$$\text{Change in unemployment rate} = -0.5(g-2\%) = -0.5(4\%-2\%) = -1\%$$

$$\text{Change in unemployment rate} = -0.5(1\%-2\%) = 0.5\%$$

Question 1

Which of the following best describes the three key properties of economic fluctuations (business cycles)?

Accepted Answer

Co-movement, limited predictability, and persistence

Question 2

According to Okun’s law, if the annual growth rate of real GDP ($$g) is 4$$%, what is the expected change in the unemployment rate?

Accepted Answer

$$	ext{Change in unemployment rate} = -0.5(g-2\%) = -0.5(4\%-2\%) = -1\%$$

Question 3

Which macroeconomic variable is considered counter-cyclical during business cycles?

Accepted Answer

Unemployment

Question 4

During the Great Depression (1929–1933), which of the following patterns was observed in the U.S. economy?

Accepted Answer

Co-movement of macroeconomic aggregates, limited predictability, and persistence in contraction

Question 5

Which school of thought attributes business cycles primarily to changes in productivity and technology?

Accepted Answer

Real business cycle theory

Question 6

Suppose a negative shock causes a leftward shift in the labor demand curve. If wages are downward rigid, what is the most likely outcome?

Accepted Answer

Wages remain unchanged and employment decreases

Question 7

Which of the following is NOT included in the Conference Board Leading Economic Index (LEI)?

Accepted Answer

Federal budget deficit

Question 8

If the labor demand curve shifts to the right due to technological advances, what happens to employment and real GDP in the short run?

Accepted Answer

Employment increases and real GDP rises

Question 9

Which of the following best explains the role of multipliers in amplifying economic shocks?

Accepted Answer

Multipliers amplify shocks by further shifting the labor demand curve, especially when wages are rigid

Question 10

Which of the following contributed to the recession of 2007–2009?

Accepted Answer

A collapse in housing prices, a fall in household wealth, and a financial crisis

Question 11

If the annual growth rate of real GDP is 1%, what is the change in unemployment rate according to Okun’s law?

Accepted Answer

$$	ext{Change in unemployment rate} = -0.5(1\%-2\%) = 0.5\%$$

Question 12

Which of the following is a pro-cyclical variable?

Accepted Answer

Real consumption

Question 13

Which policy is most likely to shift the labor demand curve to the right during a recession?

Accepted Answer

Expansionary monetary policy

Question 14

Which of the following statements about business cycles is correct?

Accepted Answer

Recessions are sharper and shorter than expansions

Question 15

A decline in the Leading Economic Index (LEI) for two or three months in a row is most likely to:

Accepted Answer

Warn of recession danger, but may give false signals

Question 16

Which theory suggests that recessions are caused by low demand for goods and services and that government intervention is necessary?

Accepted Answer

Keynesian theory

Question 17

If a negative consumption shock occurs, what is the sequence of events according to the multiplier effect in an economy with rigid wages?

Accepted Answer

Labor demand shifts left, wages remain unchanged, employment decreases further due to multipliers

Question 18

Which of the following is a limitation of the Leading Economic Index (LEI)?

Accepted Answer

It sometimes gives false warnings and little information about timing or severity

Question 19

During the 2007–2009 recession, which of the following was NOT a major contributing factor?

Accepted Answer

A sudden increase in manufacturing productivity

Short-Run Fluctuations and Business Cycles in Macroeconomics

Study Guide - Practice Questions