2. Four factors, both expected and unexpected, perpetuate the business cycle. Which of the following is NOT one of these factors? business investments interest rates and credit stagflation external shocks 3. Chris decided that this year she would put 25 percent of her income in savings and investments, an increase of 5 percent over the previous year. If a majoirty of people did this, how would the economy be affected? The economy would suffer because less money would be spent on goods and services. The economy would prosper because more investment funds would be available for businesses. There would be no effect because the same amount of money would enter the economy. The economy would suggere because the government would collect fewer income taxes. 4. What source of economic growth is reflected in the economy by an increase in productivity without an increase in land, labor, or capital? technological progress foreign trade population growth savings and investment 5. Which one of these people lost his or her job because of structural unemployment? Jordan graduated from law school and is interviewing with various law firms. Thomas’s job as a landscaper is on hold until the spring. Sonya dropped out of school and now fails to meet the minimum requirements for his job. Eva lost her job at a major interior design firm during the recession in the 1980s. Jordan Thomas Sonya Eva 6. According to the principle of cyclical unemployment, what will occur when the demand for goods and services drops during a recession? The business cycle resumes an upward trend. The demand for labor drops. The demand for labor rises. No frictional unemployment exists. 7. Ten years ago, a house sold for $54,000. Today the same house is valued at $108,000. What has inflation done to consumers’ purchasing power? reduced it increased it doubled it stopped it 8. If you lived on a fixed income, how would you be affected by inflation? You would be financially stressed because your income does not increase when prices go up. You would be hit hard because rising inflation would lower your rate of pay. You would benefit because you would have more purchasing power. There would be little effect because income is not tied to infaltion. 9. During the 1990′s, the inflation and unemployment trends in the United States changed. What was unusual in the 1990s? Unemployment reached high levels, but inflation fell to less than five percent. Although inflation remained at less than three percent, unemployment fell to very low levels. Unemployment and inflation maintained to the same ratio during the 1990s. Both unemployment and inflation rose to high levels. 10. What is the Consumer Price Index? a measure of prices of housing and rental costs all over the country an index of prices of items used by manufacturers and retailers an index determined by measuring the price of standard goods brought by urban consumers an index of the cost of the living for all U.S. consumers 11. An example of a durable good would be a used car. a paperback book. a box of cereal. a pack of baseball cards. 12. The main economic variables that affect business cycles include all the following EXCEPT interest rates. external events. personal savings levels. business investment levels. 13. An accurate statement about the Great Depression would be that it was a recession that became a depression because of World War II. it was set off because of a sharp and unexpected rise in interest rates. it was the most severe economic downturn in the history of industrial capitalism. its effects and duration would have been even worse if it weren’t for a strong economy in Japan and Europe at the time. 14. The agency that maintains the National Income and Product Accounts (NIPA) is the U.S. Department of the Treasury. the U.S. Department of the Interior. the U.S. Department of Defense. the U.S. Department of Commerce. 15. An example of capital deepening would be permitting two workers to share one job. paying for an employee to take college courses. laying off employees when a factory is modernized. moving a manufacturing plant overseas where labor costs lower. 16. An example of a nondurable good is a new car. a used car. a paperback book. a washing machine. 17. GDP expressed in constant, or unchanging, prices is called real GDP. price level. nominal GDP. net national product. 18. Which of the following would be counted in this year’s GDP? the value of a loan taken out this year The value of a television produced last year but sold this year The bonus check a worker receives this year The value of a savings bond sold by the federal government to invesetors this year 19. Concern about an international crisis has causes consumers to save their money and postpone big purchases. What is the effect on aggregate demand and aggregate supply? no chan