Q: Suppose the labor force in a country is 150 million people, and 12 million are unemployed but actively seeking work. What is the unemployment rate?

$$\frac{12}{150} \times 100 = 8\%$$

Q: If the Consumer Price Index (CPI) was 220 last year and is 242 this year, what is the rate of inflation?

$$\frac{242 - 220}{220} \times 100 = 10\%$$

Q: If the CPI in 1982–1984 is 100 and the price of the market basket in a particular year is $$1,200, what is the CPI for that year if the price estimate in 1982–1984 was 800$$?

$$\frac{1200}{800} \times 100 = 150$$

Q: If a country’s actual GDP is $$1.8 trillion and its potential GDP is 2.0 $$trillion, what is the GDP gap?

$$1.8 \text{ trillion} - 2.0 \text{ trillion} = -0.2 \text{ trillion}$$

Question 1

Which phase of the business cycle is characterized by the economy operating near or at full employment, with real output at or close to capacity and a likely rise in the price level?

Accepted Answer

Peak

Question 2

Suppose the labor force in a country is 150 million people, and 12 million are unemployed but actively seeking work. What is the unemployment rate?

Accepted Answer

$$\frac{12}{150} 	imes 100 = 8\%$$

Question 3

Which type of unemployment is most likely to occur when workers' skills become obsolete due to technological change?

Accepted Answer

Structural unemployment

Question 4

A sudden increase in oil prices causes production costs to rise across many industries. What type of inflation is most likely to result?

Accepted Answer

Cost-push inflation

Question 5

If the Consumer Price Index (CPI) was 220 last year and is 242 this year, what is the rate of inflation?

Accepted Answer

$$\frac{242 - 220}{220} 	imes 100 = 10\%$$

Question 6

Which group is most likely to benefit from unanticipated inflation?

Accepted Answer

Debtors (borrowers)

Question 7

During a recession, which of the following is most likely to increase?

Accepted Answer

Unemployment

Question 8

If the actual unemployment rate is 8% and the natural rate of unemployment (NRU) is 5%, according to Okun’s law, what is the approximate negative GDP gap?

Accepted Answer

$$(8\% - 5\%) 	imes 2 = 6\%$$

Question 9

Which of the following best describes frictional unemployment?

Accepted Answer

Unemployment due to workers voluntarily moving between jobs

Question 10

A country experiences rapid inflation due to a massive increase in its money supply by the government. What is this phenomenon called?

Accepted Answer

Hyperinflation

Question 11

Which of the following is NOT included in the labor force when calculating the unemployment rate?

Accepted Answer

Retirees

Question 12

If nominal income rises at the same rate as the price index, what happens to real income?

Accepted Answer

Real income remains unchanged

Question 13

Which of the following is a direct economic cost of unemployment?

Accepted Answer

Forgone output (negative GDP gap)

Question 14

A grocery store spends more time and resources updating price labels due to frequent inflation. This is an example of:

Accepted Answer

Menu costs

Question 15

Which of the following shocks is most likely to cause a business cycle?

Accepted Answer

Unexpected financial bubbles and bursts

Question 16

If the CPI in 1982–1984 is 100 and the price of the market basket in a particular year is $$1,200, what is the CPI for that year if the price estimate in 1982–1984 was 800$$?

Accepted Answer

$$\frac{1200}{800} 	imes 100 = 150$$

Question 17

Which of the following statements about cost-push inflation is correct?

Accepted Answer

It results from abrupt increases in production costs

Question 18

A person who is both a saver and a debtor experiences unanticipated inflation. What is the likely effect on their real income?

Accepted Answer

Their real income is cushioned by offsetting effects

Question 19

Which of the following best describes the immediate cause of business cycles?

Accepted Answer

Unexpected changes in the level of total spending

Question 20

If a country’s actual GDP is $$1.8 trillion and its potential GDP is 2.0 $$trillion, what is the GDP gap?

Accepted Answer

$$1.8 	ext{ trillion} - 2.0 	ext{ trillion} = -0.2 	ext{ trillion}$$

Business Cycles, Unemployment, and Inflation: Core Concepts in Macroeconomics

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