A business cycle consists of ______.

alternating rises and declines in the level of economic activity.

What are the four phases of the business cycle?

Recession, trough, expansion, and peak.

The phase of the business cycle when the economy is near or at full employment and the level of real output is at or near capacity is called a:

peak.

The phase of the business cycle that describes a decline in total output, income, and employment is called a(n) ______.

recession.

In the trough of a recession, output and employment ______.

"bottom out" at their lowest levels.

An expansion is a period in which ______.

output rises and income rises.

The four phases of the business cycle can be illustrated by a series of alternating ______.

rising and declining curves.

Why the economy sees business cycle fluctuations rather than slow, smooth growth is a central issue of ______.

macroeconomics.

The phase of the business cycle at which the economy is at or near full employment is known as a(n) ______.

peak.

Recessions are periods when ______.

output and employment are falling.

Economic theories are founded on the idea that economic fluctuations are driven by ______.

economic shocks.

A ______ of a recession is when output and employment "bottom out" at their lowest levels.

trough

When prices are sticky in the short-run, the economy is forced to respond to shocks in the economy with changes in ______.

output and
employment.

An expansion usually follows immediately after a ______ in the business cycle.

recession

______ is a major factor preventing the economy from rapidly adjusting to shocks.

Price stickiness

A key issue in macroeconomics is why the economy sees ______.

business cycle fluctuations rather than slow, smooth growth.

Which of the following are possible sources of the demand and supply shocks that can cause business cycles?

Monetary factors, financial instability, and irregular innovation.

Which of the following is a consequence of unexpected lower total spending in the short-run when prices are sticky?

Firms sell fewer units of output.

True or False: When an economy experiences negative shocks, in the short run, the economy responds primarily through changes in prices.

False

What are the results of unexpected higher total spending in the short run when prices are sticky?

Output rises, GDP rises, and employment rises.

Which of the following is a major factor in preventing the economy from rapidly adjusting to shocks?

Sticky prices.

Firms and industries producing capital goods are affected most by the business cycle and the negative effects of a recession because purchases of capital goods ______.

can be postponed.

The means by which the U.S. Bureau of Labor Statistics determines who is employed and unemployed is a ______.

random survey of households.

Several possible sources of shocks that can cause business cycles include ______.

unexpected political events, monetary factors, irregular innovation, and productivity changes.

In the short-run, when prices are sticky, an unexpected decrease in total spending will cause ______.

firms to sell fewer units of output, firms to cut back on production, GDP to decline, and unemployment to rise.

Those who are working are defined as ______ and those who are not working but actively seeking work are defined as ______.

employed; unemployed.

When prices are sticky in the short run, which of the following is a result of an unexpected increase in total spending?

An increase in income.

The labor force is the ______.

sum of employed and unemployed.

The business cycle affects output and employment in capital and durable goods industries more severely than in industries producing non-durable goods because, ______.

...

The unemployment rate is calculated by dividing the number of ______ by the ______ times 100.

unemployed; labor force

How does the U.S. Bureau of Labor Statistics determine the nation's unemployment rate?

By conducting a monthly, nationwide random survey of 60,000 households.

The portion of the labor force that is not working but is willing and able to work and actively seeking work is defined as ______, and the portion of the labor force that is working part-time or full-time is defined as ______.

unemployed; employed.

The unemployment rate equals the percentage of ______.

the labor force that is unemployed.

The labor force is the sum of the ______ and ______.

employed; unemployed.

True or false: The Bureau of Labor Statistics lists all part-time workers as fully employed.

True

Which of the following describes how to calculate the unemployment rate?

(unemployed/labor force) x 100%

A discouraged worker is a(n) _______.

unemployed worker who drops out of the labor force and no longer seeks work actively.

Workers that are unemployed because they are "between jobs" are:

frictionally unemployed.

Frictional unemployment is ______.

inevitable and, in part, desirable.

What is the unemployment rate?

the percentage of the labor force that is unemployed.

Which type of unemployment occurs as a direct result of a mismatch between skills and jobs?

Structural.

The Bureau of Labor Statistics lists all part-time workers as ______.

full employed.

Which statements about frictional and structural unemployment are true?

Frictionally unemployed workers have marketable skills, while structurally unemployed workers do not.
Frictionally unemployed workers live in areas where jobs exist, while structurally unemployed workers do not have appropriate jobs available to them.

A worker who, after unsuccessfully seeking employment for some time, becomes frustrated and stops actively seeking work is referred to as a(n) ______ worker.

discouraged

Unemployment that results from the decline in total spending that occurs during the recession phase of the business cycle is called ______ unemployment.

cyclical

Frictional unemployment is defined as a type of unemployment that is caused by workers who ______.

unemployed as they actively search for a new job.

Economists say that the economy is at "full employment" when the ______ unemployment rate is zero.

cyclical

Frictional unemployment is inevitable and, in part, desirable because many workers who are voluntarily between jobs are moving to higher-paying, more productive positions that will result in which of the following?

An increase in GDP, a higher income for the workers, and a better allocation of labor resources.

An auto worker in Michigan who loses his job because the company relocated the plant to another country is an example of ______ unemployment.

structural

The natural rate of unemployment is generally thought of as the:

sum of the frictional unemployment and structural unemployment rates.

