econ final exam

25) The reference base period that the BLS uses to measure the CPI is A) 1982-1984. B) 1993-1995. C) 1998-2000. D) 1967-1969. E) 2005.

Answer: A

12) The highest unemployment rate in U.S. history was about A) 10.2 percent in 2009. B) 5.9 percent in 1972. C) 10 percent in 1982. D) 25 percent in 1933. E) 52 percent in 1939.

Answer: D. 1930's was Great Depression

62) If real GDP grows at a faster rate than does population, then the standard of living, as measured by real GDP per person, A) improves. B) worsens. C) remains the same. D) cannot be measured. E) either improves, worsens, or stays the same, depending on the size of the population and the actual level of real GDP.

Answer: A

64) According to the Rule of 70, if a country grows at 2.0 percent per year instead of 1.5 percent per year, how many fewer years will it take to double its level of real GDP? A) It will take 11.6 years fewer. B) It will take 35 years fewer. C) It will take 58.3 years fewer. D) It will take 20 years fewer. E) It will take 17.9 years fewer.

Answer: A

17) Unemployment benefits in western Europe are more generous than in the United States. As a result, ________ in the United States. A) frictional unemployment is lower B) frictional unemployment is higher C) structural unemployment is higher D) avoidable unemployment is lower E) cyclical unemployment is higher

Answer: A.

In calculating the unemployment rate, part-time workers over the age of 16 are counted as A) employed. B) unemployed. C) not in the labor force. D) employed if they are part-time workers for noneconomic reasons and unemployed if they are involuntary part-time workers. E) not in the working-age population

Answer: A. Because of working age population

26) The value of the CPI for the reference base period is always A) 100. B) 0. C) 1. D) 50. E) None of the above, because the value of the CPI is not always the same for all reference base periods.

Answer: A. CPI defined to equal 100

28) The CPI market basket A) weights the goods and services according to the budget of an average urban household. B) determines the best possible way of taxing the average urban household. C) determines how the spending patterns of the average urban household change from month to month. D) determines how spending patterns change from urban household to urban household. E) changes from one month to the next in order to calculate the CPI.

Answer: A. Idea is to make the weight of the item the same as in the budget of an average urban household

54) If the real wage rate decreases from $14.00 per hour to $13.00 per hour, the A) quantity demanded of labor increases. B) demand for labor increases. C) quantity supplied of labor increases. D) supply of labor increases. E) equilibrium quantity of employment must decrease.

Answer: A. Lower the real wage, the greater the quantity of labor demanded

10) Involuntary part-time workers are not working more hours due to A) economic reasons. B) a lack of training and skills. C) an increase in the labor force. D) family reasons. E) educational commitments.

Answer: A. Part time for economic reasons: (involuntary part time workers)

3) The labor force is the A) number of employed people plus the number of unemployed people. B) total population divided by the number of employed people. C) number of employed people in the working-age population. D) working-age population minus the number of unemployed people. E) number of employed people minus the number of unemployed people.

Answer: A. People available for work

53) The quantity of labor demanded is the labor hours all A) firms plan to hire at a given real wage rate. B) firms plan to hire at a given nominal wage rate. C) employees plan to work at a given real wage rate. D) employees plan to work at a given nominal wage rate. E) Both answers A and C are correct.

Answer: A. Quantity of labor demanded: total labor hours that all firms in economy plan to hire during given time period at a given real wage rate

51) The ________ describes the relationship between the amount of labor employed and real GDP. A) production function B) production possibilities frontier C) Lucas Wedge D) inflation rate E) Okun Gap

Answer: A. relationship that shows the max quantity of real GDP that can be produced as the quantity of labor employed changes and all other influences on production remain the same

48) The Keynesian macroeconomic model states that A) the economy is inherently unstable and government intervention is required to maintain continued economic growth. B) markets work efficiently to produce the best macroeconomic outcomes. C) fluctuations in the quantity of money are responsible for most economic recessions. D) changes in technology generate business cycles. E) the economy is fairly stable.

