Chapter 7 Question bank

If the expected inflation rate is 4 percent and the nominal interest rate is 9 percent, the expected real interest rate is

5 percent

If people suddenly become more willing to lend money, what happens to the equilibrium rate of interest?

An increase in the supply of loanable funds will decrease the interest rate.

The unemployment rate trended down from the early 1980s to 2000 because there were fewer people in the workforce like

Billy, age 18

A person whose skills do not match the available job openings is considered frictionally unemployed.

False

An increase in the interest rate will increase the demand for loanable funds.

False

As a result of the hyperflation in Zimbabwe, GDP fell by 50%.

False

Which is true of cost-push inflation?

It results in a movement along the aggregate demand curve.

Since 1980, a country that has experienced deflation is

Japan

Which of the following is true regarding labor force participation rates in the United States since the 1950s?

The rate for men has fallen; that for women has increased.

Which of the following is true about inflation?

Those who have borrowed money at an interest rate below the rate of inflation will generally benefit.

Inflation is defined as a sustained increase in the price level.

True

Inflation rates differ across regions mostly because of differences in housing prices.

True

It is difficult to compare unemployment rates across countries because methods of measuring unemployment are not standardized.

True

The real interest rate can be negative.

True

Suppose you received a 3 percent increase in your nominal wage. Over the year, inflation ran about 6 percent. Which of the following is true?

Your real wage fell.

As a result of hyperinflation,

Zimbabwans tried to spend money just as soon as they received it

Deflation refers to

a decreasing price level

Structural unemployment results from

a mismatch of skills

Structural unemployment refers to unemployment that results from

being in the wrong geographical location

Which of the following groups has historically had the highest unemployment rate?

black teenagers

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

black teenagers

If the inflation rate is higher than expected, which of the following groups in society would be most likely to gain?

borrowers

Anticipated inflation

causes fewer problems than unanticipated inflation

The view that union wage demands may be a source of inflation would be best associated with the

cost push view of inflation

Most of the unemployment experienced in the United States during the Great Depression was

cyclical

Which of the following is not consistent with full employment?

cyclical unemployment

A decrease in the interest rate, other things constant, will

decrease the quantity of loanable funds supplied

Since World War II, labor force participation rates have

decreased for males and increased for females

A discouraged worker is one who

drops out of the labor force because he cannot find a job

In which of the following industries are workers least likely to suffer from cyclical unemployment?

education

Which type of unemployment is most likely to help the economy become more efficient?

frictional

Since the end of World War II, the U.S. unemployment rate

has displayed an upward trend

Different demographic groups

have different unemployment rates

In periods of high inflation,

high nominal interest rates are likely to result

Which of the following is not considered a cost of unemployment?

higher inflation rates

Since World War II, the average duration of unemployment in the U.S.

increased

In times of rapid inflation,

money loses its use as a store of value

An example of structural unemployment caused by a change in tastes and preferences is

newspaper journalists

The real interest rate can be expressed as the

nominal interest rate minus the inflation rate

Suppose the official unemployment rate is 10 percent. We can conclude without question that

one of every ten people in the labor force is currently unemployed

Demand-pull inflation is caused by an

outward shift of the aggregate demand curve

Unanticipated inflation is usually viewed as undesirable because it

redistributes income and wealth

Which of the following is not a way to become officially unemployed?

retire

Jamal lost his job as a shipbuilder during 2004. His shipyard never reopened, and so his very specialized skills are no longer in demand. Jamal's unemployment is best classified as

structural

Which of the following types of unemployment is the hardest to reduce?

structural

When the economy is at full employment, what types of unemployment may exist?

structural and frictional

Unemployment arising from mismatch of skills is called

structural unemployment

In April of 2010, the US economy added 290,000 jobs but the unemployment rate still rose from 9.7% to 9.9%. Which of the following best explains how this can happen?

the number of unemployed workers also rose but by an even greater percentage

Full employment is considered a major economic goal because

the opportunity cost of unemployment is lost production

If the nominal interest rate is 6 percent and the inflation rate is 4 percent,

the real interest rate is 2 percent

The unemployment rate does not measure all of the "unemployment problem." Which of the following groups is not counted as unemployed in the official unemployment statistics?