Workers that are ______ unemployed live in areas where jobs exist, and they have marketable skills.

frictionally

The difference between actual and potential GDP is called a ______ gap.

GDP

A worker that is unemployed because of an insufficient demand for goods and services is an example of:

cyclical unemployment.

Forgone output is a basic economic cost of ______.

unemployment.

An economy is "fully employed" when the unemployment rate _____.

equals the structural and frictional unemployment rate.

A GDP gap equals actual GDP minus ______ GDP.

potential

Suppose that in a particular year the natural rate of unemployment is 5 percent and the actual rate of unemployment is 8 percent. Using Okun's law, the size of the GDP gap in percentage point terms is:

6 percent.

The economy attains _______ when the unemployment rate equals the natural rate of unemployment.

full employment

The difference between actual and potential GDP is called a GDP ______.

gap.

Okun's law indicates that:

for every 1% by which the actual unemployment rate exceeds the natural rate there will be a negative GDP gap of 2%

The basic economic cost of unemployment is forgone ______.

output.

Which of the following are characteristics of lower-skilled workers?

Less likely to be self-employed.
Longer spells of structural unemployment.

The formula for a GDP gap is:

actual GDP minus potential GDP.

Which of the following are reasons why teenagers have a much higher unemployment rate than adults?

Have lower skill levels, "Fired" more frequently, quit more frequently, and have less geographic mobility.

According to Okun's law, if the unemployment rate in 2009 was 9.6, the natural rate of unemployment was 7.4, and the potential GDP was $8,500 billion, what was the loss of output associated with the above-natural unemployment rate?

$374 billion.

Which of the following describe why unemployment rates are higher for African Americans and Hispanics than for whites?

Lower rates of educational attainment and greater concentration in lower-skilled occupations.

Which of the following are normally very similar between men and women?

Unemployment rates.

Okun's law indicates that for every percentage point by which the ______ unemployment rate exceeds the ______ rate, a negative GDP gap of about 2% occurs.

actual; natural

On average, unemployment rates among less-educated workers are ______ than workers with more education.

higher

Workers in lower-skilled occupations have higher ______ rates than workers in higher-skilled occupations.

unemployment

The number of persons unemployed for long periods as a percentage of the labor force is much lower than:

the overall unemployment rate.

One reason teenagers have a higher unemployment rate than adults is because they:

have lower skill levels.

Which of the following could be considered a cost of cyclical unemployment?

Severe psychological costs to the job loser, higher crime, suicide, and divorce rates, and political upheaval.

True or false: The unemployment rate for African Americans and Hispanics is lower than that for whites.

False

When inflation occurs each dollar of income will buy ______ goods and services than before.

fewer

The unemployment rates for men and women are normally:

similar.

The index most widely used by the government and the private sector to measure changes in the cost of living is the:

consumer price index.

What are common characteristics of less-educated workers that contribute to their having higher unemployment rates than workers with more education?

Working lower-skilled jobs, having more time between jobs, and working jobs that are vulnerable to cyclical layoff.

Which statements about the CPI are true?

It is updated every few years to reflect recent consumer purchasing patterns.
It is periodically updated by the BLS to reflect current inflation rates.

The number of persons unemployed for long periods as a percentage of the labor force is ______ the overall unemployment rate.

lower than

The formula for the ______ Price Index is the price of the most recent market basket in a particular year divided by the price estimate of the market basket in 1982-1984 multiplied by 100.

Consumer

Which of the following are consequences of the widespread joblessness of cyclical unemployment?

Greater ethnic tensions, increased poverty, and power morale.

The rate of inflation is equal to the percentage change of the ______ from one year to the next.

consumer price index

Inflation ______ the purchasing power of money.

reduces

If the CPI was 208.5 in 2009, up from 200.5 in 2008, what was the rate of inflation?

3.99%.

What does the Consumer Price Index (CPI) measure?

The prices of a fixed "market basket" of goods and services.

A persistent 5% annual rate of inflation will double the price level in ______ years.

14

The composition of the market basket for the CPI is based on spending patterns of urban _______ in a given period.

consumers

Which statement best describes U.S. inflation since 2000?

It has been neither very low nor high.

What is the formula for the CPI?

(Price of the most recent market basket/price estimate of the market basket in 1982-1984) x 100

Inflation caused by an increase in the per-unit production costs at each level of total spending is called:

cost-push.

The rate of inflation is equal to:

the percentage growth of CPI from one year to the next.

The rocketing prices of imported oil in 1973-1974 and again in 1979-1980 are good illustrations of ______.

cost-push inflation.

If the CPI was 202 in 2009 and 209 in 2010, the rate of inflation for 2010 is ______.

3.5%.

Food and energy prices often complicate the measurement of inflation because supply and demand for these products ______.

often change, creating temporary changes in prices.

If a 3% annual rate of inflation persists, the price level will double in ______ years.

23.3.

True or false: In the United States, inflation reached double-digit rates in the 1970s and early 1980s but has since declined and recently, has been relatively mild.

True

Cost-push inflation is caused by an increase in ______.

the per-unit production costs at each level of spending.

The major source of cost-push inflation is ______.

supply shocks.

Which of the following are excluded from core inflation so that it better reflects the general trend in overall prices?

Energy products and food items.