Answer: A. the market economy is unstable and requires government intervention to achieve full employment and sustain economic growth

49) Which of the following ideas reflect the Monetarist macroeconomic model? i) The Monetarist model supports the Classical model, in general. ii) Decreases in the growth rate of the quantity of money trigger recessions. iii) Government intervention is an appropriate tool to steady the economy. A) i and ii B) i only C) i, ii and iii D) ii and iii E) i and iii

Answer: A. world is correct, but in addition to fluctuations that arise from the normal functioning of an expanding economy, fluctuations in the quantity of money also generate the business cycle

29) The formula for the CPI is A) (Cost of CPI market basket at current period prices ÷ Cost of CPI market basket at next year's prices) × 100. B) (Cost of CPI market basket at current period prices ÷ Cost of CPI market basket at base period prices) × 100. C) (Cost of CPI market basket at base period prices ÷ Cost of CPI market basket at current period prices) × 100. D) (Cost of CPI market basket this year × Cost of CPI market basket at base period prices) ÷ 100. E) (Cost of CPI market basket this year × Cost of CPI market basket at base period prices) × 100.

Answer: B

30) If the cost of the CPI market basket at current period prices is $1000 and the cost of the CPI market basket at base period prices is $250, the CPI is A) 4.0. B) 400. C) 250. D) 100. E) 2.50.

Answer: B

34) Suppose in year 1 the CPI is 90, in year 2 the CPI is 100, and in year 3 the CPI is 110. Then, inflation is A) 100 percent in year 1. B) 11 percent between years 1 and 2. C) 11 percent between years 2 and 3. D) 10 percent between years 2 and 3. E) Both answers B and D are correct.

Answer: B

35) If the CPI this year is 240 and the CPI in the previous year was 200, what is the annual inflation rate? A) 40.0 percent B) 20.0 percent C) 50 percent D) 16.7 percent. E) -16.7 percen

Answer: B

36) The inflation rate between last year and this year was 14 percent. The CPI was 118 this year. What was the CPI last year A) 104.0 B) 103.5 C) 104.5 D) 105.0 E) 103.0

Answer: B

37) Suppose a report from the Bureau of Labor Statistics states that the CPI for the year 2012 was 152. What is the percentage point increase in the prices of the goods and services since the reference base period? A) 152 percent B) 52 percent C) 100 percent D) 48 percent E) 252 percent

Answer: B

43) Which of the following statements about the CPI is (are) correct? i The only significant bias in the CPI is the commodity substitution bias. ii. The CPI probably overstates inflation by 1.1 percentage points a year. iii. As far as the bias in the CPI is concerned, the new goods bias and the outlet substitution biases are irrelevant. A) i only B) ii only C) iii only D) i and iii E) i and ii

Answer: B

58) The unemployment rate at full employment is A) zero. B) the natural unemployment rate. C) equal to the rationed rate of unemployment. D) undefined because the economy is never at full employment. E) equal the amount of unemployment caused by job search.

Answer: B

65) Over the past 110 years, real GDP per person in the United States has grown at an average rate of about ________ per year. A) 1 percent B) 2 percent C) 5 percent D) 10 percent E) 7.5 percent

Answer: B

24) The CPI is calculated by the Bureau of Labor Statistics on a frequency of every A) week. B) month. C) quarter. D) year. E) decade, along with the Census.

Answer: B. Bureau of Labor Statistics calculates CPI every month to compare the fixed market basket costs this month with what it cost some months or period ago

8) People who are willing and able to work but are not looking for work because they have been discouraged by their previous futile efforts are called A) unemployed workers. B) discouraged workers. C) unhappy workers. D) involuntarily unemployed. E) part-time lookers.

Answer: B. Discouraged worker: marginally attached worker who has not made specific efforts to find a job within previous four weeks because previous unsuccessful attempts were discouraging.

23) For the CPI to provide an accurate measure of the prices paid by urban consumers, it is necessary to A) assign equal weights to all the goods and services included in the market basket surveyed so that nothing is over-weighted. B) have a market basket that is consistent and corresponds to what households actually purchase. C) have prices stated in dollars so consumers can compare what they spend. D) change the market basket each month to reflect the changes that consumers make. E) make certain that the incomes of the consumers surveyed do not change because such a change would affect the market basket of the goods and services they buy.

Answer: B. Idea is to make the weight of the item the same as in the budget of an average urban household

42) In constructing the CPI, the BLS has to deal with commodity substitution bias, which is defined as A) consumers' substitution of discount stores for full service stores to avoid the higher prices in the full service stores. B) consumers' substitution of cheaper goods for goods whose prices increase. C) the bias from quality changes in existing products that cause prices to increase. D) the bias from new goods being introduced that are more expensive than older goods. E) the bias that arises because the BLS changes the CPI market basket each month.