the underemployed and the discouraged workers

Unanticipated inflation penalizes

those who are saving

During periods when the inflation rate fluctuates widely,

uncertainty about changes in relative prices causes a decrease in economic efficiency

The problems that inflation creates for society are caused primarily by

uncertainty regarding the rate at which different prices are increasing or will increase

An individual with a Ph.D. in physics, who can find employment only in a pizza parlor, would be considered as

underemployed

When workers are over-qualified for their current jobs or can find only part-time work, we say they are

underemployed

Because of the way discouraged workers and part-time employment are measured, the official unemployment rate

understates the unemployment problem

A recent college graduate who is still looking for their first job, would be considered as

unemployed

Full employment

will always include some unemployment

A worker would be hurt least by inflation when the

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

The official unemployment rate would be higher if it included the existence of hidden unemployment or individuals who are

working part-time but prefer full-time work

If the inflation rate is 5 percent and you receive a wage increase of 5 percent,

your nominal income increases by 5 percent but your real income is unchanged

Which of the following is true about U.S. history prior to 1945?

Major wars resulted in high inflation rates that were usually followed by deflation.

Which of the following is not an effect of hyperinflation?

More resources are used efficiently to overcome inflation's effects on transactions costs.

During inflationary times, which of the following is unlikely to happen?

People are willing to lend money for longer periods.

Which of the following statements about unemployment is true?

Some unemployment exists even when the economy is healthy and growing.

Which of the following people would be counted in the labor force?

Stephanie, who holds a Ph.D. in history, but can only find part-time employment at a fast-food restaurant

Suppose the price levels in four successive years are 100, 120, 133, and 140. Which of the following is true?

The economy is experiencing inflation.

Suppose U = the number of adults who are unemployed; E = the number of adults who are employed; and NLF = the number of adults not in the labor force. Which expression would equal the labor force participation rate?

(U + E)/(U + E + NLF)

Tony lent Dave $1,000 for one year with the understanding that Dave would repay $1,070. If the actual inflation rate was 7 percent, what was the real rate of interest Tony received?

0 percent

Consider an economy made up of 100 people, 60 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The number counted as unemployed is

10

Which of the following is not an effect of hyperinflation?

100. Which of the following is not an effect of hyperinflation?

If two parties to a loan contract agree that the lender should earn an 8 percent increase in purchasing power as a result of a loan, and the inflation rate is 5 percent, what is the nominal interest rate?

13 percent

Which period in U.S. economic history was not characterized by inflation?

1929-1933

During which of the following decades was the U.S. inflation rate highest?

1970s

Raul borrowed $1,000 from Marta for a year and agreed to repay her $1,050 at the end of the year. If the inflation rate was 3 percent, what is the real rate of interest Marta received?

2 percent

Since World War II, the Consumer Price Index has increased by an average of

3.9% per year

Assuming the total population is 150 million, the labor force is 100 million, and 94 million workers are employed, the unemployment rate is

6 percent

Consider an economy with an adult population of 100, 50 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The labor force participation rate is

60 percent

Consider an economy made up of 100 people, 60 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The number of people in the labor force is

70

Which of the following would lead to the most inflation?

Aggregate demand increases and aggregate supply decreases.

What was the result of increased oil prices during the 1970s?

Aggregate supply decreased, causing cost-push inflation.

Suppose you received a 4 percent increase in your nominal wage. Over the year, inflation runs about 7 percent. Which of the following is true?

Although your nominal wage rose, your real wage decreased.

Suppose you received a 5 percent increase in your nominal wage. Over the year, inflation ran about 2 percent. Which of the following is true?

Both your nominal and real wages increased.

An increase in the supply of loanable funds, other things constant, will increase the interest rate.

False

Anticipated inflation distorts markets more than does unanticipated inflation.

False

Demand-pull inflation is typically caused by rapidly rising costs of production.

False

Discouraged workers are included in the labor force figures but not in unemployment figures.

False

During periods of high inflation, people want to hold as much money as possible.

False

During periods of inflation, all prices increase.

