Business Cycles, Unemployment, and Inflation Economics PDF

Business cycle, unemployment and inflation CBA 33 5 a andI and unemployment...

Business cycle, unemployment and inflation CBA 33 5 a andI and unemployment Exa ford salestart Income - ↑ Business cycle is the fluctuation in economic activities ups and downs this - - change in economic activities caused by the change in total spending (P times Q). The business cycle has many phrases. jo spending-pX Ear I O * I ↑ was S E => j i &jis E - - Gils appe unemo - 1. Recession is the period after peak. In the recession the economic activities - - - decline, unemployment rise, and real GDP decrease. The severe recession is +22821- called depression. -- - -S 2- -0561 72 son) 2. Trough is the end of recession and the economy after the trough will go to the = expansion. From in unemployment mat For more contact 66943036 economic and finance instructor 1 Business cycle, unemployment and inflation unemb CBA Ed I DOR 3. Expansion is the phrase of increasing economic activity and rise in real GDP * Booming sometime called recovery.- Pomatunem Min 4. Peak is the phrase or a period at which economic activities at maximum. The economic is near or at the full employment. -is Si ↑ 5. The most affected good by economic fluctuation is the capital goods and the · durable consumer goods. 6. A causation of the business cycle. Si - -an -.J 9 g Si 10: 25i) - (i) (90915) Questions ↑ & 1. Recurring upswings and downswings in an economy's real GDP over time are called A. recessions. & B. business cycles. C. output yo-yos. D. total product oscillations. 2. In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output? - A. military goods o - B. capital goods and durable consumer goods C. textile products D. agricultural commodities 5 - M For more contact 66943036 economic and finance instructor 2  Business cycle, unemployment and inflation CBA GDO - 11 59 3. The m phase of the business cycle in which real GDP declines (output fall) is called - A. the peak. B. an expansion. OC. a recession. D. the trough. E poin 4. The phase of the business cycle in which real GDP is at a minimum is called 0 - A. the peak. B. a recession. C. the trough. D. the underside. - 5. The production of durable goods varies more than the production of nondurable goods - because - A. durable purchases of durables are not postponable. B. durable purchases of durables are postponable. O je & -M - C. the producers of nondurables have monopoly power. D. producers of durables are highly competitive. output - > EDPA Unem 6 ↑ & 6. In which phase of the business cycle will the economy most likely experience be rising real output and falling unemployment rates? - & A. expansion B. recession C. peak D. trough OppmeX 7. Most economists agree that the immediate cause of most business cycle variation is - A. an unexpected change in the productivity of workers. T B. an unexpected change in the level of total spending. O C. the invention of new products. - ↑ &Q spending D. the growth and subsequent bursting of financial bubbles. # ↑ 8. What is the primary reason that changes in total spending lead to cyclical changes in output and employment? A. Government is unable to respond by changing the amount of money in circulation. B. Changes in total spending cause supply shocks that cause cyclical variation. & C. Prices are sticky in the short run. - D. Prices are flexible in the long run. Y stick ser Price · - - - For more contact 66943036 economic and finance instructor 3 Business cycle, unemployment and inflation CBA ↳ i & &* 1. The adults may in the labor force or out of the labor force. - = It's so & 2. The person who out of the labor force such as retirees, full time students, & 95 9. I- - people who are in correction institution and the person not looking for a job -) - (discouraged). (05 ) &E %) 3. The person in the labor force may be employed or unemployed. LF = UN + EM. - - 9 Jos : 4. Unemployed person who is looking for a job and didn’t find one ~ * P od 5. The labor force participation rate (LFPR) equal labor forceI S [ / adult people. 3 un Xoo 1 v-R -F = S 6. Actual unemployment, Unemployment rate (UR) equals the unemployed people / & labor force. 2 V-R = X100 ·% untem &.. 7. Part time employment is considered employed - A. if the part time employed worked part time as a result of personal choice O it is really full-time job. fully Dign soos B. But if its beyond his choice and he need to work full time then considered & Days full him full time may be understate the rate of unemployment. "cowis ! ⑳ unem-lo ema do 10 10 % Up = -Xoo = [90+ 10] For more contact 66943036 economic and finance instructor 4  Business cycle, unemployment and inflation CBA /zis A. Types of unemployment ② ① 33/ F j +D 1. Frictional (FR) unemployment is the portion of unemployment that rises from ② the normal turnover of employees. Sometimes called search unemployment ③ (searching for first job) and wait unemployment. FR is a part of natural rate of - 1 - unemployment. Short term unemployment. Eisdlmd I 2. Structural (ST) unemployment. The portion of unemployment that arise from - the change of economic structure. In structural unemployment the worker finds it hard to get new job without learning new skills. ST is a part of natural Si s & , rate of unemployment. Long term unemployment. - & - **** Full employment also called natural rate of unemployment it is not zero full-s++FR unemployment it is the sum of structural and frictional unemployment. A full => - employment the economy is said to produce the potential output or potential employment Naturalan -S GDP. N = FR + ST = = - - &see o -58 ! 