Question 1 Which of the following is characteristic of a downturn in the business cycle?

1 Which of the following is characteristic of a downturn in the business cycle?
Higher prices
Higher unemployment rates
Growth in real output
Increased population

2 The price of one good compared to the price of other goods refers to:
Relative price.
The income effect.
Deflation.
Inflation.

3 Based on the HEADLINE article titled “Inflation and the Weimar Republic,” which of the following is the best illustration of a change in relative prices due to hyperinflation?
“… businessmen traveling around the country found themselves borrowing funds from their customers each stage of the way. The cash they’d allocated for the entire trip barely sufficed to pay the way to the next stop.”
“Workers were often paid daily and sometimes two or three times a day, so that they could buy goods in the morning before the inevitable afternoon price increase.”
“Wholesale prices rose fortyfold . . . while retail prices rose even more rapidly.”
“Those thrifty Germans who had placed their savings in corporate or government bonds saw their lifetime efforts come to naught.”

4 Which of the following is an example of the price effect during a period of inflation?
You buy a lot of gasoline, and the price of gasoline rises more rapidly than the price level does.
Your income increases, but not as rapidly as the price level does.
You own municipal bonds that pay a low interest rate while the price level is rising.
You own a house, and its value rises more rapidly than the price level does.

5 Nominal income must have fallen if real income:
Falls and there is inflation.
Rises and there is inflation.
Falls and there is deflation.
Rises and there is deflation.

6 Which of the following is likely if an economy is in a recession or headed for one?
An increase in unemployment
An increase in consumer confidence
An increase in the rate of output
An increase in the rate of inflation

7 Throughout the business cycle, unemployment and production typically move in opposite directions.
TRUE
FALSE

8 Samantha quit her job in the city to look for a job in the country. While she is looking, Samantha experiences _______ unemployment.
Seasonal
Frictional
Structural
Cyclical

9 Suppose a recent college graduate has an annual nominal income of $42,000 for the first year she works. If the annual inflation rate is 5 percent, what salary would she need in the second year to maintain the same real income?
$42,500
$44,100
$39,900
$42,000

10 If a market basket of goods cost $100 in the base year and $125 in a later year, then average prices have increased by:
125 percent.
25 percent.
80 percent.

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