Exam (elaborations) TEST BANK FOR Macroeconomics 9th Edition & Global Edition By Abel, Bernanke and Croushore

Exam (elaborations) TEST BANK FOR Macroeconomics 9th Edition & Global Edition By Abel, Bernanke and Croushore Macroeconomics, 9e, Global Edition (Abel/Bernanke/Croushore) Chapter 8 Business Cycles 8.1 1) One of the first organizations to investigate the business cycle was A) the Federal Reserve System. B) the National Bureau of Economic Research. C) the Council of Economic Advisors. D) the Brookings Institution. Answer: B 2) The entire sequence of a decline in aggregate economic activity followed by recovery, measured from peak to peak or trough to trough is a A) long-run trend. B) potential output path. C) business cycle. D) recurrent comovement. Answer: C 3) A detailed history of business cycles is known as a A) historical decomposition. B) trend analysis. C) Hodrick—Prescott filter. D) business cycle chronology. Answer: D 4) The dates of turning points are determined by a committee from the A) FBI. B) BLS. C) BEA. D) NBER. Answer: D 5) Business cycles all display the following characteristics except A) a period of expansion followed by one of contraction. B) comovement of many economic variables. C) rising prices during an expansion and falling prices during the contraction. D) they last a period of one to twelve years. Answer: C 6) The trough of a business cycle occurs when ________ hits its lowest point. A) inflation B) the money supply C) aggregate economic activity D) the unemployment rate Answer: C 7) The low point in the business cycle is referred to as the A) expansion. B) boom. C) trough. D) peak. Answer: C 8) When aggregate economic activity is increasing, the economy is said to be in A) an expansion. B) a contraction. C) a peak. D) a turning point. Answer: A 9) The high point in the business cycle is referred to as the A) turning point. B) peak. C) boom. D) trough. Answer: B 10) When aggregate economic activity is declining, the economy is said to be in A) a contraction. B) an expansion. C) a trough. D) a turning point. Answer: A 11) Peaks and troughs of the business cycle are known collectively as A) volatility. B) turning points. C) equilibrium points. D) real business cycle events. Answer: B 12) Turning points in business cycles occur when A) a new business cycle is initiated at the trough. B) the economy hits the peak or trough in the business cycle. C) the business cycle begins to follow a new pattern that differs from previous business cycles. D) a new business cycle is initiated at the peak. Answer: B 13) Who officially determines whether the economy is in a recession or expansion? A) The president of the United States B) The U.S. Congress C) The Federal Reserve Board of Governors D) The National Bureau of Economic Research Answer: D 14) Which group within the National Bureau of Economic Research officially determines whether the economy is in a recession or expansion? A) The G-4 B) The Business Cycle Dating Committee C) The Business Cycle Governors D) The Turning Point Group Answer: B 15) Research on the effects of recessions on the real level of GDP shows that A) recessions cause only temporary reductions in real GDP, which are offset by growth during the expansion phase. B) recessions cause large, permanent reductions in the real level of GDP. C) recessions cause both temporary and permanent declines in real GDP, but most of the decline is temporary. D) recessions cause both temporary and permanent declines in real GDP, but most of the decline is permanent. Answer: C 16) The tendency of many different economic variables to have regular and predictable patterns over the business cycle is called A) persistence. B) comovement. C) periodicity. D) recurrence. Answer: B 17) Comovement is A) the tendency for declines in economic activity to be followed by further declines, and for growth in economic activity to be followed by more growth. B) the idea that the standard pattern of contraction—trough—expansion—peak occurs again and again in industrial economies. C) the tendency of many economic variables to move together in a predictable way over the business cycle. D) the idea that peaks and troughs of the business cycle occur at regular intervals. Answer: C 18) The tendency of many economic variables to move together in a predictable way over the business cycle is called A) recurrence. B) persistence. C) comovement. D) inflation. Answer: C 19) The fact that business cycles are recurrent but not periodic means that A) business cycles occur at predictable intervals, but do not last a predetermined length of time. B) the business cycle's standard contraction—trough—expansion—peak pattern has been observed to occur over and over again, but not at predictable intervals. C) business cycles occur at predictable intervals, but do not all follow a standard contraction—trough— expansion—peak pattern. D) business cycles last a predetermined length of time, but do not all follow a standard contraction— trough—expansion—peak pattern. Answer: B 20) The tendency for declines in economic activity to be followed by further declines, and for growth in economic activity to be followed by more growth is called A) persistence. B) comovement. C) periodicity. D) recurrence. Answer: A 21) Persistence is A) the tendency for declines in economic activity to be followed by further declines, and for growth in economic activity to be followed by more growth. B) the idea that the standard pattern of contraction—trough—expansion—peak