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Macroeconomics, Cdn.

4e (Williamson)
Chapter 3 Business Cycle Measurement

1) The defining feature of business cycles is that they


A) are inherently bad.
B) represent the underlying trend of real GDP in the economy.
C) are fluctuations about trend in real GDP.
D) measure prospects for future growth in the economy.
E) measure standards of living and productivity.
Answer: C
Type: MC Page Ref: P. 63

2) The defining feature of business cycles is that they are


A) changes in the trend component of real GDP.
B) fluctuations about trend in real GDP.
C) fluctuations about trend in the unemployment rate.
D) fluctuations about trend in the level of employment.
E) fluctuations about trend in standards of living.
Answer: B
Type: MC Page Ref: P. 63

3) A business cycle peak is a


A) small positive deviation from trend in real GDP.
B) relatively large positive deviation from trend in real GDP.
C) small negative deviation from trend in real GDP.
D) relatively large negative deviation from trend in real GDP.
E) minimum deviation from trend in real GDP.
Answer: B
Type: MC Page Ref: P. 64

4) A business cycle trough is a


A) small positive deviation from trend in real GDP.
B) relatively large positive deviation from trend in real GDP.
C) small negative deviation from trend in real GDP.
D) relatively large negative deviation from trend in real GDP.
E) minimum deviation from trend in real GDP.
Answer: D
Type: MC Page Ref: P. 64

5) Amplitude of the business cycle is


A) the amount of volatility in the business during one year.
B) the size of the minimum deviation from trend.
C) where the turning points of the business cycle occur.
D) the size of the maximum deviation from trend.
E) the amount of employment and real GDP changes during one year.
Answer: B
Type: MC Page Ref: P. 64

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6) In Canada, three important recessions occurred between
A) 1944-1946, 1951-1952, and 1962-1964.
B) 1978-1979, 1984-1985, and 1988-1989.
C) 1974-1975, 1981-1982, and 1990-1992.
D) 1981-1982, 1996-1997, and 2003-2004.
E) 1987-1988, 1994-1995, and 2002-2003.
Answer: C
Type: MC Page Ref: P. 64

7) Before 2000, the three most recent Canadian recessions occurred in


A) 1969-1973, 1979-1982, and 1994-1995.
B) 1973-1975, 1982-1985, and 1990-1991.
C) 1974-1975, 1981-1982, and 1990-1992.
D) 1981-1982, 1990-1991, and 1998-1999.
E) 1944-1945, 1955-1956, and 1990-1992.
Answer: C
Type: MC Page Ref: P. 64

8) The 2008-2009 rcession was more severe than all recent recessions except the one in
A) 1981-1982.
B) 1974-1975.
C) 1990-1991.
D) 2001-2002.
E) 1969-1973.
Answer: A
Type: MC Page Ref: P. 64

9) Business cycle persistence refers to the property that


A) real GDP is rarely exactly at trend.
B) booms and recessions last a long time.
C) when real GDP is above trend, it tends to stay above trend, and when it is below trend, it tends to stay
below trend.
D) business cycles are persistently hard to predict.
E) real GDP tends to stay in the peaks and troughs of the business cycle.
Answer: C
Type: MC Page Ref: P. 64

10) Why is forecasting GDP in the long run so difficult?


A) There is no expertise in forecasting the long run trend in real GDP.
B) There is no regularity in the frequency and amplitude of fluctuations in real GDP.
C) These is an absence of data that provides any information on future trends.
D) Current models are not sophisticated enough to conduct this exercise.
E) Structural and statistical forecasting provide differing results.
Answer: B
Type: MC Page Ref: P. 65

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11) Which of the following is a feature of recent Canadian business cycles?
A) The time series of deviations from trend in real GDP is quite choppy.
B) The time series of deviations from trend in real GDP is quite smooth.
C) There is no regularity to the amplitude of fluctuations in GDP below trend.
D) There is no regularity to the frequency of fluctuations in GDP below trend.
E) They are difficult to measure.
Answer: A
Type: MC Page Ref: P. 65

12) Which of the following is a feature of recent Canadian business cycles?


