Chapter 9 Quiz

Cost-push inflation may be caused by:
a negative supply shock.
Official unemployment statistics:
understate unemployment because discouraged workers are not counted as unemployed.
Demand-pull inflation:
occurs when total spending in the economy is excessive.
Recurring upswings and downswings in an economy’s real GDP over time are called:
business cycles.
A lender need not be penalized by inflation if the:
lender correctly anticipates inflation and increases the nominal interest rate accordingly.
Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called:
structural unemployment.
Given the annual rate of inflation, the “rule of 70” allows one to:
calculate the number of years required for the price level to double.
For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of:
Okun’s law.
Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is:
not in the labor force.
The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:
1.6 percent.
In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?
Expansion.
The GDP gap measures the difference between:
actual GDP and potential GDP.
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:
rise by about 15 percent.
Part-time workers who want full-time work are counted as:
fully employed and therefore the official unemployment rate may understate the level of unemployment.
The phase of the business cycle in which real GDP declines is called:
a recession.
Wait unemployment and search unemployment are both types of:
frictional unemployment.
Innovations such as the microchip and the Internet lead to business cycle variations because:
significant innovations occur irregularly and unexpectedly.
If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is:
3 percent.
The unemployed are those people who:
Are not employed but are seeking work
Susie 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 Susie is faced with:
structural unemployment.
The natural rate of unemployment is:
that rate of unemployment occurring when the economy is at its potential output.
Cost-of-living adjustment clauses (COLAs):
tie wage increases to changes in the price level.
The type of unemployment associated with recessions is called:
cyclical unemployment.
Inflation means that:
prices on average are rising, although some particular prices may be falling.
(Consider This) If wages were more downwardly flexible, then we would expect:
fewer layoffs during recessions.
A college graduate using the summer following graduation to search for a job would best be classified as:
a part of frictional unemployment.
If actual GDP is less than potential GDP:
the actual unemployment rate will be higher than the natural unemployment rate.