False

If the CPI in 2003 was 150 and the CPI in 2004 was 160, the inflation rate over the year was 10 percent.

False

If the expected inflation rate is high, the nominal interest rate will be low.

False

If the price level increases by 2 percent each year, the inflation rate is increasing.

False

Inflation can only be caused by an increase in aggregate demand.

False

Inmates from the county prison who are on work release are counted as part of the labor force.

False

Measured unemployment includes discouraged workers.

False

The labor force consists of all adults who are currently employed.

False

The supply of loanable funds curve slopes downward to the right.

False

The unemployment rate rises any time there is an increase in the number of unemployed.

False

Unanticipated inflation generally hurts borrowers and benefits lenders.

False

Some economists have argued that inflation during the 1970s contributed to the U.S. economy's relatively slow growth rate. What is the basis for this view?

High and variable inflation rates increased uncertainty, thus making business decisions more difficult.

The metropolitan with the lowest unemployment rate is

Honolulu

Which of the following is true about inflation?

Inflation is more damaging if it is unanticipated.

Which of the following is not an effect of hyperinflation?

People hold on to currency for long periods of time.

Which of the following is not an effect of hyperinflation?

People tend to exchange a currency that is subject to low inflation for one subject to high inflation.

If top government officials claim that "more people are working now than ever before," which of the following must be true?

The number of people employed is higher now than ever before.

Which of the following is not a cost of unemployment?

The opportunity cost of unemployment is a higher inflation rate.

Which of the following events would most likely cause the nominal interest rate to fall?

The supply of loanable funds increases and the demand for loanable funds decreases.

Which of the following is true about inflation?

Those who have loaned money at an interest rate below the rate of inflation suffer economic losses.

A major cost of unemployment is lost production.

True

A sustained decrease in the price level is known as deflation.

True

An increase in the demand for loanable funds, other things constant, will increase the interest rate.

True

As a result of the hyperflation in Zimbabwe, the unemployment rate rose to 90%.

True

At the rate of inflation in Zimbabwe in 2008, a $25 pair of jeans would have cost $3.8 billion at the end of the year.

True

Construction workers at times face high rates of unemployment because their work is both seasonal and subject to wide swings over the business cycle.

True

During periods of inflation, the real value (purchasing power) of a given amount of nominal dollars decreases.

True

Ginger quits her job as a secretary because she cannot handle the stress. It takes her three weeks of solid effort to land a job as a receptionist. Over these three weeks, she would be considered frictionally unemployed.

True

Government fiscal policies that attempt to stimulate aggregate demand are often aimed at reducing cyclical unemployment.

True

If Dave loans funds at 2 percent while the inflation rate is 4 percent, his real rate of interest is -2 percent.

True

If a new Ph.D. in philosophy finds work as a taxi driver, but continues to look for a college teaching position, he is counted as being employed.

True

If nominal wages increase 7 percent while the price level rises by 5 percent, real wages rise.

True

If the CPI is 200, then the price level has doubled since the base year.

True

Most of the unemployment during the Great Depression was cyclical unemployment.

True

Relative prices describe the terms at which individual goods are exchanged for one another.

True

The labor force participation rate climbs with education.

True

The nominal interest rate is determined in the market for loanable funds.

True

The unemployment rate for blacks in the United States is higher than that for whites.

True

Suppose U = the number of adults who are unemployed; E = the number of adults who are employed; and NLF = the number of adults not in the labor force. Which expression would equal the unemployment rate?

U/(U + E)

Which of the following is true about labor force participation?

When the unemployed become "discouraged workers," the labor force participation rate declines.

Suppose you received a 5 percent increase in your nominal wage. Over the year, inflation ran about 2 percent. Which of the following is true?

Your real wage increased.