A) The time series of deviations from trend in real GDP is quite smooth.
B) There is regularity in flucuations in real GDP about trend.
C) There is regularity in the amplitude of fluctuations in real GDP about trend.
D) They are not persistent.
E) There is no regularity in the amplitude of fluctuations in real GDP about trend.
Answer: E
Type: MC Page Ref: P. 65

13) An example of a statistical model is the


A) WHARTON model.
B) Bayesian vector autoregression model.
C) DRI (Data Resources Incorporated) model.
D) Keynesian model.
E) Milton Friedman model.
Answer: B
Type: MC Page Ref: P. 66

14) The value of macroeconomic knowledge is in


A) understanding macro phenomena and guiding policy.
B) producing forecasts.
C) accurately forcasting stock prices.
D) understanding firm level behaviour.
E) accurately predicting recessions.
Answer: A
Type: MC Page Ref: P. 66

15) Comovement relates to


A) the relationship between real and nominal interest rates.
B) the movement between price levels and real GDP over time.
C) macroeconomic variables fluctuating together in patterns that exhibit strong regularities.
D) the movement of business cycles over time.
E) the frequency of the business cycles.
Answer: C
Type: MC Page Ref: P. 66

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16) The property that macroeconomic variables fluctuate together in patterns that exhibit strong
regularities is called
A) coincidence.
B) comovement.
C) correlation.
D) coexistence.
E) a leading indicator.
Answer: B
Type: MC Page Ref: P. 66

17) Robert Lucas has popularized the notion that with respect to
A) severity, business cycles are all alike.
B) causation, business cycles are all alike.
C) quantitative behaviour of comovements among series, business cycles are all alike.
D) qualitative behaviour of comovements among series, business cycles are all alike.
E) deviations from trend real GDP, business cycles over time are all alike.
Answer: D
Type: MC Page Ref: P. 66

18) Comovement can be discussed by


A) looking at the amplitude of the business cycle.
B) looking at the frequency of the business cycle.
C) looking at the peaks and troughs of the business cycle.
D) plotting the percentage deviations from trend in two economic variables.
E) economic forecasting models.
Answer: D
Type: MC Page Ref: P. 67

19) Comovement can be determined by


A) examining a scatter plot.
B) economic forecaseting models.
C) determining whether a series leads or lags.
D) determining the persistence in a series.
E) marking peaks and troughs.
Answer: A
Type: MC Page Ref: P. 68

20) Positive correlation between x and y implies that


A) when x is high, y is high.
B) when x is high, y is low.
C) when x is zero, y is positive.
D) x and y are positively unrelated.
E) the trend is unpredictable.
Answer: A
Type: MC Page Ref: P. 67-68

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21) Negative correlation between x and y implies that
A) when x is high, y is high.
B) when x is high, y is low.
C) xy < 0.
D) x/y < 0.
E) the trend is unpredictable.
Answer: B
Type: MC Page Ref: P. 67-68

22) If we plotted cigarettes smoked per year against the incidence of lung cancer, we would observe a
A) negative correlation.
B) positive correlation.
C) zero correlation.
D) an uncertain result.
E) time series.
Answer: B
Type: MC Page Ref: P. 67-68

23) If we plotted the level of good cholesterol in the blood against the incidence of heart disease, we
would observe a
A) negative correlation.
B) positive correlation.
C) zero correlation.
D) an uncertain result.
E) time series.
Answer: A
Type: MC Page Ref: P. 67-68

24) If deviations from trend in a macroeconomic variable are positively correlated with deviations from
trend in real GDP, that variable is said to be
A) useful in predicting future movements in real GDP.
B) procyclical.
C) countercyclical.
D) acyclical.
E) uncorrelated.
Answer: B
Type: MC Page Ref: P. 68

25) If the correlation between GDP and y is 0.75, we say y is


A) procyclical.
B) countercyclical.
C) acyclical.
D) negatively correlated.
E) cyclical.
Answer: A
Type: MC Page Ref: P. 68

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26) If the correlation between GDP and y is -0.75, we say y is
A) procyclical.
B) acyclical.
C) positively correlated.
D) countercyclical.
E) persistent.
Answer: D
Type: MC Page Ref: P. 68

27) If deviations from trend in a macroeconomic variable are negatively correlated with deviations from
trend in real GDP, that variable is said to be
A) useless in predicting future movements in real GDP.
B) procyclical.
C) countercyclical.
D) acyclical.
E) uncorrelated.
Answer: C
Type: MC Page Ref: P. 68

28) If the deviations from trend in a macroeconomic variable is neither procyclical not countercyclical, it
is
A) positively correlated.
B) a correlation coefficient.
C) lagging.
D) coincident.
E) acyclical.
Answer: E
Type: MC Page Ref: P. 68

29) A measure of the degree of correlation between two variables is a


A) statistical correlation.
B) financial correlation.
C) correlation statistic.
D) correlation coefficient.
E) correlation variable.
Answer: D
Type: MC Page Ref: P. 71

30) If the correlation coefficient between x and y is equal to 1, we say that x and y are
A) perfectly positively correlated.
B) acyclical.
C) perfectly negatively correlated.
D) leading variables.
E) lagging variables.
Answer: A
Type: MC Page Ref: P. 71

