A Lender Need Not Be Penalized By Inflation If The

Question: Cost-push inflation may be caused by:

Answer: a negative supply shock.

Question: Official unemployment statistics:

Answer: understate unemployment because discouraged workers are not counted as unemployed.

Question: Demand-pull inflation:

Answer: occurs when total spending in the economy is excessive.

Question: Recurring upswings and downswings in an economy's real GDP over time are called:

Answer: business cycles.

Question: A lender need not be penalized by inflation if the:

Answer: lender correctly anticipates inflation and increases the nominal interest rate accordingly.

Question: Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called:

Answer: structural unemployment.

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

Answer: calculate the number of years required for the price level to double.

Question: 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:

Answer: Okun's law.

Question: Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is:

Answer: not in the labor force.

Question: The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:

Answer: 1.6 percent.

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

Answer: Expansion.

Question: The GDP gap measures the difference between:

Answer: actual GDP and potential GDP.

Question: 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:

Answer: rise by about 15 percent.

Question: Part-time workers who want full-time work are counted as:

Answer: fully employed and therefore the official unemployment rate may understate the level of unemployment.

Question: The phase of the business cycle in which real GDP declines is called:

Answer: a recession.

Question: Wait unemployment and search unemployment are both types of:

Answer: frictional unemployment.

Question: Innovations such as the microchip and the Internet lead to business cycle variations because:

Answer: significant innovations occur irregularly and unexpectedly.

Question: If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is:

Answer: 3 percent.

Question: The unemployed are those people who:

Answer: Are not employed but are seeking work

Question: 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:

Answer: structural unemployment.

Question: The natural rate of unemployment is:

Answer: that rate of unemployment occurring when the economy is at its potential output.

Question: Cost-of-living adjustment clauses (COLAs):

Answer: tie wage increases to changes in the price level.

Question: The type of unemployment associated with recessions is called:

Answer: cyclical unemployment.

Question: Inflation means that:

Answer: prices on average are rising, although some particular prices may be falling.

Question: (Consider This) If wages were more downwardly flexible, then we would expect:

Answer: fewer layoffs during recessions.

Question: A college graduate using the summer following graduation to search for a job would best be classified as:

Answer: a part of frictional unemployment.

Question: If actual GDP is less than potential GDP:

Answer: the actual unemployment rate will be higher than the natural unemployment rate.