Question 1

Real income can be determined by

Accepted Answer

A)   dividing the price level by nominal income.
B)   inﬂating nominal income for inﬂation.
C)   dividing the annual rate of inﬂation into the number "70."
D)   deﬂating nominal income for inﬂation.E) B) and C)
F) A) and B)

Question 2

Deﬂation is when the inﬂation rate turns negative.

Accepted Answer

A) True 
 B)False

Question 3

The duration of a recession measures the depth of decline in real output during the recession.

Accepted Answer

A) True 
 B)False

Question 4

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

Accepted Answer

A)   expansion
B)   recession
C)   peak
D)   troughE) B) and C)
F) A) and D)

Question 5

If the Consumer Price Index for a certain year is 120, this means that the average price of consumer items in that year was

Accepted Answer

A)   20 percent higher than the average price in the base period 1982-84.
B)   about $120 per basket of consumer goods and services.
C)   120 percent higher than the average price in the base period 1982-84.
D)   20 percent higher than the average price of the preceding year.E) A) and C)
F) B) and C)

Question 6

In the depth of the Great Depression, the unemployment rate in the United States was about

Accepted Answer

A)   15 percent.
B)   33 percent.
C)   25 percent.
D)   40 percent.E) A) and D)
F) A) and C)

Question 7

One labor market quirk that helps explain why unemployment goes up so much in a recession is that

Accepted Answer

A)   a price ﬂoor called a "minimum wage law" exists for the labor market.
B)   wages are ﬂexible upward but "sticky" downward.
C)   ﬁrms are "demanders" of labor, rather than suppliers.
D)   machines could "replace" humans in the labor market.E) A) and D)
F) All of the above

Question 8

Inﬂation rates in the United States reached double-digit rates in the

Accepted Answer

A)   1960s.
B)   1970s.
C)   1990s.
D)   2000s.E) A) and B)
F) None of the above

Question 9

You are given the following information about the economy: the nominal interest rate = 8 percent, and the real rate of interest = 6 percent. The inﬂation premium is

Accepted Answer

A)   2 percent.
B)   6 percent.
C)   8 percent.
D)   14 percent.E) A) and D)
F) All of the above

Question 10

Potential GDP is the output that would be produced if the economy was experiencing

Accepted Answer

A)   no unemployment.
B)   free markets and international trade.
C)   no inﬂation.
D)   full employment.E) All of the above
F) A) and B)

Question 11

If the price level doubled in a 23-year period, we can conclude that the average annual rate of
inﬂation over that period was about 3 percent.

Accepted Answer

A) True 
 B)False

Question 12

The recurrent ups and downs in the level of economic activity extending over several years are referred to as

Accepted Answer

A)   economic phases.
B)   business startups.
C)   business cycles.
D)   noncyclical ﬂuctuations.E) B) and D)
F) C) and D)

Question 13

What are ﬁve economic shocks that may cause business cycles?

Accepted Answer

Political events, ﬁnancial ins...

Question 14

The production of durable goods varies more than the production of nondurable goods because

Accepted Answer

A)   purchases of durable goods are not postponable.
B)   purchases of durable goods are postponable.
C)   the producers of nondurable goods have monopoly power.
D)   producers of durable goods are highly competitive.E) A) and B)
F) B) and D)

Question 15

A lender need not be penalized by inﬂation if the

Accepted Answer

A)   long-term rate of inﬂation is less than the short-term rate of inﬂation.
B)   short-term rate of inﬂation is less than the long-term rate of inﬂation.
C)   lender correctly anticipates inﬂation and increases the nominal interest rate accordingly.
D)   inﬂation is unanticipated by both borrower and lender.E) None of the above
F) B) and C)

Question 16

Given the annual rate of inﬂation, the "rule of 70" allows one to

Accepted Answer

A)   determine whether the inﬂation is demand-pull or cost-push.
B)   calculate the accompanying rate of unemployment.
C)   determine when the value of a real asset will approach zero.
D)   calculate the number of years required for the price level to double.E) B) and C)
F) B) and D)

Question 17

The full-employment rate of unemployment is also called the

Accepted Answer

A)   potential rate of unemployment.
B)   cyclical rate of unemployment.
C)   frictional rate of unemployment.
D)   natural rate of unemployment.E) All of the above
F) B) and D)

Question 18

Lenders will be willing to reduce the nominal interest rates on loans if the expected inﬂation
increases.

Accepted Answer

A) True 
 B)False

Question 19

A statement that is often used to describe demand-pull inﬂation is

Accepted Answer

A)   "A rising tide lifts all boats."
B)   "Money is easily earned, but not easily saved."
C)   "too much money chasing too few goods."
D)   "There is no such thing as a free lunch."E) All of the above
F) A) and D)

Question 20

In which of the following industries or sectors of the economy will business cycle ﬂuctuations likely have the greatest effect on output?

Accepted Answer

A)   military goods
B)   capital goods
C)   textile products
D)   agricultural commoditiesE) A) and B)
F) B) and C)

Exam 9: Business Cycles, Unemployment, and Inflation

If the Consumer Price Index for a certain year is 120, this means that the average price of consumer items in that year was

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In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

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In the depth of the Great Depression, the unemployment rate in the United States was about

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Given the annual rate of inﬂation, the "rule of 70" allows one to

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The full-employment rate of unemployment is also called the

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You are given the following information about the economy: the nominal interest rate = 8 percent, and the real rate of interest = 6 percent. The inﬂation premium is

Correct AnswerverifiedShow Answer

One labor market quirk that helps explain why unemployment goes up so much in a recession is that

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Deﬂation is when the inﬂation rate turns negative.

Correct AnswerverifiedShow Answer

The production of durable goods varies more than the production of nondurable goods because

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The duration of a recession measures the depth of decline in real output during the recession.

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Inﬂation rates in the United States reached double-digit rates in the

Correct AnswerverifiedShow Answer

A lender need not be penalized by inﬂation if the

Correct AnswerverifiedShow Answer

In which of the following industries or sectors of the economy will business cycle ﬂuctuations likely have the greatest effect on output?

Correct AnswerverifiedShow Answer

The recurrent ups and downs in the level of economic activity extending over several years are referred to as

Correct AnswerverifiedShow Answer

A statement that is often used to describe demand-pull inﬂation is

Correct AnswerverifiedShow Answer

Real income can be determined by

Correct AnswerverifiedShow Answer

Lenders will be willing to reduce the nominal interest rates on loans if the expected inﬂation increases.

Correct AnswerverifiedShow Answer

What are ﬁve economic shocks that may cause business cycles?

Correct AnswerverifiedPolitical events, ﬁnancial ins...View AnswerShow Answer

Potential GDP is the output that would be produced if the economy was experiencing

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If the price level doubled in a 23-year period, we can conclude that the average annual rate of inﬂation over that period was about 3 percent.

Correct AnswerverifiedShow Answer

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Political events, ﬁnancial ins...
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