3. Cyclical unemployment. Unemployment that caused by the recession result - and - from insufficient demand for goods and services. and it above structural and S frictional unemployment. & 19 B. Cost of unemployment 1. Actual unemployment equal natural plus cyclical. A = N+C. ⑭r -1 mos cur-a 2. The main problem or cost of unemployment is the decrease in the output or real ) - GDP. This loss of output is called GDP gap. Ta 3. GDP gap is the difference between actual and potential is GDP GAP = actual GDP – potential GDP. · For more contact 66943036 economic and finance instructor cement 5  Business cycle, unemployment and inflation CBA #4. Q EAPD Okun’s law state that for every 1% increase in the unemployment there is 2% negative -] + J GDP gap will occur. (GAP % = C×2) (GAP value = GAP% ×potential GDP) (VR- ) 5. The unequal burden of unemployment is differing. This difference affected by 2 508 C - the gender and the level of skills and education. Uneconomic cost of - (5) T unemployment is a social cost like crimes. * Full employment - ⑮ FDP at FDP is potential when economy I · GDP EDD IS employment Potential Natural Rate of un - a ST Question FR - Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 9. The table contains information about the hypothetical economy of Scoob. All figures are in millions. The labor force in Scoob is A. 95 million. B. 102 million. C. 105 million. D. 145 million. 10. The table contains information about the hypothetical economy of Scoob. All figures are in millions. The unemployment rate in Scoob is A. 2.5 percent. B. 3.2 percent. C. 5.0 percent. D. 6.9 percent. 11. The table contains information about the hypothetical economy of Scoob. All figures are in millions. If the natural rate of unemployment in Scoob is 5 percent, then A. structural unemployment is about 3 percent. B. frictional unemployment is about 2 percent. C. cyclical unemployment is about 2 percent. D. hidden unemployment is about 5 percent. For more contact 66943036 economic and finance instructor 6 Business cycle, unemployment and inflation CBA 12. Sara voluntarily quit her job as an insurance agent to return to school full time to earn an MBA degree. With degree in hand, she is now searching for a position in management. Kara presently is A. cyclically unemployed. B. structurally unemployed. C. frictionally unemployed. D. not a member of the labor force. 13. The labor force includes A. employed workers and persons who are officially unemployed. B. employed workers but excludes persons who are officially unemployed. C. full-time workers but excludes part-time workers. D. permanent employees but excludes temporary employees. 14. Ahmed works in his own home as a homemaker and full-time caretaker of his children. Officially, he is A. unemployed. B. employed. C. not in the labor force. D. in the labor force. 15. If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the A. frictional unemployment rate is 5 percent. B. cyclical unemployment rate and the frictional unemployment rate together are 5 percent. C. cyclical unemployment rate is 4 percent. D. natural rate of unemployment will eventually increase. 16. Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is A. 3 percent. B. 6 percent. C. 7 percent. D. 53 percent. 17. The natural rate of unemployment is the A. unemployment rate experienced at the depth of a depression. B. full-employment unemployment rate. Equal fictional plus structure. C. unemployment rate experienced by the least-skilled workers in the economy. D. unemployment rate experienced by the most-skilled workers in the economy. 18. Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million become discouraged over their job prospects and cease to look for work. As a result of this, all else equal, the official unemployment rate and labor force would of them A. decline. B. increase. C. increase in the short run but eventually decline. D. be unchanged. For more contact 66943036 economic and finance instructor 7 Business cycle, unemployment and inflation CBA 19. Hesa has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon, where she anticipates that a new job will be available. We can say that Hesa is faced with A. seasonal unemployment. B. cyclical unemployment. C. structural unemployment. D. frictional unemployment. 20. Cyclical unemployment results from A. a deficiency of spending on goods and services. B. the decreasing relative importance of goods and the increasing relative importance of services in the U.S. economy. C. the everyday dynamics of a free labor market, with workers voluntarily changing jobs. D. technological change. 