Econ- Exam 2

Suppose there are currently 100 people unemployed, 1500 people employed, and 2000 people in the working age population. The labor force participation rate equals 100 times a. 1600/2000. b. 100/1500. c. 100/1600. d. 1500/2000.

a. 1600/2000.

Which type of price index theory averages the base year and current year's quantities? a. Fisher's Mean b. Paasche c. Laspeyres d. Boskin's Index

a. Fisher's Mean

An example of "investment" in computing real GDP using the expenditure approach is the purchase of a. a new set of tools by an auto mechanic, for use in repairing cars. b. 100 shares of IBM stock. c. computer chips by Dell to put in their personal computers. d. a 100 year old house by a married couple.

a. a new set of tools by an auto mechanic, for use in repairing cars.

Unemployment caused by the fluctuation of the business cycle is called ________ unemployment. a. cyclical b. recession-related c. frictional d. structural

a. cyclical

When a student finishes college and begins looking for work a. frictional unemployment increases. b. structural unemployment increases. c. frictional and cyclical unemployment increase. d. cyclical unemployment increases.

a. frictional unemployment increases.

Because of a bank merger, Ms. Davis lost her position as Vice President and had to seek work with other banks. Ms. Davis has the skills necessary to find a new job, thus she is best considered as a. frictionally unemployed. b. naturally unemployed. c. structurally unemployed. d. cyclically unemployed.

a. frictionally unemployed.

The labor force participation rate is calculated as the a. labor force divided by the working age population then multiplied by 100. b. labor force divided by the unemployment rate then multiplied by 100. c. labor force divided by the number of persons employed then multiplied by 100. d. number of persons unemployed divided by the labor force then multiplied by 100.

a. labor force divided by the working age population then multiplied by 100.

Frictional unemployment comes about because of a. normal labor market turnover. b. a mismatch between skills and available jobs. c. a general economic slowdown. d. friction between labor and management.

a. normal labor market turnover.

Price indexes can overstate inflation because they a. omit some quality improvements. b. do not contain the prices of foreign goods. c. do not contain the prices of services. d. do not contain the prices of any used goods.

a. omit some quality improvements.

Structural unemployment is the result of a. technological change, absolute job skills, or foreign competition. b. normal labor market turnover. c. a slowdown in the rate of economic expansion. d. irresponsible workers with poor work habits.

a. technological change, absolute job skills, or foreign competition.

Year---- Nominal Income-- Price Index 1990---- 9800-------- 99 1991---- 10000-------- 95 1992---- 15000------- 100 1993---- 17000------- 110 1994---- 23000------- 115 1995---- 33000------- 123 Calculate the change in inflation, nominal income, and real income from 1990 to 1995. I would recommend working out the entire problem as illustrated in class. Using a spreadsheet can be helpful as well. a. 75%, 37%, 22% b. 24%, 237%, 171% c. 33%,17%,-12% d. 235%, 233%, -275% e. None of the above

b. 24%, 237%, 171%

Which type of price index theory uses current year's quantities? a. Boskin's Index b. Paasche c. Laspeyres d. Fisher's Mean

b. Paasche

Which of the following statements is INCORRECT? a. The labor force is equal to the number of people employed plus the number of people unemployed. b. The working age population includes everyone over the age of 16. c. The unemployment rate is the number of persons who are unemployed divided by the labor force then times 100. d. The labor-force participation rate is the labor force divided by the working-age population then times 100.

b. The working age population includes everyone over the age of 16.

The biases in the CPI include the a. substitution, new goods, and old goods biases. b. new goods, quality change, and substitution biases. c. old goods, unemployment, and inflation biases. d. old goods, new goods, and quality change biases.

b. new goods, quality change, and substitution biases.

Marginally attached workers fall into which of the following population categories? a. labor force b. not in the labor force c. unemployed d. employed

b. not in the labor force

During a recession, the ________. a. unemployment rate decreases b. number of marginally attached workers increases c. number of discouraged workers decreases d. employment-to-population ratio increases

b. number of marginally attached workers increases

Full employment occurs a. only if unemployment is equal to structural unemployment plus cyclical unemployment. b. only if the unemployment rate is equal to the natural rate of unemployment. c. only if the unemployment rate is zero. d. None of the above answers are correct.

b. only if the unemployment rate is equal to the natural rate of unemployment.

Ms. Krupsky has shorthand and typing skills and still finds herself unemployed. In today's economy, Ms. Krupsky is an example of what type of unemployment? a. frictional unemployment b. structural unemployment c. cyclical unemployment d. None of the above answers is correct.

b. structural unemployment

When the automobile replaced horse-drawn carriages as the principal means of transportation, firms producing horse-drawn carriages went bankrupt and permanently laid off all their workers, thereby increasing a. cyclical unemployment. b. structural unemployment. c. frictional unemployment. d. frictional and cyclical unemployment.

b. structural unemployment.

