Midterm 2 Flashcards
Recurring upswings and downswings in an economy’s real GDP over time are called:
Business Cycles
The phase of the business cycle in which real GDP declines is called:
A Recession
In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?
Expansion
Which of the following is not seen by economists as an underlying cause of business cycle fluctuations?
Unexpected financial bubbles that eventually burst
Shocks to the money supply by the nation’s central bank
Supply shocks caused by major innovations
True or False
The production of durable goods is more stable than the production of nondurables over the business cycle
False
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
False
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:
Frictionally unemployed
According to the Bureau of Labor Stats, to be officially unemployed a person must:
Be in the labor force
The labor force includes:
Employed workers but excludes persons who are officially unemployed
The unemployment rate of:
Teenagers group is much higher than that of adults
Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is:
Not in the labor force
The presence of discouraged workers:
May cause the official unemployment rate to understate the true amount of unemployment.
Part-time workers who want full-time work are counted as
Fully employed and therefore the official rate may understate the level of unemployment
Structural unemployment:
May involve a locational mismatch between unemployed workers and job openings
The type of unemployment associated with recessions is called:
Cyclical unemployment
Inflation means that:
Prices on average are rising, although some particular prices may be falling
The recurrent ups and down in the level of economic activity extending several years are referred to as:
Business cycles
A peak in the business cycle:
Is a temporary maximum point.
A trough in the business cycle occurs when:
Employment and output reach their lowest levels.
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?
9 Million
The unemployed are those people who:
Are not employed but are seeking work.
The best example of a “frictionally unemployed” worker is one who:
Is in the process of voluntarily switching jobs
A worker who loses a job at a call center because the company moved the call center to another country is an example of:
Structural unemployment
Unemployment rates for skilled workers compared to unemployment rates for unskilled workers are:
Lower, because skilled workers tend to be employed in less cyclically vulnerable industries, such as the services and nondurable goods industries
When inflation occurs:
The purchasing power of money decreases
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:
10%
The consumption schedule directly relates:
Consumption to the level of disposable income
The relationship between consumption and disposable income is such that:
A direct and relatively stable relationship exists between consumption and income
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:
Consumption spending will be $14,500
In trent’s MPC is .80, this means that he will
Spend eight-tenths of any increase in his disposable income
Dissaving means
That households are spending more than their current incomes
If the marginal propensity to consume is .9, then the marginal propensity to save must be:
0.1
Given the expected rate of return on all possible investment opportunities in the economy:
An increase in the real rate of interest will reduce the level of investment.
In the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:
12%
During the Great Recession of 2007-2009
Real interest rates increased, choking off investment spending.
In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. we would expect this to:
Increase aggregate demand
In aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that:
The price level is inflexible downward and a recession has occurred
If aggregate demand increases and aggregate supply decreases, the price level:
Will increase, but real output may increase, decrease, or remain unchanged
In which of the following sets of circumstances can we confidently expect inflation?
Aggregate supply decreases and aggregate demand increases.
Prices and wages tend to be:
Flexible upward, but inflexible downward
Fiscal policy refers to the:
Deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.
Expansionary fiscal policy is so named because it:
is designed to expand real GDP
Contractionary fiscal policy is so named because it:
Is aimed at reducing aggregate demand and thus achieving price stability
An economist who favors smaller government would recommend:
Tax cuts during recession and reductions in government spending during inflation
An economist who favors expanded government would recommend:
Increases in government spending during recession and tax increases during inflation
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?
Reductions in federal tax rates on personal and corporate income
An appropriate fiscal policy for a severe recession is
A decrease in tax rates
True or False
The public debt is held as treasury bulls, treasury notes, treasury bonds, and U.S.Savings bonds
True