21. A college graduate using the summer following graduation to search for a job would best be classified as A. not officially a member of the labor force. B. structurally unemployed. C. cyclically unemployed. D. frictionally unemployed. 22. Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called A. frictional unemployment. B. structural unemployment. C. cyclical unemployment. D. compositional unemployment. 23. Wait unemployment and search unemployment are both types of A. cyclical unemployment. B. hidden unemployment. C. frictional unemployment. D. structural unemployment. 24. The type of unemployment associated with recessions is called A. frictional unemployment. B. structural unemployment. C. cyclical unemployment. D. seasonal unemployment. 25. At the economy's natural rate of unemployment, A. the economy achieves its potential output. B. there is only a relatively small amount of cyclical unemployment. C. only frictional unemployment exists. D. only structural unemployment exists. For more contact 66943036 economic and finance instructor 8 Business cycle, unemployment and inflation CBA Full-Time Employed = 80 Part-Time Employed = 25 Unemployed = 15 Discouraged Workers = 5 Members of Underground Economy = 6 Consumer Price Index = 110 26. Refer to the given information about a hypothetical economy. The unemployment rate is A. 18.8 percent. B. 12.5 percent. C. 16.7 percent. D. 25 percent. 27. Refer to the given information about a hypothetical economy. The rate of inflation A. is 110 percent. B. is 10 percent. C. is 0 percent. D. cannot be determined from the data. 28. The GDP gap measures the difference between A. NDP and GDP. B. NI and PI. C. actual GDP and potential GDP. D. nominal GDP and real GDP. 29. A large negative GDP gap implies A. an excess of imports over exports. B. a low rate of unemployment. C. a high rate of unemployment. D. a sharply rising price level. 30. If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is A. $510 billion. B. $490 billion. C. $10 billion. D. $990 billion. 31. Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percentage of potential GDP is A. 4 percent. B. 8 percent. C. 10 percent. D. 2 percent. 32. The relationship between the size of the negative GDP gap and the unemployment rate is A. direct. B. inverse. C. undefined. D. direct during recession but inverse during expansion. For more contact 66943036 economic and finance instructor 9 Business cycle, unemployment and inflation CBA Potential Real GDP = $200 Billion Natural Rate of Unemployment = 6 Percent Actual Rate of Unemployment = 12 Percent 33. Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable.The amount of output being forgone by the economy is A. $12 billion. B. $15 billion. C. $18 billion. D. $24 billion. 1. Inflation is an increase and deflation is a decrease in overall prices. A period of very rapid increase in inflation is called hyperinflation. 2. Inflation reduce the purchasing power of money. 3. Consumer price index (CPI) is the measurement of the overall cost of goods and services purchased by a consumer. 4. When calculating the consumer price index, we need to find the most important goods to consumer. The cost of these goods can be calculated by multiply the price and quantities. This process called the cost of basket =P×Q. 5. Determine the base year (the base year or base period cost equal the quantity multiply by base prices) and compute the CPI. For more contact 66943036 economic and finance instructor 10 Business cycle, unemployment and inflation CBA 6. CPI = (cost of basket in current period / cost of basket in base period) ×100 7. The inflation can be calculated by compute the percentage change in price index. CPI 2 – CP1 ❖ inflation in year 2 equal CPI1 Practice: using 2020 as a base year calculate the following CPI and inflation rate if the basket is 100 unit of pizza Year price Cost of basket = Base year CPI = Inflation = (Q×P) cost = (Q× base price) 2020 10 2022 12 2023 15 8. The first type of inflation is called demand pull inflation it caused by increase in the demand the level of total spending is more than the economic ability of production. 9. The second is cost push inflation it caused by increase in the cost of production and decrease in the supply (recall that if supply decrease price will rise). 10. Nominal income is the amount of income received, real income is the goods and services purchased by the nominal income. 11. Real income equal nominal income divides by the price level (NOMI / PL) ×100 For more contact 66943036 economic and finance instructor 11 Business cycle, unemployment and inflation CBA 12. Nominal interest rate equal real interest rate+ inflation premium. 13. Fixed income receivers, savers and creditors will hurt by inflation. Flexible income receivers will unaffected by inflation debtors will benefit by inflation. 14. Core inflation is the inflation calculated after removing foods and energy. 