Chapter 11

Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, the official unemployment rate would:

decline

Real income can be determined by:

deflating nominal income for inflation

If the Consumer Price Index falls from one year to the next, we can most conclusively say that the economy has experienced:

deflation

Inflation caused by an increase in aggregate spending is referred to as:

demand-pull inflation

Inflation that occurs when total spending is greater than the economy's ability to produce output at the existing price level is:

demand-pull inflation

Unemployment that occurs when there is deficient demand for the goods and services of an economy is called:

cyclical unemployment

Balin recently lost his job as a dog trainer because of a recession. He is seeking a new job, but his prospects appear dim until the economy recovers. Based on this description, Balin is best described as:

cyclically unemployed

The unemployment rate that would be consistent with full employment is:

equal to the total of frictional and structural unemployment

Periods of extreme hyperinflation are the result of:

excessive monetary expansions by government

Deflation during a recession is of concern to economists because:

falling prices lead consumers to delay purchases and further reduce spending

Economists fear deflation because:

falling prices make firms more susceptible to bankruptcy. consumers anticipating further price declines will delay purchases. falling revenue increases the likelihood that workers will be laid off.

At the unemployment rate consistent with full employment there is only:

frictional and structural unemployment

Search and wait unemployment is another way to describe:

frictional unemployment

Parker recently quit his job to find one that pays better and better fits his skills. He has had multiple interviews and anticipates securing a new position soon. Based on this description, Parker is best described as:

frictionally unemployed

Rosa recently completed her college degree and is looking for her first job. She has had a few interviews and prospects look good for her to land a new job in the next couple of weeks. Based on this description, Rosa is best described as:

frictionally unemployed

If unemployment is above the unemployment rate consistent with full employment, then potential GDP is:

greater than actual GDP

A cumulative wage-price spiral that produces a rapid increase in the price level of over 100 percent can be characterized as:

hyperinflation

After the First World War, Germany experienced an economic condition that can be best described as:

hyperinflation

From November 1993 to December 1994, the Democratic Republic of the Congo experienced an inflation rate of 69,502 percent. This economic condition would best be described as:

hyperinflation

A peak in the business cycle:

is a temporary maximum point

The best example of a "frictionally unemployed" worker is one who:

is in the process of voluntarily switching jobs

Unlike demand-pull inflation, cost-push inflation:

is self-limiting

Clipping coins created inflation because:

it increased the money supply

A high unemployment rate most likely means that there is a:

large GDP gap in the economy

A worker would be hurt least by inflation when the:

worker is protected by a cost-of-living adjustment clause in an employment contract

A statement that is often used to describe demand-pull inflation is:

"Too much money chasing too few goods.

Unanticipated inflation arbitrarily:

"taxes" those who receive fixed money incomes

If the average level of nominal income in a nation is $45,000 and the price level index is 180, the average real income would be about:

$25,000

If the average level of nominal income in a nation is $44,000 and the price level index is 175, the average real income would be about:

$25,143

What has been the range of the decline in real output for U.S. recessions since 1950?

-0.1 percent to -4.9 percent

In an economy, the price level has doubled in about 70 years. The approximate annual percentage rate of increase in the price level over this period has been:

1 percent

The Consumer Price Index was 247 in year 1 and 272 in year 2. The rate of inflation in year 2 was approximately:

10 percent

With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6 percent. But, if the rate of inflation was anticipated to be 4 percent, the bank would most likely charge the firm an annual interest rate of:

10 percent

If the annual inflation rate is 5 percent a year, about how many years will it take for the price level to double?

14 years

The unemployment rate in an economy is 7.5 percent. The total population of the economy is 250 million and the size of the civilian labor force is 180 million. The number of employed workers in this economy is:

166.5 million

The price level has doubled in 35 years. The approximate annual percentage rate of increase in the price level over this period has been:

2 percent

You are given the following information about the economy: (1) nominal interest = 8 percent; (2) real rate of interest = 6 percent. The inflation premium is:

2 percent

The economy has an annual inflation rate of 3.5 percent. It will take approximately how many years for the price level to double?

