Deck 24: Short-Term Economic Fluctuations: An Introduction

Question 1

A boom is:

A)a period in which the economy is growing at a rate significantly below normal.
B)the high point of economic activity prior to a downturn.
C)a particularly severe and protracted recession.
D)a particularly strong and protracted expansion.

Answer 1

a particularly strong and protracted expansion.

Question 2

A particularly severe or protracted recession is called a(n):

A)depression.
B)boom.
C)peak.
D)expansion.

Answer 2

depression.

Question 3

The end of a recession is called the:

A)trough.
B)expansion.
C)peak.
D)boom.

Answer 3

trough.

Question 4

An informal definition of a recession is at least ________ consecutive quarters of declining real GDP.

A)two
B)four
C)six
D)eight

Question 5

A period in which the economy is growing at a rate significantly above normal is called a(n):

A)depression.
B)expansion.
C)peak.
D)recession.

Question 6

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. $$\begin{array} { | c | c | c | } \hline \text { Turning Paint } & \text { Date } & \text { Real GDP (1996 \$ billims) } \\\hline \text { (A) } & \text { July } 1953 & 1992.2 \\\hline \text { (B) } & \text { May } 1954 & 1941.0 \\\hline \text { (C) } & \text { Apr. } 1957 & 2182.7 \\\hline \text { (D) } & \text { Apr. } 1958 & 2117.4 \\\hline \text { (E) } & \text { Apr. } 1960 & 2391.0 \\\hline\end{array}$$  
The economy experienced a recession that lasted from:

A)July 1953 to May 1954.
B)May 1954 to April 1957.
C)July 1953 to April 1957.
D)May 1954 to April 1958.

Question 7

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. $$\begin{array} { | c | c | c | } \hline \text { Turning Paint } & \text { Date } & \text { Real GDP (1996 \$ billims) } \\\hline \text { (A) } & \text { July } 1953 & 1992.2 \\\hline \text { (B) } & \text { May } 1954 & 1941.0 \\\hline \text { (C) } & \text { Apr. } 1957 & 2182.7 \\\hline \text { (D) } & \text { Apr. } 1958 & 2117.4 \\\hline \text { (E) } & \text { Apr. } 1960 & 2391.0 \\\hline\end{array}$$  
Which of the turning points are peaks?

A)(A), (B), and (C)
B)(C), (D), and (E)
C)(A), (C), and (E)
D)(B)and (D)

Question 8

The beginning of a recession is called the:

A)depression.
B)expansion.
C)peak.
D)trough.

Question 9

In reference to short-term economic fluctuations, the "peak" refers to:

A)a period in which the economy is growing at a rate significantly above normal.
B)the high point of economic activity prior to a downturn.
C)the high point of economic activity prior to a recovery.
D)a particularly strong and protracted expansion.

Question 10

A period in which the economy is growing at a rate significantly below normal is called a(n):

A)expansion.
B)boom.
C)peak.
D)recession.

Question 11

A depression is:

A)a particularly severe and protracted recession.
B)the high point of economic activity prior to a downturn.
C)the low point of economic activity prior to a recovery.
D)a particularly strong and protracted expansion.

Question 12

During recessions, the change in real GDP is:

A)always positive.
B)always negative.
C)most often positive, but occasionally negative.
D)most often negative, but occasionally positive.

Question 13

The duration of a recession is measured from:

A)peak to trough.
B)trough to peak.
C)peak to peak.
D)trough to trough.

Question 14

In the United States since 1929, the duration of recessions on average has been:

A)longer than the duration of expansions.
B)shorter than the duration of expansions.
C)steadily decreasing.
D)steadily increasing.

Question 15

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. $$\begin{array} { | c | c | c | } \hline \text { Turning Paint } & \text { Date } & \text { Real GDP (1996 \$ billims) } \\\hline \text { (A) } & \text { July } 1953 & 1992.2 \\\hline \text { (B) } & \text { May } 1954 & 1941.0 \\\hline \text { (C) } & \text { Apr. } 1957 & 2182.7 \\\hline \text { (D) } & \text { Apr. } 1958 & 2117.4 \\\hline \text { (E) } & \text { Apr. } 1960 & 2391.0 \\\hline\end{array}$$  
The economy experienced an expansion that lasted from:

A)July 1953 to May 1954.
B)May 1954 to April 1957.
C)July 1953 to April 1957.
D)May 1954 to April 1958.

Question 16

The longest and most severe recession in the United States since 1925 began in:

A)1929.
B)1945.
C)1957.
D)1982.

Question 17

An expansion is:

A)a period in which the economy is growing at a rate significantly below normal.
B)a period in which the economy is growing at a rate significantly above normal.
C)the high point of economic activity prior to a downturn.
D)the low point of economic activity prior to a recovery.