occurs again and again in industrial economies. C) the tendency of many economic variables to move together in a predictable way over the business cycle. D) the idea that peaks and troughs of the business cycle occur at regular intervals. Answer: A 22) The idea that the business cycle is recurrent means that A) declines in economic activity tend to be followed by further declines, and growth in economic activity tends to be followed by more growth. B) the standard pattern of contraction—trough—expansion—peak occurs again and again in industrial economies. C) many economic variables to move together in a predictable way over the business cycle. D) peaks and troughs of the business cycle occur at regular intervals. Answer: B 23) Define the following characteristics of business cycles: recurrence and persistence. Answer: Business cycles exhibit recurrence and persistence: (1) Recurrence means that each complete cycle is followed by another complete cycle. (2) Persistence means that, once begun, each contraction tends to continue. Likewise, once begun, each expansion tends to continue. For example, the contraction lasted for 16 months, and the expansion lasted for 93 months. These are persistent events. 24) Describe the major features of the business cycle. Be sure to discuss what variables are affected by the cycle, a description of the key features that are apparent in the data, how variables are related to one another, how regular the cycle is, and how predictable the cycle is. Answer: The business cycle is defined as a fluctuation of aggregate economic activity. There are recurrent but not periodic movements of aggregate activity, with many variables moving in the same direction at the same time (comovement). Increases in aggregate economic activity are expansions, while reductions in aggregate economic activity are contractions, or recessions. Both expansions and contractions exhibit persistence, so once an expansion or contraction begins, it tends to last some time. 25) When a recession occurs, do economists expect it to be a temporary phenomenon? Or is there some degree of permanence? What is the empirical evidence? Answer: Recent research suggests that recessions may contain permanent components. Some economists argue that only the recession led to a permanent change in the U.S. economy, because it changed the economy's use of oil permanently. Other studies suggest that perhaps 30% of changes in real output are permanent and 70% are temporary for the postwar United States. 8.2 1) The longest contraction in American history occurred A) during the 1870s. B) in the years right before World War I began. C) during the 1930s. D) during the 1970s. Answer: A 2) In the Great Depression, the financial sector collapsed, as A) banks engaged in ruinous competition. B) the stock market boomed, so people withdrew most of their funds from banks and invested heavily in stocks. C) the bond market boomed, so people withdrew most of their funds from banks and invested heavily in bonds. D) many banks closed. Answer: D 3) The deep recession of was mainly caused by A) flawed technology that caused a drop in TFP. B) an unexplained drop in business optimism. C) slower money growth. D) higher oil prices. Answer: D 4) The long boom occurred in the A) 1920s and 1930s. B) 1940s and 1950s. C) 1960s and 1970s. D) 1980s and 1990s. Answer: D 5) The long boom ended in A) 1999. B) 2001. C) 2008. D) 2012. Answer: B 6) The Great Depression consisted of how many business cycles? A) 1 B) 2 C) 3 D) 4 Answer: B 7) By 1937, when a new recession began in the midst of the Great Depression, A) GDP had almost recovered to its 1929 level, but unemployment was still above the 1929 level. B) unemployment had almost fallen back to its 1929 level, but GDP had yet to recover to its 1929 level. C) neither GDP nor unemployment had returned to near their 1929 levels. D) both GDP and unemployment had returned to near their 1929 levels. Answer: A 8) The worst recessions after World War II occurred A) during and . B) during and . C) during and . D) during and . Answer: C 9) The recession was caused by A) the Fed's easy monetary policy. B) the Fed's tight monetary policy. C) business pessimism about investment caused by high tax rates on capital. D) the quadrupling of oil prices by OPEC. Answer: D 10) The longest economic expansion in the United States occurred during the A) 1940s. B) 1960s. C) 1980s. D) 1990s. Answer: D 11) The Great Recession began in ________ and ended in ________. A) December 2007; June 2009 B) December 2007; December 2011 C) October 2008; June 2009 D) October 2008; December 2011 Answer: A 12) Christina Romer's criticism of the belief that business cycles had moderated since World War II depended on the fact that A) estimates of the timing of business cycles since World War II had been inaccurate. B) misuse of historical data had caused economists to understate the size of cyclical fluctuations in the post-World War II era. C) economists had ignored the roles of the government and international trade in mitigating economic fluctuations prior to World War II. D) economists had left out important components of GDP, such as wholesale and retail distribution, transportation, and services, in their pre-World War II estimates. Answer: D 13) Christina Romer argued that A) measured properly, GNP before 1929 varied substantially less over time than the official statistics showed. B) measured properly, GNP after 1929 varied substantially more over