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1. Business cycles occur when output
Hint: Business cycles fluctuate over time around the linear trend of gross domestic product (GDP).
A. falls below its potential
B. rises above its potential
C. is fixed at its potential
[ D. fluctuates around its growth trend ]
The business cycle includes the tendency for output to rise and fall in the short term. When output fluctuates around an economy's secular trend, business cycles occur.
2. Which of these statements best describes a complete individual business cycle?
Hint : A complete business cycle is measured from the initial peak to the next peak.
[ A. Movement from peak to trough to peak ]
B. Movement from recession to expansion
C. Movement from peak to recession to trough
D. Movement from trough to expansion then to peak
A business cycle is measured peak to peak or trough to trough.
3. During the business cycle, the period between the point at which output reaches a high and the point at which it reaches a low is called
Hint : After a period of economic expansion, the economy usually contracts. This contraction would be characterized by higher unemployment and a declining GDP.
A. a peak
B. a trough
C. an expansion
[D. a recession [
A downturn describes the phenomenon of economic activity starting to fall from a peak. If output contracts between the point at which output reaches a high and the point at which it reaches a low for more than two consecutive quarters, the economy is generally considered to be in a recession.
4. Which of the following equals the market value of all final goods and services produced in an economy, stated in the prices of a specific base year?
A. Nominal GNP
B. Nominal GDP
[C. Real GDP]
D. Real GNP
Real GDP is the market value of all final goods and services produced in an economy and stated in the prices of a specific base year. Real GDP represents nominal GDP adjusted for inflation.
5. Imagine a country has a population of 210 million. Within the country there are 95 million people who are employed workers, 50 million people incapable of working, and 60 million people capable of working, but not actively looking. Based on this information, what is the unemployment rate?
Hint : Begin by looking at the labor force, then find the number of unemployed people. Some division and multiplication will be necessary after this point to find the unemployment rate. A. 3%
[ B. 5%]
First find the labor force—the civilian population minus the people incapable of working minus the people not looking for work: (210 – 50 – 60 = 100). Next, subtract the number of employed from the labor force to find the number of unemployed people (100 – 95 = 5). Finally, divide the number of unemployed people by the number of people in the labor force and multiply by 100: [(5/100) * 100 = 5%]
6. The unemployment produced by fluctuations in economic activity is called
Hint X Unemployment often changes with the business cycles. As the economy expands, the level of unemployment decreases. The unemployment level decreases as the economy expands.
A. frictional unemployment
[B. cyclical unemployment]
C. natural unemployment
D. structural unemployment
Cyclical unemployment is unemployment resulting from fluctuations in economic activity.
7. New college graduates are most likely to experience
Hint X New college graduates often are...