Chapter 9 problem set

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is: a. 11 percent. b. 33 percent. c. 91 percent. d. 10 percent.

a. 11 percent.

According to the Bureau of Labor Statistics, to be officially unemployed a person must: a. be in the labor force. b. be 21 years of age or older. c. have lost a job. d. be waiting to be called back from a layoff.

a. be in the labor force.

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, all else equal, the official unemployment rate would: a. decline. b. increase. c. increase in the short run but eventually decline. d. be unchanged.

a. decline.

The labor force includes: a. employed workers and persons who are officially unemployed. b. employed workers but excludes persons who are officially unemployed. c. full-time workers but excludes part-time workers. d. permanent employees but excludes temporary employees.

a. employed workers and persons who are officially unemployed.

Demand-pull inflation: a. occurs when total spending in the economy is excessive. b. is measured differently than cost-push inflation. c. can be present even during an economic depression. d. is also called "hyperinflation."

a. occurs when total spending in the economy is excessive.

At the economy's natural rate of unemployment: a. the economy achieves its potential output. b. there is only a relatively small amount of cyclical unemployment. c. only frictional unemployment exists. d. only structural unemployment exists.

a. the economy achieves its potential output.

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions. Refer to the given information. The labor force in Scoob is: a. 95 million. b. 102 million. c. 105 million. d. 145 million.

b. 102 million.

Answer the question on the basis of the following information about a hypothetical economy: Refer to the given information. The unemployment rate is: a. 18.8 percent. b. 12.5 percent. c. 16.7 percent. d. 25 percent.

b. 12.5 percent.

Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is: a. 3 percent. b. 6 percent. c. 7 percent. d. 53 percent.

b. 6 percent.

For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of: a. Taylor's rule. b. Okun's law. c. Say's law. d. the Coase theorem.

b. Okun's law.

Which of the following constitute the types of unemployment occurring at the natural rate of unemployment? a. Frictional and cyclical unemployment. b. Structural and frictional unemployment. c. Cyclical and structural unemployment. d. Frictional, structural, and cyclical unemployment.

b. Structural and frictional unemployment.

Recurring upswings and downswings in an economy's real GDP over time are called: a. recessions. b. business cycles. c. output yo-yos. d. total product oscillations.

b. business cycles.

The phrase "too much money chasing too few goods" best describes: a. the GDP gap. b. demand-pull inflation. c. the inflation premium. d. cost-push inflation.

b. demand-pull inflation.

As applied to the price level, the "rule of 70" indicates that the number of years required for the price level to double can be found by: a. dividing 70 into the annual rate of inflation. b. dividing the annual rate of inflation into 70. c. subtracting the annual change in nominal incomes from 70. d. multiplying the annual rate of inflation by 70.

b. dividing the annual rate of inflation into 70.

Assume that Kyle is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Kyle will be considered as: a. cyclically unemployed. b. frictionally unemployed. c. structurally unemployed. d. employed.

b. frictionally unemployed.

The natural rate of unemployment is the: a. unemployment rate experienced at the depth of a depression. b. full-employment unemployment rate. c. unemployment rate experienced by the least-skilled workers in the economy. d. unemployment rate experienced by the most-skilled workers in the economy.

b. full-employment unemployment rate.

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called: a. frictional unemployment. b. structural unemployment. c. cyclical unemployment. d. compositional unemployment.

b. structural unemployment.

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about: a. 2.8 percent. b. 3.4 percent. c. 1.6 percent. d. 4.1 percent.

c. 1.6 percent.

Between 1980 and 2000 the price level approximately doubled. The average annual rate of inflation over this 20-year period was about: a. 5.5 percent. b. 4.7 percent. c. 3.5 percent. d. 2.8 percent.

c. 3.5 percent.

Cost-push inflation may be caused by: a. a decline in per unit production costs. b. a decrease in wage rates. c. a negative supply shock. d. an increase in resource availability.

c. a negative supply shock.

The phase of the business cycle in which real GDP declines is called: a. the peak. b. an expansion. c. a recession. d. the trough.

c. a recession.

The United States' economy is considered to be at full employment when: a. about 4-5 percent of the total population is unemployed. b. 90 percent of the labor force is employed. c. about 4-5 percent of the labor force is unemployed. d. 100 percent of the labor force is employed.

c. about 4-5 percent of the labor force is unemployed.

The GDP gap measures the difference between: a. NDP and GDP. b. NI and PI. c. actual GDP and potential GDP. d. nominal GDP and real GDP.

c. actual GDP and potential GDP.

Inflation initiated by increases in wages or other resource prices is labeled: a. demand-pull inflation. b. demand-push inflation. c. cost-push inflation. d. cost-pull inflation.

c. cost-push inflation.

