$$\text{Change in unemployment rate} = -0.5(g-2\%) = -0.5(0\%-2\%) = 1\%$$ increase

$$\text{Change in unemployment rate} = -0.5(5\%-2\%) = -0.5(3\%) = -1.5\%$$ decrease

Question 1

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

Accepted Answer

They exhibit co-movement of macroeconomic variables, limited predictability, and persistence in growth rates.

Question 2

According to Okun’s Law, if the annual growth rate of real GDP ($$g) is 0$$%, what is the expected change in the unemployment rate?

Accepted Answer

$$	ext{Change in unemployment rate} = -0.5(g-2\%) = -0.5(0\%-2\%) = 1\%$$ increase

Question 3

Which of the following variables is considered pro-cyclical during the business cycle?

Accepted Answer

Real GDP

Question 4

During a recession, what typically happens to the labor demand curve and the quantity of labor, assuming downward wage rigidity?

Accepted Answer

The labor demand curve shifts left and the quantity of labor decreases.

Question 5

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

Accepted Answer

Federal government budget deficit

Question 6

Suppose the economy experiences a negative consumption shock. According to the concept of multipliers, what is the likely short-run effect?

Accepted Answer

The initial shock is amplified, leading to further decreases in employment and output.

Question 7

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

Accepted Answer

Real business cycle theory

Question 8

What was a major cause of the 2007–2009 recession according to the evidence-based analysis?

Accepted Answer

A collapse in housing prices leading to a fall in new construction

Question 9

If the Index of Leading Economic Indicators (LEI) declines for three consecutive months, what does this typically signal?

Accepted Answer

A warning of possible recession in the near future.

Question 10

Which of the following best explains why recessions are difficult to predict?

Accepted Answer

Economic fluctuations have limited predictability due to unexpected shocks and changing conditions.

Question 11

According to Keynesian theory, what is the primary cause of recessions?

Accepted Answer

Low demand for goods and services due to changes in expectations and sentiments

Question 12

Which of the following is a counter-cyclical variable during the business cycle?

Accepted Answer

Unemployment rate

Question 13

If the annual growth rate of real GDP is 5%, what is the predicted change in the unemployment rate according to Okun’s Law?

Accepted Answer

$$	ext{Change in unemployment rate} = -0.5(5\%-2\%) = -0.5(3\%) = -1.5\%$$ decrease

Question 14

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

Accepted Answer

It sometimes gives false warnings and may not signal all recessions.

Question 15

Which of the following is an example of a multiplier effect in a recession?

Accepted Answer

A decrease in household income leads to further reductions in consumption and employment.

Question 16

Which policy would a Keynesian economist most likely recommend during a recession?

Accepted Answer

Increase government spending and/or lower taxes to boost demand.

Question 17

Which of the following best describes the role of downward wage rigidity in amplifying economic shocks?

Accepted Answer

It prevents wages from falling, leading to greater reductions in employment and output.

Question 18

Which of the following was NOT a major factor in the 2007–2009 recession?

Accepted Answer

A surge in exports

Question 19

If Apple and other technology firms become optimistic about future demand, what is the likely effect on the labor market?

Accepted Answer

The labor demand curve shifts to the right, increasing employment.

Short-Run Fluctuations and Business Cycles: Macroeconomic Study Guide

Study Guide - Practice Questions