time than the official statistics showed. C) measured properly, economic expansions after 1929 were shorter than the official statistics showed. D) measured properly, economic expansions before 1929 were shorter than the official statistics showed. Answer: A 18) Stock and Watson found that monetary policy was responsible for about ________% of the reduction in output volatility that occurred in the mid-1980s. A) 0 to 10 B) 10 to 20 C) 20 to 30 D) 30 to 40 Answer: C 19) Stock and Watson found that ________ was responsible for about 20—30 % of the reduction in output volatility that occurred in the mid-1980s. A) reduced shocks to productivity B) reduced shocks to food and commodity prices C) better monetary policy D) better inventory control Answer: C 20) The widespread decline in the volatility of many macroeconomic variables after 1984 led economists to term this period the A) Great Moderation. B) Low Volatility Era. C) Steady State. D) Long Boom. Answer: A 21) How has the severity and duration of business cycles changed over time in the United States? Answer: Though it is a controversial subject, it appears that business cycles have become less severe over time. Recessions have certainly been shorter since World War II than they were before 1929. There is some disagreement about how severe they were before 1929, with Christina Romer arguing that measurement problems in the old data misled economists about how severe those recessions were. But others find that the old data is just about right and conclude that the business cycle is much less severe today. 22) If you were a member of the NBER business-cycle dating committee, would you declare that the U.S. economy is now in a recession? Why? Describe the major variables that you would look at to determine whether the economy is in a recession or not, and what features of the data you would look for. Answer: Many answers are possible. You should discuss GDP and other major macroeconomic variables. You should note that you are looking for co-movement and persistence. Diff: 1 Topic: Section: 8.2 Question Status: Previous Edition 23) Use the NBER data in Table 8.1 in the textbook on U.S. business cycle turning points to calculate: a) the shortest business cycle from peak to peak; b) the shortest business cycle from trough to trough; c) the longest business cycle from peak to peak; and d) the longest business cycle from trough to trough. Answer: (a) The shortest business cycle from peak to peak is 17 months, which extended from August 1918 to December 1919. This includes 7 months of contraction followed by 10 months of expansion. (b) The shortest business cycle from trough to trough is 28 months, which extended from July 1980 to October 1982. This includes 12 months of expansion followed by 16 months of contraction. (c) The longest business cycle from peak to peak is 128 months, which extended from July 1990 to March 2001. This includes 8 months of contraction followed by 120 months of expansion. (d) The longest business cycle from trough to trough is 128 months, which extended from March 1991 to November 2001. This includes 120 months of expansion followed by 8 months of contraction. 8.3 1) An economic variable that moves in the same direction as aggregate economic activity (up in expansions, down in contractions) is called A) procyclical. B) countercyclical. C) acyclical. D) a leading variable. Answer: A 2) An economic variable that moves in the opposite direction as aggregate economic activity (down in expansions, up in contractions) is called A) procyclical. B) countercyclical. C) acyclical. D) a leading variable. Answer: B 3) An economic variable that doesn't move in a consistent pattern with aggregate economic activity is called A) procyclical. B) countercyclical. C) acyclical. D) a leading variable. Answer: C 4) A variable that tends to move in advance of aggregate economic activity is called A) a leading variable. B) a coincident variable. C) a lagging variable. D) an acyclical variable. Answer: A 5) A variable that tends to move at the same time as aggregate economic activity is called A) a leading variable. B) a coincident variable. C) a lagging variable. D) an acyclical variable. Answer: B 6) A variable that tends to move later than aggregate economic activity is called A) a leading variable. B) a coincident variable. C) a lagging variable. D) an acyclical variable. Answer: C 7) Lagging variables are aggregate economic variables that A) reach a peak after leading variables but before coincident variables reach a peak. B) reach a peak after coincident variables reach a peak. C) reach a peak two or more years after aggregate economic activity reaches a peak. D) are insensitive to business cycles. Answer: B 8) The CFNAI is a A) leading index based on variables released with different frequencies. B) coincident index based on variables released with different frequencies. C) leading index based on 85 monthly variables. D) coincident index based on 85 monthly variables. Answer: D 9) The ADS Business Conditions Index is a A) leading index based on variables released with different frequencies. B) coincident index based on variables released with different frequencies. C) leading index based on 85 monthly variables. D) coincident index based on 85 monthly variables. Answer: B 10) Diebold and Rudebusch showed that the composite index of leading indicators did not improve forecasts of industrial production because A) the index is not produced in a timely manner. B) the