Answer: B. If the price of beef rises faster than chicken, people will buy more chicken and less beef

) During an expansion, the unemployment rate generally A) rises. B) falls. C) is not affected. D) is, by definition, below 5 percent. E) is higher than during a recession.

Answer: B. In a business cycle- unemployment increases during recessions and decreases during expansions

63) The Rule of 70, as applied to real GDP growth, can be used to find the A) real GDP growth rate necessary to double growth. B) number of years it takes for the level of real GDP to double. C) growth rate of real GDP. D) number of years it takes for the growth rate of real GDP to double. E) population growth rate necessary to double the GDP growth rate.

Answer: B. Rule of 70: number of years it takes for the level of any variable to double, which is approximately 70 divided by the annual percentage growth rate of the variable

50) The level of real GDP the economy produces at full employment is A) nominal GDP. B) potential GDP. C) never reached in reality. D) called the Lucas level. E) real GDP.

Answer: B. When economy is at full employment, real GDP equals potential GDP

57) When the labor market is in equilibrium, real GDP ________ potential GDP. A) is greater than B) is equal to C) is less than D) might be greater than, less than, or equal to E) is not comparable to

Answer: B. When economy is at full employment, real GDP equals potential GDP

33) The inflation rate measures the A) average price of the goods and services consumed by urban consumers. B) percentage change in the CPI from one year to the next year. C) cost of the CPI market basket at current period prices divided by the cost of the CPI market basket at base period prices. D) percentage change in the quantity of goods and services consumed by urban consumers. E) cost of the CPI market basket at base period prices divided by the cost of the CPI market basket at current period prices.

Answer: B. percentage change in price level from one year to the next

41) The CPI overstates inflation because the average consumer buys A) the same basket of goods every week. B) more of those goods whose relative price has risen. C) less of those goods whose relative price has risen. D) lower quality goods if they have a choice. E) a generally random assortment of goods and services each week because what is purchased depends on what the consumer needs.

Answer: C

44) If a private wage contract is agreed upon with a cost of living adjustment such that wage hikes are equal to increases in the CPI, A) the employer benefits because wages will rise less than the change in actual prices. B) workers exactly keep pace with changes in the cost of living. C) workers benefit because the CPI increases more rapidly than does the cost of living. D) the CPI bias means that workers benefit if the price level rises and the employer benefits if the price level falls. E) the CPI bias means that workers benefit if the price level falls and the employer benefits if the price level rises.

Answer: C

45) If the GDP price index is 137, this value means that prices have increased A) 137 percent in the last year. B) 37 percent in the last year. C) 37 percent since the base year. D) 137 percent since the base year. E) 63 percent since the base year

Answer: C

46) The real interest rate equals the A) nominal interest rate multiplied by 100. B) nominal interest rate divided by 100. C) nominal interest rate minus the inflation rate. D) inflation rate minus the nominal interest rate. E) nominal interest rate divided by the inflation rate and then multiplied by 100.

Answer: C

60) If real GDP was $13.1 trillion in 2013 and $13.3 in 2014, what is the growth rate? A) 15.0 percent B) -1.5 percent C) 1.5 percent D) $0.2 trillion E) 2.1 percent

Answer: C

39) Economists agree that the CPI A) is a near perfect measure of the cost of living. B) has no relation to the cost of living. C) is a possibly biased measure of the cost of living. D) almost always shows the cost of living rising less rapidly than is the case in reality. E) overstates inflation by about 4.1 percentage points a year.

Answer: C. CPI does not measure all changes in the cost of living for two reasons CPI does not try to measure all the changes in the cost of living Even components of the cost of living that are measured by CPI are not always measured accurately; a biased measure of changes in the cost of living

22) The CPI is a measure of the A) percentage change in the price level. B) average prices of all goods. C) average prices paid by consumers for a fixed basket of goods and services. D) average prices of all goods and services produced. E) average change in the output of the goods and services purchased by a typical urban consumer.