Question 18

In reference to short-term economic fluctuations, the "trough" refers to:

A)a period in which the economy is growing at a rate significantly below normal.
B)the low point of economic activity prior to a downturn.
C)the low point of economic activity prior to a recovery.
D)a particularly strong and protracted recession.

Question 19

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time.  
$$\begin{array} { | c | c | c | } \hline \text { Turning Paint } & \text { Date } & \text { Real GDP (1996 \$ billims) } \\\hline \text { (A) } & \text { July } 1953 & 1992.2 \\\hline \text { (B) } & \text { May } 1954 & 1941.0 \\\hline \text { (C) } & \text { Apr. } 1957 & 2182.7 \\\hline \text { (D) } & \text { Apr. } 1958 & 2117.4 \\\hline \text { (E) } & \text { Apr. } 1960 & 2391.0 \\\hline\end{array}$$  
Which of the turning points are troughs?

A)(A), (B), and (C)
B)(C), (D), and (E)
C)(A), (C), and (E)
D)(B)and (D)

Question 20

The longest expansion of the United States economy since 1925 began in:

A)1991.
B)1945.
C)1961.
D)1982.

Question 21

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time.  
$$\begin{array} { | c | c | c | } \hline \text { Turning Paint } & \text { Date } & \text { Real GDP (1996 \$ billims) } \\\hline \text { (A) } & \text { Feb. } 1961 & 2352.9 \\\hline \text { (B) } & \text { Dec. } 1969 & 3571.4 \\\hline \text { (C) } & \text { Nov. } 1970 & 3566.5 \\\hline \text { (D) } & \text { Nov. } 1973 & 4151.1 \\\hline \text { (E) } & \text { Mar. } 1975 & 4010.0 \\\hline\end{array}$$  
Which of the following periods was an expansion?

A)November 1970 through November 1973
B)December 1969 through November 1970
C)November 1970 through March 1975
D)December 1969 through November 1973

Question 22

Which of the following does not describe a characteristic of short-term economic fluctuations?

A)Expansions and recessions are felt in only a few sectors of the economy.
B)Expansions and recessions are irregular in length and severity.
C)The unemployment rate rises during recessions.
D)Durable-goods industries are more sensitive to short-term fluctuations than service and non-durable industries.

Question 23

Since 1925, the longest recession in the United States lasted:

A)120 months.
B)21 months.
C)43 months.
D)60 months.

Question 24

Indicators of economic activity that move at the same time as the overall economy are called ________ indicators.

A)short-term
B)long-term
C)real
D)coincident

Question 25

Economic activity moves from a trough into a period of ________ until it reaches a ________ and then into a period of ________.

A)expansion; trough; recession.
B)recession; trough; expansion
C)expansion; peak; recession
D)recession; peak; expansion

Question 26

Since 1925, the longest expansion in the United States lasted:

A)120 months.
B)21 months.
C)43 months.
D)60 months.

Question 27

Refer to the accompanying figure. In the figure, a business cycle trough is shown by which point(s)?

A)A and C and E
B)B and D
C)A only
D)D only

Question 28

Refer to the accompanying figure. In the figure, a business cycle peak is shown by which point(s)?

A)A and C and E
B)B and D
C)D only
D)E only

Question 29

Recessions in the United States typically are:

A)limited to a few industries.
B)limited to specific regions of the country.
C)widely felt outside the United States.
D)confined to the domestic economy.

Question 30

In determining the beginning of recessions, the NBER Business Cycle Dating Committee looks for evidence of decline in:

A)specific sectors of the economy.
B)the rate of inflation.
C)the entire economy.
D)the stock market.

Question 31

Industrial production, total sales, nonfarm employment, and after-tax household income are examples of ________ indicators of economic activity.

A)coincident
B)preceding
C)lagged
D)real

Question 32

The duration of an expansion is measured from:

A)peak to trough.
B)trough to peak.
C)peak to peak.
D)trough to trough.

Question 33

Refer to the accompanying figure. In the figure, which interval represents a business cycle expansion?

A)A to B
B)B to C
C)A to C
D)B to D

Question 34

Which of the following does not describe a characteristic of short-term economic fluctuations?

A)Expansions and recessions are felt throughout the economy.
B)Expansions and recessions are irregular in length and severity.
C)The unemployment rate rises during recessions.
D)Durable-goods industries are less sensitive to short-term fluctuations than service and non-durable industries.

Question 35

Among the most important indicators used by the NBER Business Cycle Dating Committee to determine the beginning of the 2007-2009 recession were all of the following except:

A)industrial production.
B)total sales in manufacturing, wholesale trade, and retail trade.
C)the consumer price index.
D)nonfarm employment.

