Econ 2013 Chapter 9: Business Cycles, Unemployment, and Inflation

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Questions and Answers

What is the primary characteristic of a trough in a business cycle?

Low output and employment (correct)

Low employment rate

High inflation rate

High economic growth

What is typically associated with the peak of a business cycle?

Minimum inflation rate

Maximum employment rate

Minimum economic growth

Maximum output and employment (correct)

What is the significance of the natural rate of unemployment in a business cycle?

It is the average rate of unemployment during a business cycle

It is the minimum rate of unemployment that can be achieved (correct)

It is the lowest point of unemployment during a recession

It is the highest point of unemployment during a boom

What is the definition of a recession in terms of duration?

A decline in real GDP that lasts six months or longer Signup and view all the answers

What is the duration range of U.S. recessions between 1950 and 2009?

6-24 months Signup and view all the answers

What occurs during a peak in a business cycle?

Output and employment reach their highest levels Signup and view all the answers

What is the primary indicator of a recession?

Decrease in real GDP Signup and view all the answers

What is the typical pattern of economic activity during a business cycle?

Periods of rapid growth followed by periods of decline Signup and view all the answers

What is the primary cause of cyclical changes in the level of real output according to most economists?

Unexpected changes in the level of total spending Signup and view all the answers

How is the unemployment rate calculated?

[(unemployed)/(labor force)] × 100 Signup and view all the answers

What happens to discouraged workers in the calculation of the unemployment rate?

They are excluded from the labor force Signup and view all the answers

What type of unemployment occurs when a worker loses their job due to a company moving operations to another country?

Structural unemployment Signup and view all the answers

What is the term for the unemployment rate that exists when there are no job vacancies?

Full employment Signup and view all the answers

What is the GDP gap?

The difference between actual GDP and potential GDP Signup and view all the answers

If the natural rate of unemployment is 5% and the actual unemployment rate is 7%, what is the GDP gap?

2% Signup and view all the answers

If the CPI increases from 180 to 190, what is the rate of inflation?

5.6% Signup and view all the answers

What is the inflation rate measuring?

The percentage growth rate of the CPI Signup and view all the answers

What is deflation?

A decrease in the price level Signup and view all the answers

If the price level doubles in 20 years, how long will it take for the price level to quadruple?

40 years Signup and view all the answers

What is the term for inflation that occurs when the economy's ability to produce output is exceeded by total spending?

Demand-pull inflation Signup and view all the answers

What is the primary purpose of measuring core inflation?

To exclude volatile price components Signup and view all the answers

If nominal income rises by 10% and the price level rises by 5%, what happens to real income?

It increases by 5% Signup and view all the answers

What is the minimum rate of nominal income growth required to maintain a constant real income level if the inflation rate is 8%?

Greater than 8% Signup and view all the answers

If the CPI is 120 in year 1 and 132 in year 2, what is the rate of inflation?

12% Signup and view all the answers

What is the definition of a recession in terms of the average price level in the economy?

A decrease in the average price level Signup and view all the answers

Who is classified as unemployed according to the Bureau of Labor Statistics data on the labor force?

Only those who are actively looking for work Signup and view all the answers

Study Notes

Business Cycles

A peak in the business cycle is a temporary maximum point, while a trough is a temporary minimum point
A recession is a decline in real GDP that lasts six months or longer
The range for the duration of U.S. recessions between 1950 and 2009 was 6 months to 18 months

Unemployment

The unemployment rate is calculated as (unemployed/labor force) × 100
Discouraged workers who are not actively seeking employment are excluded from the labor force
Frictional unemployment refers to search and wait unemployment
Structural unemployment is when a worker loses a job due to a change in the economy, such as a company moving operations to another country
Cyclical unemployment is when a worker loses a job due to a downturn in the business cycle
Full employment refers to the situation when there is no cyclical unemployment
The full-employment unemployment rate for the United States economy is generally considered to be around 5-6%

GDP and Potential GDP

Potential GDP is the output that would be produced if the economy was experiencing full employment
If the GDP gap is positive, it means that actual GDP is greater than potential GDP
If the GDP gap is negative, it means that actual GDP is less than potential GDP
The higher the rate of unemployment, the larger is the GDP gap

Inflation

The inflation rate measures the percentage growth rate of the Consumer Price Index (CPI) from one year to the next
Deflation is when the CPI declines from one year to the next
Demand-pull inflation occurs when total spending is greater than the economy's ability to produce output at the existing price level
Core inflation refers to the inflation picture after stripping away food and energy prices
If the CPI rises from 125 to 140 from one year to the next, the rate of inflation is approximately 12%

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Description

This quiz assesses understanding of business cycles, unemployment, and inflation concepts, as covered in Chapter 9 of an Econ 2013 course.