Chapter One: Quiz Answers -- Overview of the US Economy

1. The U.S. inflation rate in 2005 was approximately
   3.4 percent. Refer to the Current Events and Updates page for the latest data.

2. The U.S. unemployment rate during 2005 averaged about
   5.0 percent. The monthly unemployment rate stayed in a range of 4.9% and 5.4% during the entire year. Refer to the Current Events and Updates page for the latest montly data.

3. When the U.S. economy is "fully employed," many economists claim that the unemployment rate should be in the range of
   5.0% - 5.5%. Economists disagree about this range. Some claim that the full-employment level of unemployment is 4.0 percent while others argue that the value is closer to 6.0 percent. The Congressional Budget Office has estimated the natural rate of unemployment to be 5.2 percent since 1996.

4. All else equal, if the Federal Reserve wants to reduce inflation, it should
   raise interest rates. By raising interest rates, the central bank slows consumption and investment; consequently, economic activity slows and the pressure for prices to rise is lessened. Monetary policy is the topic of Chapter 15.

5. The 2005 fiscal-year U.S. budget deficit (ending Sept 30, 2005) was
   $319 billion. The Congressional Budget Office has historical data on U.S. federal surpluses and deficits as well as a Monthly Budget Review with monthy updates on the government's fiscal situation.

6. The current level of the national debt is closest to
   $8.4 trillion as of August 2006. If this isn't close enough for you, the Bureau of the Public Debt tracks the national debt to the penny.

7. As a general rule, when inflation rises, unemployment tends to
   fall. This inverse relationship is illustrated in the Phillips Curve, which is the subject of Chapter 16.

8. The U.S. economy began its last recession in March of
   2001. The National Bureau of Economic Research (NBER) is responsible for officially dating U.S. business cycles.

9. The U.S. economy is currently in recession.
   False. The answer to this question is false as of August 2006. The economy officially entered a recession in March 2001, and the NBER declared that November 2001 marked the end of the recession. Since then, the economy has been in an expansionary phase.

10. It is very likely that the U.S. government will be bankrupt in a few years because of the growing national debt.
    False. In fact, the debt burden has eased substantially since the surpluses of the late 1990s. Large deficits, however, are in the cards for the forseeable future. Nevertheless, the government's debt capacity is far greater than its current level of debt.