20 years

If the Consumer Price Index was 166.6 in one year and 172.2 in the next year, then the rate of inflation from one year to the next was:

3.4 percent

In an economy, 35 million workers are employed, the labor force is 50 million, and total population is 70 million. The unemployment rate is:

30 percent

The Consumer Price Index was 115 one year and 120 the next year. The rate of inflation from one year to the next was approximately:

4.3 percent

A nation has a population of 300 million people. Of these, 80 million are retired, in the military, in institutions, or under 16 years old. There are 210 million who are employed and 10 million who are unemployed. What is the unemployment rate?

4.5 percent

The unemployment rate in an economy is 12 percent. The civilian labor force is 50 million. The number of employed workers in the economy is:

44 million

If the Consumer Price Index was 170 in one year and 180 in the next year, then the rate of inflation from one year to the next was approximately:

5.9 percent

What has been the range for the duration in months of U.S. recessions since 1950?

6 months to 18 months

A nation has a population of 260 million people. Of these, 60 million are retired, in the military, in institutions, or under 16 years old. There are 188 million who are employed and 12 million who are unemployed. What is the unemployment rate?

6 percent

If the Consumer Price Index was 165 in one year and 175 in the next year, then the rate of inflation from one year to the next was approximately:

6.1 percent

The total population of an economy is 175 million, the labor force is 125 million, and the number of unemployed is 8 million. The unemployment rate for this economy is:

6.4 percent

Over a 10-year period, the Consumer Price Index doubled. On the basis of this information we can say that the average annual rate of inflation over this period was approximately:

7 percent

Suppose that lenders want to receive a real rate of interest of 5 percent and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of:

7 percent

With no inflation, a bank would be willing to lend a small business firm $5 million at an annual interest rate of 3 percent. But, if the rate of inflation was anticipated to be 4 percent, the bank would charge the firm an annual interest rate of:

7 percent

Assuming the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, the unemployment rate is:

8 percent

If Fred's annual real income rises by 8 percent each year, his annual real income will double in about:

8-9 years

The unemployment rate in an economy is 6 percent. The total population of the economy is 290 million and the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is:

9 million

A recession is defined as:

A fall in real GDP that lasts six months or longer

If the GDP gap is positive, then:

Actual GDP is greater than potential GDP

If the GDP gap is negative, then:

Actual GDP is less than potential GDP

Which of the following groups tends to have the highest unemployment rate?

African-American teenagers

In which industry or sector of the economy is output least likely to be affected by the business cycle?

Agricultural commodities

A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment?

Cyclical

Which is a correct statement?

Demand-pull inflation will continue so long as there is excess total spending in the economy

In the expansion phase of a business cycle:

Employment and output increase

A trough in the business cycle occurs when:

Employment and output reach their lowest levels

A recession is a decline in:

GDP that lasts six months or longer

What is the main problem with mild inflation, according to some economists?

It diverts productive time towards activities to hedge against inflation

What are the primary effects of cost-push inflation?

It reduces real output and redistributes a decreased level of real income

Which of the following nations has had the lowest unemployment rate since 2004?

Japan

Under which of the following circumstances would we observe the greatest increase in real income?

Nominal income falls by 2 percent, and the price level falls by 10 percent

Shocks to the economy often result in calls for government action to correct the imbalances these shocks create. Why don't markets tend to correct these imbalances quickly by themselves?

Product prices are often "sticky" or inflexible, keeping markets from correcting imbalances quickly

Which industry or sector of the economy would least likely be affected by the business cycle?

Services

A mismatch between the geographic location of workers and the location of job openings would result in what type of unemployment?

Structural

Which is a correct statement?

Structural unemployment results from changes in the structure of consumer demand or technology

Which measures the changes in the prices of a "market basket" of some 300 goods and services purchased by typical urban consumers?

The Consumer Price Index

Shocks to the economy:

are unexpected changes in aggregate demand or aggregate supply

Inflation is a rise in:

The general level of prices over time

Which of the following is the best example of a supply shock?