government manipulates the index so it never predicts a recession. C) the index is not designed for forecasting. D) data on the components of the index are revised. Answer: D 11) Which of the following macroeconomic variables is procyclical and coincident with the business cycle? A) Residential investment B) Nominal interest rates C) Industrial production D) Unemployment Answer: C 12) Which of the following macroeconomic variables is procyclical and leads the business cycle? A) Business fixed investment B) Residential investment C) Nominal interest rates D) Unemployment Answer: B 13) Which of the following macroeconomic variables is acyclical? A) Real interest rates B) Unemployment C) Money supply D) Consumption Answer: A 14) Real interest rates are A) procyclical, just like nominal interest rates. B) acyclical, while nominal interest rates are procyclical. C) acyclical, just like nominal interest rates. D) countercyclical, while nominal interest rates are procyclical. Answer: B 15) Which of the following macroeconomic variables is procyclical and lags the business cycle? A) Business fixed investment B) Employment C) Stock prices D) Nominal interest rates Answer: D 16) Which of the following macroeconomic variables would you include in an index of leading economic indicators? A) Employment B) Inflation C) Real interest rates D) Residential investment Answer: D 17) Which of the following is not a leading variable? A) Inflation B) Stock prices C) Average labor productivity D) Residential investment Answer: A 18) Which of the following macroeconomic variables would you exclude from an index of leading economic indicators? A) Money supply B) Industrial production C) Inventory investment D) Residential investment Answer: B 19) Which of the following macroeconomic variables could not be used as a leading economic indicator? A) Residential investment B) Employment C) The money supply D) Stock prices Answer: B 20) Industries that are extremely sensitive to the business cycle are the A) durable goods and service sectors. B) nondurable goods and service sectors. C) capital goods and nondurable goods sectors. D) capital goods and durable goods sectors. Answer: D 21) You want to invest in a firm whose profits show large fluctuations throughout the business cycle. Which of the following would you invest in? A) A corporation that depends heavily on business fixed investment B) A corporation that depends heavily on consumer services C) A corporation that depends heavily on consumer nondurables D) A corporation that depends heavily on government purchases Answer: A 22) You want to invest in a firm whose profits show small fluctuations throughout the business cycle. Which of the following would you invest in? A) A corporation that depends heavily on business fixed investment B) A corporation that depends heavily on residential investment C) A corporation that depends heavily on consumer nondurables D) A corporation that depends heavily on consumer durables Answer: C 23) Which of the following macroeconomic variables is countercyclical? A) Real interest rates B) Unemployment C) Money growth D) Consumption Answer: B 24) Which of the following is true? A) Employment and unemployment are both coincident with the business cycle. B) Employment and unemployment are both procyclical. C) Employment is procyclical and unemployment is coincident with the business cycle. D) Employment is procyclical and unemployment is countercyclical. Answer: D 25) The job finding rate is defined as A) the probability that someone who has been unemployed for over a year will find a job in the next month. B) the probability that someone who is not in the labor force will enter the labor force in the next month. C) the probability that someone who is employed will change jobs in the next month. D) the probability that someone who is unemployed will find a job in the next month. Answer: D 26) The job finding rate A) equals 1 minus the job loss rate. B) remains constant over the business cycle. C) rises in recessions. D) rises in expansions. Answer: D 27) The probability that an employed worker will lose his or her job in the next month is known as A) the unemployment rate. B) the job finding rate. C) the underemployment rate. D) the job loss rate. Answer: D 28) The job loss rate A) equals 1 minus the job finding rate. B) remains constant over the business cycle. C) rises in recessions. D) rises in expansions. Answer: C 29) Which of the following statements is true? A) Both nominal and real interest rates are procyclical and leading. B) Both nominal and real interest rates are procyclical and lagging. C) Nominal interest rates are procyclical and real interest rates are countercyclical. D) Nominal interest rates are procyclical and real interest rates are acyclical. Answer: D 30) Using the seasonal business cycle as your guide, during which quarter would you be most likely to expect an increase in your corporation's sales? A) The first quarter of the year (January-March) B) The second quarter of the year (April-June) C) The third quarter of the year (July-September) D) The fourth quarter of the year (OctoberDecember) Answer: D 31) Which of the following macroeconomic variables is the most seasonally procyclical? A) Expenditure on services B) The unemployment rate C) Expenditure on durable goods D) The real wage Answer: C 32) Which of the following macroeconomic variables does not vary much over the seasons? A) The nominal money stock B) The unemployment rate C) The real