The ________ is calculated as the number of people ________ divided by the labor force multiplied by 100. a. employment-to-population ratio; unemployed b. unemployment rate; unemployed c. employment-to-population ratio; in the working age population d. employment rate; employed

b. unemployment rate; unemployed

Because of the biases in calculating the CPI, actual inflation is a. more than the measured inflation rate by about 1 percent per year. b. accurately measured. c. less than the measured inflation rate by about 1 percent per year. d. more than the measured inflation rate by about 1 percent per month.

c. less than the measured inflation rate by about 1 percent per year.

If the CPI basket of goods cost $200 in the reference base period and $450 in a later year, the CPI in the later year equals a. 450. b. 300. c. 225. d. 250.

c. 225.

If the number of people unemployed is 100, the number of people employed is 1000, and the working-age population is 1400, then the unemployment rate is a. 7.1 percent. b. 6.6 percent. c. 9.1 percent. d. 10 percent.

c. 9.1 percent.

Which type of price index theory uses base year's quantities? a. Paasche b. Boskin's Index c. Laspeyres d. Fisher's Mean

c. Laspeyres

Suppose the Consumer Price Index is 143.6. What does that number mean? a. Prices rose 143.6 percent over the reference base period, on average. b. On average, goods cost $143.60. c. Prices rose 43.6 percent over the reference base period, on average. d. On average, goods cost $243.60.

c. Prices rose 43.6 percent over the reference base period, on average.

Suppose the CPI last year is 121 and the CPI this year is 137. The correct method to calculate the inflation rate is a. (137 - 121)/100 = 0.16. b. 137 × 121 = 258. c. [(137 - 121)/121] × 100 = 13.2. d. (137/121) × 100 = 113.2.

c. [(137 - 121)/121] × 100 = 13.2.

Deflation represents: a. an increase in the unemployment rate. b. a reduction in output. c. a reduction in the aggregate price level. d. a recession.

c. a reduction in the aggregate price level.

The consumer price index (CPI) a. is the ratio of the average price of a typical basket of goods to the cost of producing those goods. b. compares the cost of the typical basket of goods consumed in period 1 to the cost of a basket of goods typically consumed in period 2. c. compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period. d. measures the increase in the prices of the goods included in GDP.

c. compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.

As currently calculated, the CPI tends to overstate the true inflation rate because a. the market basket fails to weigh housing costs sufficiently. b. the market basket selected is inappropriate. c. it fails to correctly measure quality changes for some products. d. we cannot know what the true inflation rate is.

c. it fails to correctly measure quality changes for some products.

The unemployment rate measures the percentage of a. the working age population that can't find a full-time job. b. people who want full-time jobs, but can't find them. c. people in the labor force who can't find a job. d. the working-age population who can't find a job.

c. people in the labor force who can't find a job.

The currently used method for calculating the CPI a. accounts for people increasing consumption of a good that falls in relative price. b. has no effect on government expenditures. c. probably overstates inflation by about 1 percentage point. d. None of the above answers are correct.

c. probably overstates inflation by about 1 percentage point.

The labor force is defined as a. people with full time jobs. b. all people capable of work. c. workers with jobs and unemployed workers. d. All of the above answers are correct.

c. workers with jobs and unemployed workers.

In a country with a working-age population of 130 million, 90 million workers are employed and 10 million workers are unemployed. What is the unemployment rate? a. 7.7 percent b. 5.0 percent c. 7.1 percent d. 10.0 percent

d. 10.0 percent

Cyclical unemployment occurs when a. individuals give up the search for employment. b. individuals with skills no longer valued in the labor market cannot find employment. c. individuals enter into the labor market making the rounds of potential employers. d. a business cycle recession decreases employment.

d. a business cycle recession decreases employment.

Discouraged workers ________ counted as officially unemployed because they ________. a. are not; are not qualified to work b. are; are not working c. are; are still in the labor force d. are not; are not actively seeking work

d. are not; are not actively seeking work

The three types of unemployment are a. frictional, part-time, and involuntary. b. voluntary, involuntary, and structural. c. voluntary, part-time, and cyclical. d. frictional, structural, and cyclical.

d. frictional, structural, and cyclical.

Substitution bias in the CPI refers to the fact that the CPI a. substitutes quality changes whenever they occur without taking account of the cost of the quality changes. b. takes into account the substitution of goods by consumers when relative prices change. c. substitutes relative prices for absolute prices of goods. d. takes no account of the substitution of goods by consumers when relative prices change.

d. takes no account of the substitution of goods by consumers when relative prices change.

Looking at inflation rates in the United States since the 1970s we see that a. inflation fell the most during the 1970s productivity slowdown. b. the highest inflation rates were the double digits during the 1990s. c. the inflation rate increased with the increased growth of the 1990s. d. the 1970s experienced the highest inflation rates.

d. the 1970s experienced the highest inflation rates.

The employment-to-population ratio is defined as a. the labor force divided by the working-age population then multiplied by 100. b. total employment divided by labor hours then multiplied by 100. c. total employment divided by the labor force then multiplied by 100. d. total employment divided by the working-age population then multiplied by 100.

d. total employment divided by the working-age population then multiplied by 100.

The Consumer Price Index is a measure of the average of the prices paid by ________ for a fixed basket of consumer goods and services. a. all consumers b. consumers living in cities with a population greater than 100,000 c. urban wage earners and clerical workers d. urban consumers

d. urban consumers