business cycle quiz

There are three types of unemployment: frictional, cyclical, and structural:

1- Frictional unemployment is due to constant changes in the economy that prevent qualified workers from being immediately matched with existing job openings.

2- Cyclical unemployment is when the economy is operating at less than full capacity.

3- Structural unemployment is due to structural changes in the economy that eliminate some jobs while generating job openings for which unemployed workers
are not qualified.

The inflation rate is the percentage change in the price index from a year earlier

An economic contraction is likely to feature increasing unemployment (i.e., decreasing employment), along with declining economic output and decreasing inflation pressure

Monetarists believe that to keep aggregate demand stable and growing, the central bank should follow a policy of steady and predictable increases in the money supply. Furthermore, monetarists believe that recessions are caused by inappropriate decreases in the money supply

In Austrian school business cycle theory, cycles are caused by government intervention that reduces interest rates below what they would be without government intervention, which leads to an artificial economic boom that must eventually collapse because the economy lacks the physical capital to support it

The labor-force participation rate is the percentage of the working-age population who are employed or actively seeking employment. The labor-force participation rate can be calculated as: (the labor force / working-age population) × 100

Both inflation scenarios can involve a decrease in short-run aggregate supply due to increasing wage demands. In a wage-push scenario, which is a form of cost-push inflation, the decrease in aggregate supply causes real GDP to fall below full employment. In a demand-pull inflation scenario, an increase in aggregate demand causes real GDP to increase beyond full employment, which creates wage pressure that results in a decrease in short-run aggregate supply

An economic contraction (recession) is typically characterized by decreasing inflationary pressures, increasing unemployment, and low or negative real GDP growth

Keynesian school economists recommend monetary or fiscal policy action to stimulate aggregate demand and restore full employment. Monetarists believe the rate of money supply growth should be kept stable and predictable. The New Classical school recommends against monetary or ϐiscal policy intervention because recessions reflect individuals’ and firms’ utility-maximizing response to real factors in the economy

Inflation is a persistent increase in the price level over time. Inflation occurs when there is a sustained increase in the prices of almost all goods and services. Inflation indicates a decline in the purchasing power of a currency

When the domestic economy is expanding, demand for imports is likely to increase as domestic incomes increase. Exports tend to be independent of domestic economic growth and are more closely related to trading partners' economic growth

The unemployment rate is the number of unemployed as a percentage of the labor force

The unemployment rate of a country is the percentage of people in the labor force who are unemployed. It is calculated as:

unemployment rate = (number of unemployed / labor force) × 100

The labor force includes those individuals who are employed or are actively seeking employment. The working-age population includes individuals not in the labor force

Lagging indicators have turning points that occur after business cycle turning points

Adopting a chained price index method addresses substitution bias, as does using a Paasche index. Hedonic pricing adjusts for improvements in the quality of products over time, not substitution bias

The labor force includes all people who are either employed or actively seeking employment. As such, Bradley is not counted as part of the labor force

Just before a peak in the economic cycle, sales slow, but production and inventory levels still reflect expectations of continued rapid growth. Inventory accumulates as sales slow, increasing the inventory-sales ratio until firms reduce production in response to decreased or declining sales growth

Frictional unemployment exists because workers and employers do not have perfect information and must expend time and resources on search activities

Core inflation is measured using a price index that excludes food and energy prices

Stages of processing are components of producer price indexes. Consumer price indexes compare the current prices of a typical consumption basket to prices in a base year

Early in an expansion, inventory-sales ratios typically decrease below their normal levels as accelerating sales draw down inventories of produced goods