Answer: C. Consumer price index: average prices paid for fixed market basket of consumption goods and services

59) Economic growth is defined as A) a decrease in the rate of inflation. B) an increase in employment. C) a sustained expansion of production possibilities. D) an increase in the wage rate. E) an increase in the nation's population

Answer: C. Economic Growth: sustained expansion of production possibilities measured as the increase in real GDP over a given period

15) Frictional unemployment is the result of A) an economic recession. B) the economic decline of major industries. C) the normal process of jobs being created and destroyed. D) people not getting along (having friction) with their employers. E) changing weather throughout the year.

Answer: C. Frictional unemployment: unemployment that arises from people entering and leaving the labor force, from quitting jobs to find better ones, and from the ongoing creation and destruction of jobs

27) The items included in the CPI are A) final goods produced in the United States. B) final goods and services produced in the United States. C) goods and services consumed by the typical urban household. D) only goods and services produced within the current year and consumed by the typical household. E) gods but not services consumed by the typical urban household.

Answer: C. Idea is to make the weight of the item the same as in the budget of an average urban household

2) Phillip is a 22-year old who has no job and is available for work, but has not actively looked for a job in the last month. The Current Population Survey identifies Phillip as ________ , ________ the labor force, and ________ the working-age population. A) unemployed; part of; part of B) unemployed; part of; not part of C) not unemployed; not part of; part of D) not unemployed; not part of; not part of E) not unemployed; part of; part of

Answer: C. Marginally attached worker: person who does not have a job, is available and willing to work, has not made specific efforts to find a job within the previous four weeks, but has looked for work sometime in the recent past

9) Part-time workers are defined as people who are working A) less than 20 hours per week. B) between 20 and 35 hours per week. C) less than 35 hours per week. D) more than 10 hours per week. E) fewer hours than they would want.

Answer: C. Part time workers: usually work less than 35 hours a week

40) Which of the following makes the Consumer Price Index a less accurate measure of the cost of living? i. The monthly price survey conducted to collect information about prices is very unreliable. ii. The existence of a new goods bias in the calculation of the CPI iii. The existence of a quality change bias in the calculation of the CPI A) i only B) ii only C) ii and iii D) i and ii E) i, ii, and iii

Answer: C. Potential sources of bias in CPI are: New goods bias, Quality change bias, Commodity, substitution bias, Outlet substitution bias

52) The production function displays A) increasing returns. B) real returns. C) diminishing returns. D) average returns. E) normal returns.

Answer: C. Production function displays diminishing returns

18) Structural unemployment is the result of A) voluntary job quitting by workers. B) changing labor needs by firms during the year. C) technology changes or foreign competition. D) changes in the family structure. E) downturns in the business cycle.

Answer: C. Structural unemployment: unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs

19) After 15 years with Ford Motor Corporation, one summer Cameron loses his job. His boss explained that his position has been downsized after the technological advances in automobile production. Cameron is best considered A) not in the labor force. B) frictionally unemployed. C) structurally unemployed. D) cyclically unemployed. E) avoidably unemployed.

Answer: C. Structural unemployment: unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs

55) The supply of labor is defined as the relationship between the real wage rate and the A) quantity of labor supplied by firms. B) amount of jobs supplied by firms. C) quantity of labor supplied by households. D) amount of jobs supplied by households. E) equilibrium quantity of employment.

Answer: C. Supply of labor: relationship between quantity of labor supplied and real wage rate when all other influences of work plans remain the same

14) Since 1980, the percentage of part-time workers who are part time for economic reasons A) has steadily decreased. B) has steadily increased. C) at first increased, then generally decreased. D) generally increased in recessions and decreased in expansions. E) has remained approximately constant.

Answer: D

38) Looking at the historical values for annual inflation in the United States as measured by the Consumer Price Index, it is clear that inflation was A) higher on average during the 1990s than during the 1970s. B) higher on average during the 2000s than during the 1970s. C) never less than 0 percent at any time during the last 50 years. D) higher on average during the 1970s than during the 1980s. E) was never greater than 10 percent at any time during the last 50 years.

Answer: D

67) If real GDP is $6,460 billion, the population is 184.6 million people, and aggregate hours is 170 billion hours, labor productivity is A) $2.63 an hour. B) $2.86 an hour. C) $35,000. D) $38.00 an hour. E) 920 hours.

Answer: D

69) The shape of the productivity curve reflects the A) effects of capital accumulation. B) effects of technological progress. C) change in labor productivity as human capital increases. D) law of diminishing marginal returns. E) effects of population growth.