15. Cost of living adjustments (COLAs) is the increase in social security to adjust the increase in inflation. Questions 34. Inflation means that A. all prices are rising, but at different rates. B. all prices are rising at approximately the same rate. C. prices on average are rising, although some particular prices may be falling. D. real incomes are rising. 35. If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced A. inflation of 4 percent. B. inflation of 3.33 percent. C. deflation of 3.33 percent. D. deflation of 4 percent. 36. The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about A. 2.8 percent. B. 3.4 percent. C. 1.6 percent. D. 4.1 percent. For more contact 66943036 economic and finance instructor 12 Business cycle, unemployment and inflation CBA 37. Between 1980 and 2000, the price level approximately doubled. The average annual rate of inflation over this 20-year period was about A. 5.5 percent. B. 4.7 percent. C. 3.5 percent. D. 2.8 percent. 38. Demand-pull inflation A. occurs when prices of resources rise, pushing up costs and the price level. B. occurs when total spending exceeds the economy's ability to provide output at the existing price level. C. occurs only when the economy has reached its absolute production capacity. D. is also called cost-push inflation. 39. The phrase "too much money chasing too few goods" best describes A. the GDP gap. B. demand-pull inflation. C. the inflation premium. D. cost-push inflation. 40. Inflation initiated by increases in wages or other resource (Rising per-unit production costs) prices is labeled A. demand-pull inflation. B. demand-push inflation. C. cost-push inflation. D. cost-pull inflation. 41. Cost-push inflation A. is caused by excessive total spending. B. shifts the nation's production possibilities curve leftward. C. moves the economy inward from its production possibilities curve. D. is a mixed blessing because it has positive effects on real output and employment. 42. Cost-push inflation may be caused by A. a decline in per-unit production costs. B. a decrease in wage rates. C. a negative supply shock. D. an increase in resource availability. 43. Which of the following would most likely occur during the expansionary phase of the business cycle? A. demand-pull inflation B. cost-push inflation C. structural inflation D. frictional inflation For more contact 66943036 economic and finance instructor 13 Business cycle, unemployment and inflation CBA 44. Core inflation measures A. changes in the prices of the most commonly used goods, including food and energy. B. underlying changes in the CPI, after accounting for the price volatility of high-tech goods. C. underlying increases in the CPI after removing volatile food and energy prices. D. changes in key input prices. 45. Real income is found by A. dividing nominal income by 70. B. multiplying nominal income by 1.03. C. dividing the price index (in hundredths) by nominal income. D. dividing nominal income by the price index (in hundredths). 46. Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will A. fall by about 20 percent. B. fall by about 2 percent. C. rise by about 15 percent. D. rise by about 25 percent. 47. Cost-of-living adjustment clauses (COLAs) A. invalidate the "rule of 70." B. apply only to demand-pull inflation. C. increase the gap between nominal and real income. D. tie wage increases to changes in the price level. 48. During a period of hyperinflation, A. creditors gain because their loans are repaid with dollars of higher value. B. people tend to hold goods rather than money. C. income is redistributed away from borrowers. D. the real value of the national currency rises. 49. Who is least likely to be hurt by unanticipated inflation? A. a disabled laborer who is living off accumulated savings B. an owner of a small business C. a secretary D. a pensioned steelworker 50. Inflation affects A. both the level and the distribution of income. B. neither the level nor the distribution of income. C. the distribution, but not the level, of income. D. the level, but not the distribution, of income. For more contact 66943036 economic and finance instructor 14 Business cycle, unemployment and inflation CBA 51. If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is A. 8 percent. B. 5 percent. C. 3 percent. D. 2 percent. 52. In the accompanying diagram, the phases of the business cycle from points A to D are A. peak, recession, expansion, trough, respectively. B. trough, recovery, expansion, peak, respectively. C. expansion, recession, trough, peak, respectively. D. peak, recession, trough, expansion, respectively. 53. In the expansion phase of a business cycle, A. the inflation rate decreases, but productive capacity increases. B. the inflation rate and productive capacity decrease. C. employment increases, but output decreases. D. employment and output increase. 54. Which of the following is the correct way to calculate the unemployment rate? A. [(unemployed)/(population)] × 100 B. [(unemployed)/(labor force)] × 100 C. [(labor force)/(population)] × 100 D. [(labor force)/(unemployed)] × 100 For more contact 66943036 economic and finance instructor 15