The introduction of new innovations in production

Which statement is correct?

The production of nondurable consumer goods is more stable than the production of durable consumer goods over the business cycle

Which statement about inflation is correct?

The redistributive effects of inflation are arbitrary with respect to people and groups in society

Which of the following is the best example of an event that would cause a demand shock?

Unexpected changes in financial asset prices

In what circumstances would lenders most benefit?

When there is an unanticipated decrease in inflation

Which is the correct way to calculate the unemployment rate?

[(Unemployed)/(Labor force)] * 100

Cost-push inflation may be caused by:

a negative supply shock

A college graduate using the summer following graduation to search for a job would best be classified as:

a part of frictional unemployment

The recurrent ups and downs in the level of economic activity extending over several years are a description of a:

business cycle

Recurring upswings and downswings in an economy's real GDP over time are called:

business cycles

Given the annual rate of inflation, the "Rule of 70" allows one to:

calculate the number of years required for the price level to double

Inflation caused by a rise in per-unit production costs is referred to as:

cost-push inflation

Inflation initiated by increases in wages or other resource prices is labeled:

cost-push inflation

Rising per-unit production costs are most directly associated with:

cost-push inflation

In calculating the unemployment rate, part-time workers are:

counted as employed because they are receiving payment for work

When unanticipated inflation occurs:

creditors are hurt, but debtors benefit

A headline reads: "Economy Still in Recession." The type of unemployment most closely associated with this economic condition would be:

cyclical

Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unanticipated inflation occurs in the economy, then:

lenders are hurt, but borrowers benefit

The level of total spending is the immediate determinant of the:

level of real output and employment

If the Consumer Price Index was 120 in one year and 115 in the next year, then the rate of inflation from one year to the next was:

negative 4.2 percent

Tony left his job three months ago to go back to school full time. He will complete his degree in about three years and then seek a new job. Based on this description, Tony is best described as:

not in the labor force

The amount by which potential GDP exceeds actual GDP is one measure of the:

opportunity cost of cyclical unemployment

Unanticipated inflation tends to penalize:

people who save money in financial institutions

The GDP gap measures the amount by which:

potential GDP exceeds actual GDP

Which of the following formulas is correct? Percentage change in:

real income approximates percentage change in nominal income minus percentage change in price level

A period of decline in total output, income, employment, and trade, lasting six months or longer, is defined as a:

recession

In the United States, business cycles have occurred against a backdrop of a long-run trend of:

rising real GDP

A headline reads: "Steel industry suffers slump as import competition increases; unemployment rises." This type of unemployment can best be characterized in economic terms as:

structural

Kevin has lost his job in an automobile plant because of the use of robots for welding on the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is:

structural

When a group of workers finds that their job skills and work experience have become obsolete and are not needed by industry, this type of unemployment is:

structural

Working as an elevator operator used to be a common job in the workforce decades ago, but today few jobs remain. The unemployment created by the introduction of automatic elevators would be considered:

structural

A worker who loses a job at a call center because business firms switch the call center to another country is an example of:

structural unemployment

Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon, where she anticipates that a new job will be available. We can say that Susie is faced with:

structural unemployment

Alyssa lost her job six years ago because of a recession. She continues to seek new employment and many people have returned to that industry as the economy has recovered, but because of her extended bout of unemployment, her workplace skills have deteriorated and she is unable to secure a job or even get interviews. In her current situation, Alyssa is best described as:

structurally unemployed

Indy worked for a major automobile manufacturer before the company relocated its factory to Malaysia, putting Indy out of a job. Indy continues to seek new employment, but will likely have to retrain or relocate to find a job. Based on this description, Indy is best described as:

structurally unemployed

Inflation is a:

sustained rise in the general level of prices

The practice of clipping coins by feudal lords was a subtle form of:

taxation

During a severe recession, we would expect output to fall the most in:

the construction industry

When the economy is at its potential output:

the labor force is fully employed

The higher the rate of unemployment:

the larger the GDP gap

The percentage change in one's real income can be approximated by:

the percentage change in nominal income minus the percentage change in the price level