Chap 26 review
Student: ___________________________________________________________________________
1. The recurrent ups and downs in the level of economic activity extending over several years are referred to as: 
A) Recessions
B) Business troughs
C) Business cycles
D) Noncyclical fluctuations

2. Refer to the above diagram. The phases of the business cycle from points A to D are, respectively: 
A) Peak, recession, expansion, trough
B) Trough, recovery, expansion, peak
C) Expansion, recession, trough, peak
D) Peak, recession, trough, expansion
 3. Which phase of the business cycle would be most closely associated with an economic contraction? 
A) Peak
B) Recession
C) Trough
D) Recovery
 
4. A recession is a decline in: 
A) The inflation rate that lasts six months or longer
B) The unemployment rate that lasts six months or longer
C) Real GDP that lasts six months or longer
D) Potential GDP that lasts six months or longer
 5. Most economists agree that the immediate cause of the majority of cyclical changes in the level of real output is unexpected changes in the: 
A) Level of total spending
B) Rate of unemployment
C) Rate of inflation
D) Stock market price indexes
 
6. The Great Recession that started in 2007 was triggered by shocks in which of the following economic sectors? 
A) Gold market and stock market
B) International trade and foreign exchange markets
C) Real estate and financial markets
D) Consumer and government spending
 7. The unemployment rate is interpreted as the percentage of the: 
A) Adult population who are unemployed
B) Labor force that are not employed
C) Able-bodied population who are not working
D) Work force that have been laid off
 
8. The full-time homemakers and retirees are classified in the BLS data as: 
A) Employed
B) Unemployed
C) Part of the labor force
D) Not in the labor force
 9. The unemployed are those people who: 
A) Do not have jobs
B) Are not employed but are seeking work
C) Are not working
D) Are not in the workforce
 
10. Which of the following is the correct way to calculate the unemployment rate? 
A) [(unemployed)/(population)] x 100
B) [(unemployed)/(labor force)] x 100
C) [(labor force)/(population)] x 100
D) [(labor force)/(unemployed)] x 100
 11. Assuming the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, the unemployment rate is: 
A) 4 percent
B) 6 percent
C) 8 percent
D) 10 percent
 
12. The total adult population of an economy is 175 million, the number of employed is 122 million, and the number of unemployed is 17 million. The percent of adults who are not in the labor force is: 
A) 25.3 percent
B) 20.6 percent
C) 30.3 percent
D) 13.9 percent
 13. In calculating the unemployment rate, part-time workers are: 
A) Counted as unemployed because they are not working full-time
B) Counted as employed because they are receiving payment for work
C) Used to determine the size of the labor force, but not the unemployment rate
D) Treated the same as "discouraged" workers who are not actively seeking employment
 
14. Official unemployment rate statistics may: 
A) Overstate the amount of unemployment by including part-time workers in the calculations
B) Understate the amount of unemployment by excluding part-time workers in the calculations
C) Overstate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment
D) Understate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment
 15. The best example of a "frictionally unemployed" worker is one who: 
A) Reduces productivity by causing frictions in a business
B) Is laid off during a recessionary period in the economy
C) Is in the process of voluntarily switching jobs
D) Is discouraged and not actively seeking work
 
16. A worker who loses a job at a call center because business firms switch the call center to another country is an example of: 
A) Frictional unemployment
B) Structural unemployment
C) Cyclical unemployment
D) Disguised unemployment
 17. Kevin has lost his job in an automobile plant because of the use of robots for welding on the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is: 
A) Cyclical
B) Frictional
C) Structural
D) Natural
 
18. New college graduates still looking for their first jobs would be classified in the BLS data as: 
A) Frictionally unemployed
B) Not yet in the labor force
C) Cyclically unemployed
D) Part of structural unemployment
 19. A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment? 
A) Structural
B) Cyclical
C) Frictional
D) Natural
 
20. Unemployment that occurs when there is deficient demand for the goods and services of an economy is called: 
A) Frictional unemployment
B) Cyclical unemployment
C) Structural unemployment
D) Natural unemployment
 21. Which of the following statements is correct? 
A) Frictional unemployment is the result of frictions between labor and management over how best to perform work
B) Structural unemployment is unemployment resulting from changes in the structure of consumer demand or technology
C) Cyclical unemployment is also called wait unemployment because this unemployment depends on the timing of the business cycle
D) Search unemployment is the broadest unemployment category because it covers all other types of unemployment
 
22. Search and wait unemployment is another way to describe: 
A) Noncyclical unemployment
B) Cyclical unemployment
C) Frictional unemployment
D) Structural unemployment
  The descriptions give the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.

1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month, but still has not gotten a job offer.
2. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve.
3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.
4. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year, but was unsuccessful and quit looking for work.
 
