Business Cycles and Economic Fluctuations Quiz

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What is the difference between a recession and a depression?

A depression is a period of declining real incomes and rising unemployment, while a recession is a severe recession with a significant decline in economic activity
A depression is a period of economic growth, while a recession is a period of economic decline
A recession is a period of economic growth, while a depression is a period of economic decline
A recession is a period of declining real incomes and rising unemployment, while a depression is a severe recession with a significant decline in economic activity (correct)

What causes the aggregate demand curve to slope downwards?

Government policy, land, labor, capital, and technology resources
The wealth effect, interest rate effect, and exchange rate effect (correct)
The natural rate of output and unemployment
Sticky wages, sticky prices, and misperceptions about relative prices

What causes the aggregate supply curve to shift in the short-run?

Changes in input prices, productivity, and expectations (correct)
Changes in exchange rates, interest rates, and inflation
Changes in natural resources, labor force, and technology
Changes in consumer spending, investment, and government policy

What is the theory of liquidity preference?

The theory that the interest rate adjusts to bring money supply and money demand into balance (D) Signup and view all the answers

What is the multiplier effect?

The additional shifts in aggregate demand that results when expansionary fiscal policy increases income and thereby increases consumer spending (A) Signup and view all the answers

What is the marginal propensity to consume (MPC)?

The fraction of extra income that a household consumes rather than saves (C) Signup and view all the answers

What is the potential impact of high unemployment on government revenue?

It leads to a decrease in government revenue (C) Signup and view all the answers

What are some of the social problems that can arise from unemployment?

Family breakdown (D) Signup and view all the answers

What is the potential effect of unemployment on firms that produce luxury goods?

Decreased demand for luxury goods (D) Signup and view all the answers

What is GDP deflator?

A measure of the price level calculated as the ratio of nominal GDP to real GDP times 100 (D) Signup and view all the answers

Which of the following is NOT included in GDP?

Transfer payments (D) Signup and view all the answers

What is the difference between real and nominal GDP?

Real GDP is adjusted for inflation, while nominal GDP is not (D) Signup and view all the answers

What is the limitation of GDP as a measure of well-being?

All of the above (B) Signup and view all the answers

What is the natural rate of unemployment?

The average rate of unemployment around which the unemployment rate fluctuates (A) Signup and view all the answers

What is structural unemployment?

Unemployment that results from a lack of available jobs in some labor markets (B) Signup and view all the answers

What is the purpose of minimum wage laws?

To increase the quantity of labor demanded (B) Signup and view all the answers

What is the labor force participation rate?

The percentage of the adult population that is in the labor force (A) Signup and view all the answers

What is the difference between an endogenous variable and an exogenous variable?

Endogenous variables are determined within the model, while exogenous variables are determined outside the model (C) Signup and view all the answers

What is the difference between a positive statement and a normative statement?

Positive statements describe how the world is, while normative statements describe how the world should be (C) Signup and view all the answers

What is the difference between microeconomics and macroeconomics?

Microeconomics studies individual agents like households and firms, while macroeconomics studies the economy as a whole (B) Signup and view all the answers

What is the Theory of Efficiency Wages?

The theory that higher wages lead to higher worker productivity and better health (D) Signup and view all the answers

What is Frictional Unemployment?

Unemployment that results from workers being unable to easily move from one occupation to another (A) Signup and view all the answers

What is Collective Bargaining?

The process by which unions and firms agree on the terms of employment (B) Signup and view all the answers

What is the Opportunity Cost of Unemployment?

The value of the goods and services that the unemployed individual could have produced (A) Signup and view all the answers

What is the relationship between inputs and output in a production function?

Inputs and output have an inverse relationship (D) Signup and view all the answers

What is the meaning of 'diminishing marginal product' in a production function?

The marginal product of an input declines as the quantity of the input increases (B) Signup and view all the answers

What is the relationship between labor productivity and factors of production per worker?

Labor productivity increases as factors of production per worker increase (B) Signup and view all the answers

What is the rule of 70 used for in understanding growth rates?

To estimate the effects of compounding on growth rates (D) Signup and view all the answers

What is national saving?

The total income in the economy that remains after paying for consumption and government purchases (B) Signup and view all the answers

What is a bond?

A certificate of indebtedness (B) Signup and view all the answers

What is the difference between a government budget surplus and a budget deficit?

A surplus is where government tax revenue is greater than spending, while a deficit is where government tax revenue is less than spending (C) Signup and view all the answers

What is the potential impact of unemployment on drug and alcohol abuse?

Increased potential for unemployed individuals to turn to alcohol and illegal drugs as a means of escape (C) Signup and view all the answers

What are human capital and natural resources in the context of economic growth?

Human capital refers to the skills acquired through education and training, while natural resources are inputs provided by nature such as land and minerals. (C) Signup and view all the answers

What does the Solow growth model suggest about the contribution of capital to output in the long run?

Capital accounts for only around a third of the contribution to output. (B) Signup and view all the answers

What is the 'resource curse' and how can government policy help to avoid it?

The 'resource curse' refers to the failure of many resource-rich countries to benefit fully from their natural resource wealth, and government policy can help by removing barriers to savings and investment, correcting market failures, and improving institutions. (A) Signup and view all the answers

How can an increase in the savings rate affect economic growth according to the Solow model?

An increase in the savings rate can increase investment and the capital-output ratio, leading to higher economic growth. (C) Signup and view all the answers

What is the relationship between a bond's term and its interest rate?

Long-term bonds have a higher interest rate than short-term bonds (B) Signup and view all the answers

What is the purpose of the secondary bond market?

To allow holders of long-term bonds to sell them before maturity (B) Signup and view all the answers

What is the national saving equation for a closed economy?

S = Y - T - C (C) Signup and view all the answers

What is the Consumer Prices Index (CPI)?

A measure of the overall prices of the goods and services bought by a typical consumer (D) Signup and view all the answers

What is the difference between nominal and real interest rates?

Real interest rate is corrected for inflation, while nominal interest rate is not (D) Signup and view all the answers

What is substitution bias in measuring the cost of living?

It overstates the increase in the cost of living from one year to the next, assuming a fixed basket of goods (A) Signup and view all the answers

What is unmeasured quality change in measuring the cost of living?

When the quality of goods rise from one year to the next, the effective value of a euro rises (B) Signup and view all the answers