30 Questions
Which of the following statements is true about consumer confidence?
Consumer confidence reflects expectations of future incomes and employment prospects.
What are the two primary measures of household consumption?
Retail sales and broad-based indicators of consumer spending.
Which category of consumer spending is the most cyclical?
Durable goods
What does a rise in the saving rate usually indicate?
Consumers' intent to reduce spending out of current income.
Which factors influence short-term changes in the economy?
Changes in expectations, political developments, natural disasters, and fiscal and monetary policy decisions
What are business cycles?
Expansions and contractions in economic activity
Which sector of the economy has the largest impact on overall economic direction?
Households
What do analysts and investors need to understand in order to assess the performance of sectors and companies during business cycles?
Consumer behavior, housing sector behavior, and external trade sector behavior
Which factor makes the housing sector especially sensitive to changes in interest rates?
The financing of home purchases
During expansionary cycles, what happens to housing prices and mortgage rates?
Housing prices rise disproportionately and mortgage rates decrease
What can happen if housing prices have risen rapidly in the recent past?
People will buy to gain exposure to the expected further price gains
What role do demographics play in cyclical behavior in housing?
Demographics determine the long-run growth trend in housing
Which of the following terms refers to people who have been out of work for a long time but are still actively looking for a job?
Long-term unemployed
What does the participation rate measure?
The ratio of labor force to total population of working age
Which of the following terms refers to a person who has a job but either has the qualifications to work at a significantly higher-paying job or works part-time but desires a full-time position?
Underemployed
What does the unemployment rate measure?
The ratio of unemployed to labor force
Which of the following statements is true about the impact of strong external cycles on exports?
Strong external cycles can offset cyclical weakness and lead to an increase in exports.
What effect does currency appreciation have on trade?
Currency appreciation leads to a relative rise in imports and a reduction in exports.
What is the impact of cumulative currency movements on trade flows?
Cumulative currency movements have a significant effect on trade flows.
What is the relationship between unemployment and inflation in an overheated economy?
Unemployment is lowest when inflation is high.
Which of the following is a reason why the unemployment rate is considered a lagging economic indicator of the business cycle?
Discouraged workers stop searching for work during economic downturns.
Which of the following is a bias introduced by measuring the labor force in terms of the working-age population?
Counting people with severe disabilities as unemployed.
Why do measures of unemployment rise more slowly as the economy slides into recession?
Layoffs are expensive due to labor contracts.
Which of the following is a measure that can assist in understanding the employment situation and its use in determining cyclical directions?
Productivity measures
Which of the following is a factor that can contribute to an increase in productivity?
Technological breakthroughs
What does the inflation rate refer to?
A sustained rise in the overall level of prices in an economy
How does the inflation rate typically relate to the business cycle?
It is pro-cyclical with a lag of a year or more
Why do investors closely follow the inflation rate?
To infer the state of the economy
What can an unexpected change in the inflation rate result in?
A change in monetary policy
What are some challenges in measuring the onset of technological change?
All of the above
Understanding the Challenges of Measuring Unemployment: Test your knowledge on the complexities of international unemployment statistics and the limitations they present in gauging cyclical trends.
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