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31) If the correlation coefficient between x and y is equal to -1, we say that x and y are
A) imperfectly negatively correlated.
B) perfectly negatively correlated.
C) lagging variables.
D) perfectly positively correlated.
E) countercyclical.
Answer: B
Type: MC Page Ref: P. 71

32) If a macroeconomic variable tends to aid in predicting the future path of real GDP, it is said to be a
A) convenient variable.
B) coincident variable.
C) leading variable.
D) lagging variable.
E) correlated variable.
Answer: C
Type: MC Page Ref: P. 71

33) If real GDP helps to predict the path of a particular macroeconomic variable, it is said to be a
A) conventional variable.
B) coincident variable.
C) leading variable.
D) lagging variable.
E) correlated variable.
Answer: D
Type: MC Page Ref: P. 71

34) Forecasting the future path of real GDP by exploiting past statistical relationships
A) is never very reliable.
B) can be accomplished by the construction and use of an index of leading variables.
C) can be accomplished by the construction and use of an index of lagging variables.
D) can be accomplished by the construction and use of an index of coincident variables.
E) can only be accomplished if there is a perfectly positive correlation.
Answer: B
Type: MC Page Ref: P. 71-72

35) The Composite Index of Business Leading Indicators tends to


A) lag income growth.
B) lag employment growth.
C) lead employment growth.
D) lead inflation.
E) lead real GDP.
Answer: E
Type: MC Page Ref: P. 72

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36) Comovement can be discerned by
A) calculating the percentage deviations from trend in real GDP.
B) whether it is a procyclical or countercyclical variable.
C) calculating the correlation coefficient between the percentage deviations from trend.
D) determining if it is a lagging or leading indicator.
E) looking at the composite index of business leading indicators.
Answer: C
Type: MC Page Ref: P. 73

37) Real consumption tends to be


A) procyclical and less variable than real GDP.
B) procyclical and more variable than real GDP.
C) countercyclical and less variable than real GDP.
D) countercyclical and more variable than real GDP.
E) acyclical with real GDP.
Answer: A
Type: MC Page Ref: P. 73

38) Investment tends to be a


A) procyclical variable.
B) coincident variable.
C) acyclical variable.
D) a lagging variable.
E) a leading variable.
Answer: B
Type: MC Page Ref: P. 73-74

39) Real investment tends to be


A) procyclical and less variable than real GDP.
B) procyclical and more variable than real GDP.
C) countercyclical and less variable than real GDP.
D) countercyclical and more variable than real GDP.
E) acyclical with real GDP.
Answer: B
Type: MC Page Ref: P. 73-74

40) Inventory investment tends to be


A) coincident.
B) leading.
C) lagging.
D) so unchanging that it is hard to classify.
E) procyclical.
Answer: B
Type: MC Page Ref: P. 74

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41) The Phillips curve shows the relationship between
A) real and nominal interest rates.
B) real and nominal GDP.
C) money prices and aggregate economic activity.
D) procyclical and countercyclical variables.
E) lagging an leading variables.
Answer: C
Type: MC Page Ref: P. 74

42) One example of a Phillips Curve would be a


A) positive relationship between deviations from trend in real and nominal interest rates.
B) negative relationship between deviations from trend in real and nominal interest rates.
C) positive relationship between deviations from trend in the level of a money price (the wage rate)
prices and the level of aggregate economic activity.
D) negative relationship between deviations from trend in the level of prices and the level of aggregate
economic activity.
E) positive relationship between deviations from trend in the level of prices and the level of aggregate
economic activity.
Answer: C
Type: MC Page Ref: P. 74-75

43) A reverse Phillips Curve would consist of a


A) positive relationship between deviations from trend in real and nominal interest rates.
B) negative relationship between deviations from trend in real and nominal interest rates.
C) positive relationship between deviations from trend in the level of prices and the level of aggregate
economic activity.
D) negative relationship between deviations from trend in the level of prices and the level of aggregate
economic activity.
E) relationship between lagging and leading indicators.
Answer: D
Type: MC Page Ref: P. 74-75

44) For the period 1961-2011 in Canada, the price level was
A) countercyclical.
B) bicyclical.
C) procyclical.
D) acyclical.
E) leading.
Answer: D
Type: MC Page Ref: P. 75

45) For the period 1961-2011 in Canada, the price level


A) was uncorrelated with real GDP.
B) led changes in real GDP.
C) was acyclical.
D) lagged changes in real GDP.
E) was coincident with changes in real GDP.
Answer: C
Type: MC Page Ref: P. 75

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46) In their study on business cycles, Backus and Kehoe found
A) correlations amongst real economic variables differed greatly among countries.
B) price level was consistently procyclical.
C) no consistent correlations amongst economic variables.
D) price level was consistently countercyclical.
E) correlations amongst real economic variables were similar across countries and over time.
Answer: E
Type: MC Page Ref: P. 76