23. Refer to the above information. Which individual is frictionally unemployed? 
A) 1
B) 2
C) 3
D) 4
 24. Refer to the above information. Which individual is structurally unemployed? 
A) 1
B) 2
C) 3
D) 4
 
25. Refer to the above information. Which individual is cyclically unemployed? 
A) 1
B) 2
C) 3
D) 4
 26. Refer to the above information. Which individual would be classified as a discouraged worker? 
A) 1
B) 2
C) 3
D) 4
 
27. Refer to the above information. Which individual would be included in the calculation of the full-employment unemployment rate? 
A) 1 only
B) 2 only
C) 1 and 3
D) 2 and 4
 28. "Full employment" refers to the situation when there is: 
A) 100% employment of the labor force
B) 0% unemployment rate
C) No frictional or structural unemployment
D) No cyclical unemployment
 
29. The full-employment rate of unemployment is also called the: 
A) Potential rate of unemployment
B) Cyclical rate of unemployment
C) Frictional rate of unemployment
D) Natural rate of unemployment
 30. The natural rate of unemployment: 
A) Means that the economy will always operate at that rate
B) Means that the economy will always realize its potential output
C) Is equal to the total of frictional and structural unemployment
D) Is a fixed unemployment rate that does not change over time
 
31. If unemployment is above the natural rate of unemployment, then potential GDP is: 
A) Equal to the GDP gap
B) Equal to actual GDP
C) Less than actual GDP
D) Greater than actual GDP
 32. If the negative GDP gap were equal to 4% of the potential GDP, Okun's law suggests that the actual unemployment rate would exceed the natural rate of unemployment by: 
A) One percentage point
B) Two percentage points
C) Three percentage points
D) Four percentage points
 
33. Okun's law indicates that for: 
A) Every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 2 percent GDP gap is generated
B) Every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 5 percent GDP gap is generated
C) A 5 percent GDP gap, a 1 percent increase in the natural unemployment rate is generated
D) A 2 percent GDP gap, a 2 percent increase in the actual unemployment rate is generated
 34. When inflation occurs: 
A) All prices are rising
B) Each dollar of income will buy more output than before
C) The purchasing power of money increases
D) The purchasing power of money decreases
 
35. Inflation is a rise in: 
A) The general level of prices over time
B) The standard of living over time
C) Industrial production over time
D) Real GDP over time
 36. If the Consumer Price Index was 170 in one year and 180 in the next year, then the rate of inflation is approximately: 
A) 5.5 percent
B) 5.9 percent
C) 6.3 percent
D) 7.2 percent
 
37. If the Consumer Price Index was 90 in one year and 100 in the following year, then the rate of inflation is about: 
A) 9 percent
B) 10 percent
C) 11 percent
D) 12 percent
 38. Inflation caused by an increase in aggregate spending is referred to as: 
A) Cost-push inflation
B) Anticipated inflation
C) Demand-pull inflation
D) Hyperinflation
 
39. Inflation that occurs when total spending is greater than the economy's ability to produce output at the existing price level is: 
A) Anticipated inflation
B) Demand-pull inflation
C) Cost-push inflation
D) Unanticipated inflation
 40. A statement that is often used to describe demand-pull inflation is: 
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"
 
41. Inflation caused by a rise in the prices of inputs is referred to as: 
A) Cost-push inflation
B) Demand-pull inflation
C) Unanticipated inflation
D) Hyperinflation
 42. When oil and energy prices rise, the economy tends to experience: 
A) Natural inflation
B) Demand-pull inflation
C) Cost-push inflation
D) Unanticipated inflation
 
43. Unanticipated inflation tends to penalize: 
A) People who save money in financial institutions
B) Individuals who borrow money from financial institutions
C) Businesses which borrow money from financial institutions
D) Governments which have a progressive personal income tax
 44. Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unanticipated inflation occurs in the economy, then: 
A) Both lenders and borrowers benefit
B) Both lenders and borrowers are hurt
C) Borrowers are hurt, but lenders benefit
D) Lenders are hurt, but borrowers benefit
 
45. In what circumstances would lenders most benefit? 
A) When there is an unanticipated decrease in inflation
B) When there is an anticipated increase in inflation
C) When there is an unanticipated increase in inflation
D) When there is an anticipated decrease in inflation

Chap 26 review Key
 
1. C
 
2. D
 
3. B
 
4. C
 
5. A
 
6. C
 
7. B
 
8. D
 
9. B
 
10. B
 
11. C
 
12. B
 
13. B
 
14. D
 
15. C
 
16. B
 
17. C
 
18. A
 
19. B
 
20. B
 
21. B
 
22. C
 
23. A
 
24. C
	25. B
 
26. D
 
27. C
 
28. D
 
29. D
 
30. C
 
31. D
 
32. B
 
33. A
 
34. D
 
35. A
 
36. B
 
37. C
 
38. C
 
39. B
 
40. C
 
41. A
 
42. C
 
43. A
 
44. D
 
45. A