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions. Refer to the given information. If the natural rate of unemployment in Scoob is 5 percent, then: a. structural unemployment is about 3 percent. b. frictional unemployment is about 2 percent. c. cyclical unemployment is about 2 percent. d. hidden unemployment is about 5 percent.

c. cyclical unemployment is about 2 percent.

If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the: a. frictional unemployment rate is 5 percent. b. cyclical unemployment rate and the frictional unemployment rate together are 5 percent. c. cyclical unemployment rate is 4 percent. d. natural rate of unemployment will eventually increase.

c. cyclical unemployment rate is 4 percent.

Kara voluntarily quit her job as an insurance agent to return to school full time to earn an MBA degree. With degree in hand, she is now searching for a position in management. Kara presently is: a. cyclically unemployed. b. structurally unemployed. c. frictionally unemployed. d. not a member of the labor force.

c. frictionally unemployed.

Most economists agree that the immediate determinant of the volume of output and employment is the: a. composition of consumer spending. b. ratio of public goods to private goods production. c. level of total spending. d. size of the labor force.

c. level of total spending.

Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is: a. unemployed. b. employed. c. not in the labor force. d. in the labor force.

c. not in the labor force.

The unemployment rate is the: a. ratio of unemployed to employed workers. b. number of employed workers minus the number of workers who are not in the labor force. c. percentage of the labor force that is unemployed. d. percentage of the total population that is unemployed.

c. percentage of the labor force that is unemployed.

Inflation means that: a. all prices are rising, but at different rates. b. all prices are rising and at the same rate. c. prices on average are rising, although some particular prices may be falling. d. real incomes are rising.

c. prices on average are rising, although some particular prices may be falling.

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will: a. fall by about 20 percent. b. fall by about 2 percent. c. rise by about 15 percent. d. rise by about 25 percent.

c. rise by about 15 percent.

In the United States, business cycles have occurred against a backdrop of a long-run trend of: a. declining unemployment. b. stagnant productivity growth. c. rising real GDP. d. rising inflation.

c. rising real GDP.

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: a. seasonal unemployment. b. cyclical unemployment. c. structural unemployment. d. frictional unemployment.

c. structural unemployment.

The natural rate of unemployment is: a. higher than the full-employment rate of unemployment. b. lower than the full-employment rate of unemployment. c. that rate of unemployment occurring when the economy is at its potential output. d. found by dividing total unemployment by the size of the labor force

c. that rate of unemployment occurring when the economy is at its potential output.

Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result: a. the official unemployment rate will fall. b. the official unemployment rate will rise. c. the official unemployment rate will remain unchanged. d. the size of the labor force will increase.

c. the official unemployment rate will remain unchanged.

The phase of the business cycle in which real GDP is at a minimum is called: a. the peak. b. a recession. c. the trough. d. the underside.

c. the trough.

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions. Refer to the given information. The unemployment rate in Scoob is: a. 2.5 percent. b. 3.2 percent. c. 5.0 percent. d. 6.9 percent.

d. 6.9 percent.

Given the annual rate of inflation, the "rule of 70" allows one to: a. determine whether the inflation is demand-pull or cost-push. b. calculate the accompanying rate of unemployment. c. determine when the value of a real asset will approach zero. d. calculate the number of years required for the price level to double.

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

Real income is found by: a. dividing nominal income by 70. b. multiplying nominal income by 1.03. c. dividing the price index (in hundredths) by nominal income. d. dividing nominal income by the price index (in hundredths)

d. dividing nominal income by the price index (in hundredths)

Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska. That year, Professor Simpson would be officially counted as: a. structurally unemployed. b. frictionally unemployed. c. not in the labor force. d. employed.

d. employed.

Part-time workers who want full-time work are counted as: a. unemployed and therefore the official unemployment rate may overstate the level of unemployment. b. unemployed and therefore the official unemployment rate may understate the level of unemployment. c. fully employed and therefore the official unemployment rate may overstate the level of unemployment. d. fully employed and therefore the official unemployment rate may understate the level of unemployment.

d. fully employed and therefore the official unemployment rate may understate the level of unemployment.

The annual rate of inflation can be found by subtracting: a. the real income from the nominal income. b. last year's price index from this year's price index. c. this year's price index from last year's price index and dividing the difference by this year's price index. d. last year's price index from this year's price index and dividing the difference by last year's price index.

d. last year's price index from this year's price index and dividing the difference by last year's price index.

Suppose that a person's nominal income rises by 5 percent and the price level rises from 125 to 130. The person's real income will: a. fall by about 1 percent. b. remain constant. c. rise by about 4 percent. d. rise by about 1 percent.

d. rise by about 1 percent.

Okun's law: a. measures the trade-off between the rate of inflation and the rate of unemployment. b. indicates the number of years it will take for a constant rate of inflation to double the price level. c. quantifies the relationship between nominal and real incomes. d. shows the relationship between the unemployment rate and the size of the negative GDP gap.

d. shows the relationship between the unemployment rate and the size of the negative GDP gap.