 42

is designed to expand real GDP

Question 43

Contractionary fiscal policy is so named because it:

Answer 43

Is aimed at reducing aggregate demand and thus achieving price stability

Question 44

An economist who favors smaller government would recommend:

Answer 44

Tax cuts during recession and reductions in government spending during inflation

Question 45

An economist who favors expanded government would recommend:

Answer 45

Increases in government spending during recession and tax increases during inflation

Question 46

Suppose that the economy is in the midst of a recession. which of the following policies would most likely end the recession and stimulate output growth?

Answer 46

Reductions in federal tax rates on personal and corporate income

Question 47

An appropriate fiscal policy for a severe recession is

Answer 47

A decrease in tax rates

Question 48

True or False

The public debt is held as treasury bulls, treasury notes, treasury bonds, and U.S.Savings bonds

Answer 48

True