47) The observation that the money supply is procyclical and leading the level of aggregate economic
activity is most closely associated with
A) Lucas and Friedman.
B) Friedman and Schwartz.
C) Kydland and Prescott.
D) David Runkle.
E) Keynes.
Answer: B
Type: MC Page Ref: P. 77-78

48) For the period 1961-2011 in Canada, the money supply was
A) procyclical and leading.
B) procyclical and lagging.
C) countercyclical and leading.
D) countercyclical and lagging.
E) coincident.
Answer: A
Type: MC Page Ref: P. 77-78

49) The Great Moderation is a period of reduced variability in real GDP that
A) applies well to the experience in the U.S. from 1980-2007, but less so in Canada.
B) applies well to the experience in Canada from 1980-2007, but less so in the U.S.
C) was perceived to have occurred but really did not.
D) applies well to the experience in the U.S. and Canada from 1940-1980.
E) applies well to the experience in Canada since 2010, but less so in the U.S.
Answer: A
Type: MC Page Ref: P. 78

50) The Great Moderation best applies to the behaviour of which series in Canada?
A) stock prices
B) real GDP
C) investment
D) inflation
E) nominal GDP
Answer: D
Type: MC Page Ref: P. 78-79

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51) Which of the following best explains why the U.S. experienced a Great Moderation while Canada
did not?
A) Canadian luck was worse than the U.S.'s.
B) Financial development was stronger in the U.S.
C) Monetary policies differed significantly between the two countries.
D) Canadian luck was better than the U.S.'s.
E) Financial development was stronger in Canada.
Answer: A
Type: MC Page Ref: P. 79

52) For the period 1976-2011, employment in Canada was


A) procyclical and leading.
B) procyclical and lagging.
C) countercyclical and leading.
D) countercyclical and lagging.
E) coincident.
Answer: B
Type: MC Page Ref: P. 78-79

53) Real wages are defined as


A) inflation-adjusted wages.
B) nominal wages plus the expected rate of inflation.
C) the purchasing power of the wage earned per hour worked.
D) income after adjusting for productivity.
E) the average money wage for all workers.
Answer: C
Type: MC Page Ref: P. 79

54) The weight of empirical evidence suggests that in Canada, the real wage rate is
A) acyclical.
B) bicyclical.
C) procyclical.
D) countercyclical.
E) lagging.
Answer: C
Type: MC Page Ref: P. 79

55) Difficulties in determining the cyclical pattern in real wage rates from aggregate data are primarily
due to biases due to
A) substitution behavior.
B) substantial differences across different business cycles.
C) variations in the composition of the labour force over the business cycle.
D) changing policy responses to business cycles.
E) variations in inflation and unemployment
Answer: C
Type: MC Page Ref: P. 80

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56) Average labour productivity is computed as the
A) ratio of industrial production to the employment rate.
B) ratio of real output in manufacturing to the level of real GDP.
C) ratio of real GDP to the unemployment rate.
D) ratio of real GDP to the level of employment.
E) ratio of labour input to real GDP.
Answer: D
Type: MC Page Ref: P. 80

57) Average labour productivity tends to be


A) procyclical and less variable than real GDP.
B) procyclical and more variable than real GDP.
C) countercyclical and less variable than real GDP.
D) countercyclical and more variable than real GDP.
E) acyclical with real GDP.
Answer: A
Type: MC Page Ref: P. 80

58) Average labour productivity tends to be a


A) lagging variable.
B) coincident variable.
C) leading variable.
D) an acyclical variable.
E) variable that is difficult to classify.
Answer: B
Type: MC Page Ref: P. 80

59) Seasonal adjustment in macroeconomic analysis


A) is not usually important.
B) is not necessary because economic activity tends to be too irregular for data-adjustment purposes.
C) is often appropriate because most macroeconomic time-series exhibit predictable seasonal patterns.
D) cannot be done because seasonal variation in production is extremely volatile and unstable.
E) should never be done because is can mask important seasonal phenomena.
Answer: C
Type: MC Page Ref: P. 81

60) Why is forecasting GDP over the long term so difficult?


Answer: There are many variables that influence the level of aggregate economic activity that an
economy experiences each year. The influence of these variables on real GDP can be quite significant as
to cause the pattern of real GDP to be quite volatile over time. The variability of actual real GDP to the
long term trend line becomes very irregular and unpredictable and the deviations from trend can become
quite volatile. As well, there is no regularity in the amplitude or the frequency of the fluctuations in real
GDP around the trend line. This makes forecasting expansionary phases of the business cycle so difficult
and turning points such as peaks and troughs of the business cycle almost impossible to predict with any
degree of certainty.
Type: ES Page Ref: P. 63-72

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