2 Time 25) Refer to the above figure. A recession is best described as A) the up

Question

2 Time 25) Refer to the above figure. A recession is best described as A) the upward linear line. B) the period between Point B and Point C. C) the period between Point A and Point B. D) none of the above. 26) Refer to the above figure. At Point B, the actual unemployment rate A) will decrease over time B) is negative. C) tends to be higher than the natural unemployment rate D) tends to be lower than the natural unemployment rate. 27) During a recession A) incomes rise and employment decreases. B) incomes fall and unemployment increases. C) incomes fall and unemployment falls. D) incomes rise and unemployment increases. 28) The price level has been rising 5 percent a year for twenty years and is expected to continue to do so. The nominal rate of interest is 8 percent. The real rate of interest is A) 0 percent B) 8/5 1.6 percent. C) 3 percent. D) 5 percent

Explanation / Answer

a) "C"

A point between point A and B. Recession is a point where the output decline and the production curve goes down.

b) "C"

At the recession point, the natural rate of the unemployment rate is higher than normal.

c) "B"

Income will fall and unemployment will rise.

d) "C"

3%. Real interest rate = Nominal rate - expected inflation.

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