Knowledge Check quiz

Knowledge Check Week 4
Concepts

Mastery

Score: 10/10
Questions

Stages in the Business
Cycle

100%

1

Level of Economic
Growth

100%

4

Level of
Unemployment

100%

Inflation

100%

2

3

5

6

7

9

10

8

Concept: Stages in the Business Cycle
Concepts

Mastery

Stages in the
Business Cycle

Questions

100%

1

2

3

1.
Business cycles occur when output
A. falls below its potential
B. rises above its potential
C. is fixed at its potential
D. fluctuates around its growth trend

Correct!
The correct answer is: D. 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?
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
Correct!
The correct answer is: A. 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 A. a peak
B. a trough
C. an expansion
D. a recession

Correct!
The correct answer is: D. 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.

Concept: Level of Economic Growth
Concepts

Mastery

Level of Economic
Growth

100%

Questions
4

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

Correct!
The correct answer is: C. 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.

Concept: Level of Unemployment
Concepts

Mastery

Level of
Unemployment

100%

Questions
5

6

7

8

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?
A. 3%
B. 5%
C. 7%
D. 9%

Correct!
The correct answer is: B. 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 A. frictional unemployment
B. cyclical unemployment
C. natural unemployment
D. structural unemployment

Correct!
The correct answer is: B. Cyclical unemployment is unemployment resulting from fluctuations in economic activity. 7.
New college graduates are most likely to experience
A. frictional unemployment
B. cyclical unemployment
C. natural unemployment
D. structural unemployment

Correct!
The correct answer is: A. Frictional unemployment arises when people enter the labor force or are in the process of changing jobs.

8.
The natural rate of unemployment is defined as the
A. highest sustainable rate of unemployment achievable under existing conditions
B. unemployment rate that is consistent with the economy operating at its potential output C. unemployment rate at which there is no cyclical unemployment
D. the rate of unemployment that should exist according to policy makers
Correct!
The correct answer is: B. The natural rate of unemployment is defined as the unemployment rate that is consistent when the economy is operating at its potential output. This rate would occur when the economy is considered stable.

Concept: Inflation
Concepts
Inflation

Mastery
100%

Questions
9

10

9.
The Consumer Price Index (CPI) is based on
A. surveys of retail store sales
B. a broad index of all items in GDP
C. surveys of the prices of items in a market basket D. Bureau of Labor Statistics estimates of price changes

Correct!
The correct answer is: C. The CPI is a price index of a market basket of items that consumers buy. A market basket is a collection of items that people often buy such as clothing, gasoline, food, and so forth.
10.
Unanticipated inflation is a problem for society because it
A. rewards lenders at the expense of borrowers B. increases real profits in the short term
C. rewards savers at the expense of spenders D. benefits borrowers at the expense of lenders Correct!
The correct answer is: D. Unanticipated inflation leads to a different result than what was originally expected. The reason inflation benefitting borrowers is a problem is because it redistributes income away from lenders to borrowers.
Although this might look good to borrowers, it causes inefficiencies. If unanticipated inflation didn’t exist, people would know future inflation exactly; people would make better decisions in investment and consumption spending.