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Questions and Answers
Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called?
Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called?
What type of unemployment is associated with recessions?
What type of unemployment is associated with recessions?
If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is?
If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is?
The unemployment rate in a hypothetical economy with 15 unemployed out of a total of 130 available workers is?
The unemployment rate in a hypothetical economy with 15 unemployed out of a total of 130 available workers is?
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The rate of inflation with a Consumer Price Index of 110 is?
The rate of inflation with a Consumer Price Index of 110 is?
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What does a large negative GDP gap imply?
What does a large negative GDP gap imply?
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According to Okun's law, if the natural rate of unemployment is 5 percent and the actual rate is 9 percent, the negative GDP gap as a percentage of potential GDP is?
According to Okun's law, if the natural rate of unemployment is 5 percent and the actual rate is 9 percent, the negative GDP gap as a percentage of potential GDP is?
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At the economy's natural rate of unemployment, which statement is true?
At the economy's natural rate of unemployment, which statement is true?
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What term describes the recurring upswings and downswings in an economy's real GDP over time?
What term describes the recurring upswings and downswings in an economy's real GDP over time?
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In which sector will business cycle fluctuations likely have the greatest effect on output?
In which sector will business cycle fluctuations likely have the greatest effect on output?
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What phase of the business cycle is characterized by a decline in real GDP?
What phase of the business cycle is characterized by a decline in real GDP?
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What is the term for the phase of the business cycle when real GDP reaches its minimum?
What is the term for the phase of the business cycle when real GDP reaches its minimum?
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Why does the production of durable goods fluctuate more than nondurable goods?
Why does the production of durable goods fluctuate more than nondurable goods?
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Which good is most affected by economic fluctuations?
Which good is most affected by economic fluctuations?
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What does the term 'peak' refer to in the business cycle?
What does the term 'peak' refer to in the business cycle?
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Which of the following phases directly follows an economic downturn?
Which of the following phases directly follows an economic downturn?
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What type of unemployment involves normal employee turnover?
What type of unemployment involves normal employee turnover?
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Which type of unemployment tends to require new skills to find a job?
Which type of unemployment tends to require new skills to find a job?
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Which statement best describes full employment?
Which statement best describes full employment?
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What is a characteristic of frictional unemployment?
What is a characteristic of frictional unemployment?
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Which factor is NOT a part of structural unemployment?
Which factor is NOT a part of structural unemployment?
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How is full employment related to potential output?
How is full employment related to potential output?
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Which type of unemployment is characterized by short-term job searches?
Which type of unemployment is characterized by short-term job searches?
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What does structural unemployment primarily arise from?
What does structural unemployment primarily arise from?
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Which phase of the business cycle is characterized by rising real output and falling unemployment rates?
Which phase of the business cycle is characterized by rising real output and falling unemployment rates?
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What is considered the immediate cause of most variations in the business cycle?
What is considered the immediate cause of most variations in the business cycle?
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Why do changes in total spending lead to cyclical changes in output and employment?
Why do changes in total spending lead to cyclical changes in output and employment?
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What characteristic is associated with durable goods compared to nondurable goods?
What characteristic is associated with durable goods compared to nondurable goods?
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What can be expected during the peak phase of the business cycle?
What can be expected during the peak phase of the business cycle?
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Which scenario is least likely to trigger a change in total spending?
Which scenario is least likely to trigger a change in total spending?
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Who is categorized as being out of the labor force?
Who is categorized as being out of the labor force?
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What consequence might an unexpected drop in total spending have on employment?
What consequence might an unexpected drop in total spending have on employment?
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What causes cost push inflation?
What causes cost push inflation?
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What is the relationship between nominal income and real income?
What is the relationship between nominal income and real income?
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Who is most affected negatively by inflation?
Who is most affected negatively by inflation?
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What is core inflation?
What is core inflation?
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If the consumer price index falls from 120 to 116, what has the economy experienced?
If the consumer price index falls from 120 to 116, what has the economy experienced?
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What is the formula to calculate the nominal interest rate?
What is the formula to calculate the nominal interest rate?
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What phrase best describes demand-pull inflation?
What phrase best describes demand-pull inflation?
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What adjustment is represented by COLAs?
What adjustment is represented by COLAs?
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Study Notes
Types of Unemployment
- Frictional unemployment is short-term unemployment caused by normal employee turnover, including people searching for their first job or waiting for a new job. It is considered a part of the natural rate of unemployment.
- Structural unemployment is long-term unemployment caused by changes in the economic structure. Workers may need to learn new skills to find new jobs. It is also considered a part of the natural rate of unemployment
- Cyclical unemployment is unemployment associated with recessions or economic downturns.
- Wait unemployment and search unemployment are both types of frictional unemployment.
Natural Rate of Unemployment
- Full employment, also known as the natural rate of unemployment, is not zero unemployment.
- The natural rate of unemployment is the sum of structural and frictional unemployment.
- When an economy reaches full employment, it is said to be producing its potential output or potential GDP.
Inflation
- Inflation means that prices on average are rising, even though some prices may be falling.
- The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services
- Demand-pull inflation occurs when total spending exceeds the economy's ability to provide output at the existing price level or when there is "too much money chasing too few goods".
- Cost-push inflation occurs when prices of resources rise, pushing up costs and the price level
GDP Gap
- The GDP gap measures the difference between actual GDP and potential GDP.
- A large negative GDP gap implies a high rate of unemployment.
- Okun's Law states that for every 1% increase in the unemployment rate, there is a 2% decrease in the GDP.
Business Cycles
- Business cycles are recurring upswings and downswings in an economy’s real GDP over time.
- Expansion is the phase of the business cycle in which real GDP is increasing.
- Recession is the phase of the business cycle in which real GDP is declining.
- Peak is the phase of the business cycle in which real GDP is at a maximum
- Trough is the phase of the business cycle in which real GDP is at a minimum.
- Durable goods are those goods that have a lifespan longer than three years. Their purchases are postponable and are thus more sensitive to business fluctuations.
- The most affected good by economic fluctuations is the capital goods and the durable consumer goods.
Causes of Business Cycles
- Most economists agree that the immediate cause of most business cycle variation is an unexpected change in the level of total spending.
- Changes in total spending cause cyclical variations due to prices being sticky in the short run.
- This means that prices do not adjust immediately to changes in demand or supply, leading to fluctuations in output and employment.
Labor Force
- The labor force includes all adults who are either employed or unemployed.
- Unemployed are those who are not working, are actively seeking employment, and are available to work.
- Discouraged workers are those who have stopped actively seeking employment because they believe no jobs are available for them.
- The unemployment rate is calculated as the number of unemployed persons divided by the total labor force.
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Description
This quiz explores different types of unemployment, including frictional, structural, and cyclical. Understand how each type affects the economy and the concept of the natural rate of unemployment. Test your knowledge on these important economic principles.
