Economics: Business Cycle, Unemployment, Inflation

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Questions and Answers

What term describes the recurring upswings and downswings in an economy's real GDP over time?

Recessions

Output yo-yos

Total product oscillations

Business cycles (correct)

Which sector is likely to be most affected by business cycle fluctuations?

Agricultural commodities

Capital goods and durable consumer goods (correct)

Textile products

Military goods

Which phase of the business cycle occurs when real GDP declines?

An expansion

A recession (correct)

The peak

The trough

What is the name of the phase in the business cycle where real GDP is at its minimum?

The trough Signup and view all the answers

Why does the production of durable goods vary more than the production of nondurable goods?

Durable purchases are not postponable Signup and view all the answers

During which phase is the economy considered to be experiencing full employment?

Peak Signup and view all the answers

In terms of economic activity, what is most affected by fluctuations in the business cycle?

Investment in capital goods Signup and view all the answers

What typically signals the transition from recession to recovery in the business cycle?

Decrease in unemployment rates Signup and view all the answers

What is included in the labor force?

Both employed and unemployed individuals Signup and view all the answers

How is the labor force participation rate (LFPR) calculated?

Labor force / adult population Signup and view all the answers

What defines an unemployed person?

A person looking for a job but unable to find one Signup and view all the answers

What does the unemployment rate (UR) represent?

Unemployed individuals divided by the labor force Signup and view all the answers

When is a part-time worker considered employed?

Only if they choose to work part-time Signup and view all the answers

Which situation might lead to an understated unemployment rate?

Part-time workers who want full-time jobs Signup and view all the answers

What happens to discouraged workers in terms of labor statistics?

They are not counted in the labor force Signup and view all the answers

Which formula represents the actual unemployment rate?

Unemployed people / labor force x 100 Signup and view all the answers

What is hyperinflation characterized by?

A very rapid increase in inflation Signup and view all the answers

How is the Consumer Price Index (CPI) calculated?

CPI = (cost of basket in current period / cost of basket in base period) × 100 Signup and view all the answers

What does a higher Actual Rate of Unemployment relative to the Natural Rate indicate?

The economy is producing below its potential GDP Signup and view all the answers

If the potential Real GDP is $200 billion and the actual rate of unemployment is 12%, what is the output being forgone if Okun's law applies?

$15 billion Signup and view all the answers

What is meant by the term 'demand-pull inflation'?

Inflation caused by increased demand exceeding production capacity Signup and view all the answers

Which of the following is NOT a method for calculating inflation?

Comparative value of currencies Signup and view all the answers

What does the formula for calculating inflation involve?

(CPI2 - CPI1) / CPI1 Signup and view all the answers

In which year will the price of pizza equal $12 when the price in 2020 was $10?

2022 Signup and view all the answers

Who is least likely to be hurt by unanticipated inflation?

A disabled laborer who is living off accumulated savings Signup and view all the answers

Inflation affects which of the following?

Both the level and the distribution of income Signup and view all the answers

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, what is the inflation premium?

3 percent Signup and view all the answers

In the expansion phase of a business cycle, what typically occurs?

Employment and output increase Signup and view all the answers

Which of the following is the correct formula to calculate the unemployment rate?

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

What is frictional unemployment?

Unemployment resulting from the normal turnover of employees. Signup and view all the answers

Which type of unemployment lasts longer and is associated with acquiring new skills?

Structural unemployment Signup and view all the answers

What does full employment refer to?

An economy producing its potential output. Signup and view all the answers

Frictional unemployment is also known as?

Search unemployment Signup and view all the answers

What kind of unemployment is part of the natural rate of unemployment?

Both structural and frictional unemployment Signup and view all the answers

Which of the following is not a characteristic of structural unemployment?

Involves short-term job loss Signup and view all the answers

What is the implication of an economy said to be at full employment?

It is experiencing only frictional and structural unemployment. Signup and view all the answers

How does frictional unemployment primarily arise?

Normal turnover of employees Signup and view all the answers

Study Notes

Business Cycle

Business cycles are recurring upswings and downswings in an economy's real GDP over time.
The phase of the business cycle where real GDP declines is called a recession.
The phase of the business cycle where real GDP is at a minimum is called the trough.

Unemployment

Frictional unemployment is the portion of unemployment that rises from the normal turnover of employees.
Structural unemployment is the portion of unemployment that arises from the change in economic structure.
Full employment occurs when the economy is producing its potential output or potential GDP, which is the sum of structural and frictional unemployment.

Inflation

Inflation is an increase in the overall price level.
Deflation is a decrease in the overall price level.
Hyperinflation is a period of a very rapid increase in the price level.
Inflation reduces the purchasing power of money.
The Consumer Price Index (CPI) measures the overall cost of goods and services purchased by a consumer.
Demand-pull inflation occurs when the demand for goods and services exceeds the economy's ability to produce them.

Okun's Law

Okun's Law states that for every 1% increase in the unemployment rate, there is a 2% decrease in output.
The text provides an example of Okun's Law: If the natural rate of unemployment is 6% and the actual rate of unemployment is 12%, then the amount of output being forgone by the economy is 12%.

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Description

Test your knowledge on key economic concepts such as the business cycle, unemployment types, and inflation. This quiz covers the definitions and implications of recession, full employment, and variations in inflation. Perfect for students studying introductory economics.