Question 36

Economic activity moves from a period of expansion to a ________ and then moves into a period of ________ until it reaches a ________.

A)peak; expansion; trough
B)peak; recession; trough
C)trough; expansion; peak
D)trough; recession; peak

Question 37

The dates of the "official" peaks and troughs of business cycles in the United States are determined by the:

A)Federal Reserve Board.
B)Congressional Budget Office.
C)National Bureau of Economic Research.
D)Council of Economic Advisers.

Question 38

Economic activity moves from a period of recession to a ________ and then moves into a period of ________ until it reaches a ________.

A)peak; expansion; trough
B)peak; recession; trough
C)trough; expansion; peak
D)trough; recession; peak

Question 39

Refer to the accompanying figure. In the figure, which interval represents a business cycle recession?

A)A to B
B)B to C
C)A to C
D)B to D

Question 40

Recessions begin at ________ and end at ________.

A)the highest unemployment rate; the lowest unemployment rate
B)the lowest unemployment rate; the highest unemployment rate
C)a peak; a trough
D)a trough; a peak

Question 41

Potential output is:

A)equal to actual output.
B)also known as the output gap.
C)the same as the natural rate of unemployment.
D)the maximum sustainable amount of output.

Question 42

When actual output is less than potential output there is a(n):

A)budget deficit.
B)budget surplus.
C)trade deficit.
D)recessionary gap.

Question 43

The difference between the economy's potential output and its actual output relative to its potential output at a point in time is called the:

A)budget deficit.
B)trade deficit.
C)output gap.
D)full-employment rate.

Question 44

Changes in the growth rate of potential output and deviations of actual output from potential output are two logical explanations for:

A)the decline in the natural rate of unemployment.
B)short-term economic fluctuations.
C)increasing wage inequality.
D)skill-biased technological change.

Question 45

Falling growth rates during the 2007-2009 recession occurred:

A)only in the high-tech sectors of the U.S. economy.
B)only in the United States.
C)in the United States, China, Germany, the United Kingdom, and Japan.
D)in the United States and China, but not in Germany, the United Kingdom, or Japan.

Question 46

When there is a recessionary gap, capital and labor resources are:

A)not being fully utilized.
B)decreasing in number.
C)misallocated.
D)producing beyond their capacity.

Question 47

The increase in the unemployment rate during a recession is associated with which type of unemployment?

A)Frictional unemployment
B)Cyclical unemployment
C)Structural unemployment
D)Nominal unemployment

Question 48

If actual output equals potential output, unusually slow potential output growth would tend to result in:

A)a recession.
B)an expansion.
C)an output gap.
D)a recessionary gap.

Question 49

Which of the following workers is most likely to lose his/her job during a recession?

A)A construction worker
B)A baker
C)A farmer
D)A barber

Question 50

Short-term economic fluctuations are ________ in length and severity and ________ to predict.

A)regular; difficult
B)regular; easy
C)irregular; easy
D)irregular; difficult

Question 51

When actual output is greater than potential output there is a(n):

A)budget deficit.
B)budget surplus.
C)expansionary gap.
D)recessionary gap.

Question 52

Which of the following workers is least likely to lose his/her job during a recession?

A)A carpenter
B)An automobile assembly worker
C)A roofer
D)A police officer

Question 53

Which of the following is most likely to occur in the labor market during a recession?

A)The growth rate of real wages declines.
B)Bonuses and promotions become more frequent.
C)New entrants to the labor market have an easier time finding jobs.
D)The supply of labor increases dramatically.

Question 54

An expansion occurs when ________, when ________, or when both of these occur.

A)potential output grows rapidly; actual output rises above potential output.
B)potential output grows slowly; actual output rises above potential output
C)potential output grows rapidly; actual output equals potential output
D)potential output grows slowly; actual output equals potential output

Question 55

Workers in durable-goods industries are ________ workers in service industries to lose their jobs during a recession.

A)much less likely than
B)more likely than
C)less likely than
D)equally likely as

Question 56

Typically, the unemployment rate ________ during a recession and ________ during an expansion.

A)rises; rises even more
B)rises; falls
C)rises; does not change
D)falls; rises

Question 57

When recessions are the result of slowing growth in potential output, the government's best policy is to:

A)increase aggregate demand.
B)decrease aggregate supply.
C)promote saving and investment.
D)reduce government spending.

Question 58

Recessions tend to be ________ by ________ the rate of inflation.

A)followed; an increase in
B)followed; a decrease in
C)preceded; a decrease in the stability of
D)neither preceded nor followed; any change in

Question 59

A recession occurs when ________, when ________, or when both of these occur.