Answer: D

21) Janae was fired from her job with Microsoft in the 2008-09 recession because Microsoft's sales dipped. Janae's unemployment would be best classified as A) frictional unemployment. B) structural unemployment. C) sales-related unemployment. D) cyclical unemployment. E) natural unemployment.

Answer: D. Cyclical unemployment: worker who is laid off because the economy is in a recession and who gets rehired some months after when the expansion begins

20) Cyclical unemployment includes people who become unemployed from A) changes in the seasons. B) changes in international competition. C) technological changes. D) changes in the business cycle. E) normal labor market turnover

Answer: D. Cyclical... cycle??? Coincidence? I think not

16) Jordan recently quit her job as a marketing consultant in Washington, D.C. and is looking for a better-paying job with an advertising agency in New York. Jordan is considered to be A) cyclically unemployed. B) structurally unemployed. C) not in the labor force. D) frictionally unemployed. E) a discouraged worker.

Answer: D. Frictional unemployment: unemployment that arises from people entering and leaving the labor force, from quitting jobs to find better ones, and from the ongoing creation and destruction of jobs

68) Increases in human capital can come A) only from formal schooling. B) from employing more machinery. C) only from on-the-job experience. D) from formal education and on-the-job learning. E) from nowhere because whatever human capital an individual possesses is what he or she was born with.

Answer: D. Human capital: the accumulated skill and knowledge of people-comes from three sources: Education and training, Job experience, Healthy diet

66) Labor productivity is defined as A) total real GDP. B) real GDP per person. C) total output multiplied by total hours of labor. D) real GDP per hour of labor. E) hours of work per person.

Answer: D. Labor productivity: quantity of real GDP produced by one hour of labor

70) Which of the following lists gives factors that increase labor productivity? A) saving and investment in physical capital, and wage increases B) expansion of human capital, labor force increases, and discovery of new technologies C) expansion of human capital, population growth, and discovery of new technologies D) saving and investment in physical capital, expansion of human capital, and discovery of new technologies E) labor force increases and wage increases

Answer: D. Main actions governments can take to achieve objectives are, Create incentive mechanisms, Encourage saving, Encourage research and development, Encourage international trade, Improve quality of education

A marginally attached worker is A) a person who is not happy with his or her job. B) someone who works part-time more than 25 hours per week but wants full-time work. C) someone who does not have a job but is available and willing to work and has made specific but unsuccessful efforts to find a job during the past 4 weeks. D) someone who does not have a job but is available and willing to work but has not made specific efforts to find a job during the past 4 weeks. E) another name for an unemployed worker.

Answer: D. Marginally attached worker: person who does not have a job, is available and willing to work, has not made specific efforts to find a job within the previous four weeks, but has looked for work sometime in the recent past

61) To measure the change in the standard of living, it is best to use the growth rate A) from the Rule of 70. B) of real GDP. C) of the population. D) of real GDP per person. E) of the price level.

Answer: D. Standard of living depends on real GDP per person

1) In the Current Population Survey, a person is considered unemployed if the person A) is without a job. B) is working anything less than 40 hours per week. C) is working without pay. D) does not have a job and is actively looking for a job. E) is working less than 20 hours per week.

Answer: D. Unemployed: Worked at least 1 hour as paid employee or worked 15 hours or more as unpaid workers in family business, was not working but had jobs, or businesses from which they were temporarily absent

13) Since 1960, the labor force participation rate in the United States has A) increased for men and women. B) decreased for men and women. C) increased for men and decreased for women. D) increased for women and decreased for men. E) increased for women and not changed for men.

Answer: D. participation rate for women increased from 37 percent to 60 and men decreased from 83 percent to 70

47) The Classical macroeconomic model proposes that A) government intervention is required to help the economy reach its potential. B) real GDP equals potential GDP as long as inflation equals zero. C) changes in the quantity of money are critical in driving economic growth. D) markets work efficiently to produce the best macroeconomic outcomes. E) socialism produces the most efficient economic outcomes for a society.

Answer: D. the market economy works well and delivers the best available macroeconomic performance

56) The labor market is in equilibrium whenever A) the nominal wage rate is decreasing. B) the nominal wage rate is increasing. C) the nominal wage rate is not changing. D) the real wage rate is increasing. E) the quantity of labor demanded equals the quantity of labor supplied.

Answer: E. Labor market is in equilibrium when there is no shortage or surplus of labor