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Questions and Answers
How is the output being forgone by the economy calculated according to Okun's law?
What is hyperinflation characterized by?
What does the Consumer Price Index (CPI) measure?
What is the formula used to calculate CPI?
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Which inflation type is caused by increased total spending exceeding production capabilities?
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What is the correct interpretation of the natural rate of unemployment?
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If the CPI in 2022 is calculated as 120 and in 2023 is 135, what is the inflation rate for 2023?
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Which of the following describes deflation?
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What characterizes a recession?
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What is the period following the trough in the business cycle called?
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Which term is used to describe a severe recession?
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During which phase does real GDP begin to increase?
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What does the business cycle primarily fluctuate based on?
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What occurs immediately after a peak in the business cycle?
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Which of the following is a characteristic of the expansion phase?
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What happens to unemployment during a severe recession?
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What is frictional unemployment primarily associated with?
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What characterizes structural unemployment?
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Which statement best defines full employment?
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Which type of unemployment results from the normal turnover of employees?
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What is a common misconception about full employment?
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Which of the following is NOT a characteristic of frictional unemployment?
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What does structural unemployment often require from workers?
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What best represents the relationship between full employment and potential output?
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What type of unemployment is primarily caused by insufficient demand for goods and services?
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What is the primary cost associated with unemployment?
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How is the GDP gap calculated?
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According to Okun's law, what is the negative impact on GDP for every 1% increase in unemployment?
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What is the formula for determining actual unemployment?
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Which factor does NOT affect the unequal burden of unemployment?
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What term describes the loss of output associated with unemployment?
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Which type of unemployment occurs naturally as people move between jobs?
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What type of inflation is caused by rising per-unit production costs?
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What is a characteristic of cost-push inflation?
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Which event is most likely to cause cost-push inflation?
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What is most likely to occur during the expansionary phase of the business cycle?
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Core inflation measures which of the following?
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How is real income calculated?
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If a person's nominal income rises from $10,000 to $12,000 and the CPI rises from 100 to 105, what happens to their real income?
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What do Cost-of-living adjustment clauses (COLAs) do?
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Study Notes
Business Cycle
- The business cycle is the fluctuation in economic activity, characterized by periods of upswings and downswings.
- Changes in economic activity are driven by fluctuations in total spending (price x quantity).
- The business cycle has four phases: recession, trough, expansion, and peak.
- Recession is a period of economic decline, marked by decreasing economic activity, rising unemployment, and a decrease in real GDP.
- A severe recession is called a depression.
- The trough is the end of a recession, marking a transition to expansion.
- Expansion is a period of increasing economic activity, resulting in rising real GDP. This phase is sometimes called a recovery.
- Peak is the highest point of economic activity in the business cycle, followed by a downturn.
Unemployment
- Unemployment is the state of being jobless and actively seeking employment.
- The natural rate of unemployment is the sum of frictional and structural unemployment.
- Frictional unemployment occurs due to the normal turnover of employees in the labor market, such as people searching for a first job or waiting for a new job.
- Structural unemployment arises from changes in the economic structure. It occurs when workers find it difficult to secure new employment without acquiring new skills.
- Cyclical unemployment is unemployment caused by recessions, resulting from insufficient demand for goods and services.
Inflation
- Inflation is an increase in the general price level of goods and services in an economy.
- Deflation is a decrease in the general price level of goods and services in an economy.
- Hyperinflation is a very rapid increase in the overall price level.
- Inflation reduces the purchasing power of money, meaning it takes more money to buy the same amount of goods and services.
- The Consumer Price Index (CPI) measures the overall cost of goods and services purchased by consumers. It is calculated by multiplying the price of goods and services by their quantity.
- Demand-pull inflation is caused by an increase in demand that exceeds the economy’s production capacity.
- Cost-push inflation is initiated by increases in wages or other resource prices, leading to higher per-unit production costs.
- Okun’s law suggests that for every 1% increase in unemployment, there is a 2% negative GDP gap.
Potential GDP
- Potential GDP is the level of output an economy can produce when all resources are fully employed.
- The GDP gap is the difference between actual GDP and potential GDP.
- Okun's Law states that for every 1% increase in unemployment, there is a 2% decrease in the economy's GDP gap.
- The unequal burden of unemployment can affect different demographic groups based on gender, skill levels, and education.
- Unemployment, particularly cyclical unemployment, represents an economic cost due to the loss of potential output.
Cost of Inflation
- The unequal burden of inflation impacts individuals and businesses differently, depending on their income, assets, and debts.
Additional Note
- The study notes are based on the provided text, which includes some inconsistent formatting and notation. The notes aim to clarify and summarize the key concepts while maintaining consistency.
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Description
This quiz explores the business cycle's phases, including recession, trough, expansion, and peak, along with the concept of unemployment and its natural rate. Understand how economic activity fluctuates and the factors influencing these changes. Test your knowledge on key terms and concepts related to economic cycles and job market dynamics.