A)potential output grows slowly; actual output falls below potential output
B)potential output grows slowly; actual output rises above potential output
C)potential output grows rapidly; actual output equals potential output
D)potential output grows rapidly; actual output falls below potential output

Question 60

A country's actual output ________ its potential output.

A)can never exceed
B)can never fall below
C)can only temporarily exceed
D)is always be approximately equal to

Question 61

If potential output for an economy equals $8 billion, and actual output equals $7 billion, then this economy has a(n):

A)budget deficit.
B)trade deficit.
C)expansionary gap.
D)recessionary gap.

Question 62

If there is 2 percent frictional unemployment, 3 percent structural unemployment, and 1 percent cyclical unemployment, then the natural rate of unemployment equals:

A)3 percent.
B)4 percent.
C)5 percent.
D)6 percent.

Question 63

In Macroland potential GDP equals $20 billion and real GDP equals $19.2 billion. Macroland has a(n)________ gap equal to ________ percent of potential GDP.

A)expansionary; 8
B)expansionary; 4
C)recessionary; −8
D)recessionary; −4

Question 64

In a recession, the cyclical unemployment:

A)is positive.
B)is zero.
C)is negative.
D)equals the natural rate of unemployment.

Question 65

If the cyclical rate of employment equals −2 percent and the actual rate of unemployment equals 8 percent, then the natural rate of unemployment must equal:

A)−6 percent.
B)0 percent.
C)2 percent.
D)10 percent.

Question 66

If potential output equals $8 billion and actual output equals $10 billion, then this economy's output gap should be expressed as:

A)$2 billion.
B)20 percent.
C)25 percent.
D)−25 percent.

Question 67

If the output gap equals 1.8 percent, then:

A)cyclical unemployment equals the sum of structural and frictional unemployment.
B)there is an expansionary gap.
C)there is significant cyclical unemployment.
D)potential GDP exceeds actual GDP.

Question 68

If the output gap equals −3.2 percent, then:

A)cyclical unemployment equals the sum of structural and frictional unemployment.
B)there is a recessionary gap.
C)there is no cyclical unemployment.
D)potential GDP is lower than actual GDP.

Question 69

The natural rate of unemployment is equal to the unemployment rate when there is only:

A)structural and cyclical unemployment.
B)frictional unemployment.
C)cyclical unemployment.
D)structural and frictional unemployment.

Question 70

According to the Congressional Budget Office, from 1979 to 1999, the natural rate of unemployment in the United States:

A)increased.
B)remained relatively stable.
C)fell.
D)fell to zero, and has since become negative.

Question 71

If the natural rate of unemployment equals 4 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals:

A)−2 percent.
B)10 percent.
C)2 percent.
D)6 percent.

Question 72

If potential output for an economy equals $8 billion and actual output equals $7 billion, then this economy's output gap should be expressed as:

A)−$1 billion.
B)$1 billion.
C)12.5 percent.
D)−12.5 percent.

Question 73

If the natural rate of unemployment equals 6 percent and the actual rate of unemployment equals 5 percent, then cyclical unemployment equals:

A)-1 percent.
B)1 percent.
C)−1.2 percent.
D)11 percent.

Question 74

If potential output equals $8 billion and actual output equals $9 billion, then this economy has a(n):

A)budget deficit.
B)trade deficit.
C)expansionary gap.
D)recessionary gap.

Question 75

If there is 3 percent frictional unemployment, 4 percent structural unemployment, and −2 percent cyclical unemployment, then the natural rate of unemployment equals:

A)1 percent.
B)2 percent.
C)5 percent.
D)7 percent.

Question 76

Cyclical unemployment is equal to zero when:

A)there is no recessionary gap.
B)there is no expansionary gap.
C)actual GDP and potential GDP are equal.
D)frictional unemployment equals structural unemployment.

Question 77

If the natural rate of unemployment equals 5 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals:

A)11 percent.
B)1.2 percent.
C)1 percent.
D)−1 percent.

Question 78

For policymakers, the problem with a recessionary gap is ________ and the problem with an expansionary gap is ________.

A)a tendency for inflation to increase; wasted resources
B)wasted resources; a tendency for inflation to increase
C)an increase in cyclical unemployment; an increase in structural unemployment
D)an increase in structural unemployment; an increase in cyclical unemployment

Question 79

If the cyclical rate of employment equals 1 percent and the actual rate of unemployment equals 8 percent, then the natural rate of unemployment must equal:

A)−7 percent.
B)9 percent.
C)12.5 percent.
D)7 percent.

Question 80

In an expansion, the cyclical rate of unemployment is often:

A)positive.
B)zero.
C)negative.
D)equal to the natural rate of unemployment.