In addition to Brazil, another country recently suffering from hyperinflation is

Zimbabwe

Which of the following people would be counted as unemployed?

a downhill ski instructor who looks for work during the summer

The Consumer Price Index measures the cost of

a fixed market basket of consumer goods and services produced in the U.S. economy

Inflation is

a general and continuing rise in the money prices of goods and services

Which of the following people would be counted among the unemployed?

a new college graduate not qualified for any of the jobs available in his small town

Which of the following people would be classified as unemployed?

a person who wants a job as a fashion model but cannot find work in that field

Cyclical unemployment results from

a recession in the economy

Which of the following people is least likely to be hurt by inflation?

a salesperson who works on commission

Which of the following will most likely qualify for unemployment compensation benefits?

a spot welder who has just gotten his first "pink slip" in the mail after ten years of continuous employment

Since World War II, the U.S. economy has experienced

an increase in the labor force participation rate of women

If the official unemployment rate increases in August from its July level, we can conclude that __________ unemployment is responsible for the increase.

any of the causes of

People who are not currently employed, but say they want a job, are counted as unemployed only if they

are actively seeking employment

An occupation with a high unemployment rate is

auto workers

An accountant who lost their job in the last recession who gives up looking for work after 12 months of unsuccessful job search, would be considered as

both a and c

If the official unemployment rate increases in March from its February level because of sluggish sales in the auto industry, we can conclude that __________ unemployment is responsible for the increase.

cyclical

Which type of unemployment is likely to increase the most in a recession?

cyclical unemployment

The unemployment rate will decrease whenever there is a(n)

decrease in the number of unemployed relative to the size of the labor force

An increase in the interest rate, other things constant, will

decrease the quantity of loanable funds demanded

Seasonal unemployment results from

decreases in demand for labor at certain times of the year

The difference between demand-pull inflation and cost-push inflation is that

demand-pull inflation is caused by movements of the aggregate demand curve; cost-push inflation is caused by movements of the aggregate supply curve

Exclusion of which of the following tends to understate the true extent of unemployment in the economy?

discouraged workers

Uncertainty about inflation

enhances money's importance as a link between the present and the future

Jacqueline, a brilliant new Ph.D. in economics, has turned down many job offers because she hopes eventually to teach at one of the top ten universities in her field. The type of unemployment she is experiencing is

frictional

Sharon was being treated unfairly by her boss, so she stormed off the job and two weeks later found another position. For two weeks Sharon experienced

frictional unemployment

Workers who are temporarily unemployed but who normally find jobs quickly are called

frictionally unemployed

Your cousin recently graduated from Harvard Law School and has not found a job after looking for one last week. She can be described as

frictionally unemployed

An increase in a person's real wage necessarily means

greater purchasing power

The labor force participation rate is the number of people

in the labor force divided by the adult population

Which of the following factors makes the official unemployment rate an overstatement of the actual level of unemployment in the economy?

inclusion of those who pretend to look for work in order to qualify for welfare programs

The unemployment rate will increase whenever there is a(n)

increase in the number of unemployed relative to the size of the labor force

A decrease in the interest rate, other things constant, will

increase the quantity of loanable funds demanded

An increase in the interest rate, other things constant, will

increase the quantity of loanable funds supplied

130. Since the end of World War II, the U.S. price level has

increased eightfold

The labor force participation rate for women in the United States has

increased significantly since the 1950s

Inflation can be caused by

increases in aggregate demand or decreases in aggregate supply

Demand-pull inflation is associated with

increasing aggregate demand and lower unemployment

Cost-push inflation is typically caused by an

inward shift of the supply curve

The best example of a frictionally unemployed worker is one who

is in the process of voluntarily switching jobs

Unanticipated inflation creates problems for society because

it redistributes wealth and income

If future price changes were perfectly anticipated by both borrowers and lenders, what would happen to the real interest rate in the future if the price level changed?

it would not change

A decrease in a person's real wage necessarily means

lower purchasing power

Which of the following are classified as "discouraged workers"?

members of the noninstitutional population who say they want to be employed but are not searching for a job

The only job Justin ever holds is preparing income tax forms at H&R Block from January 2 to April 15. In March, while he is still working, he sends his resume to prospective employers. In March, he was counted as

part of the labor force

The official unemployment rate disguises the extent of the unemployment problem because

people overqualified for their current job are not considered unemployed

Underemployment refers to

people working in jobs that do not fully use their skills

The unemployment rate is the

percentage of the labor force that does not have a job

Hyperinflation refers to a situation in which

prices are rising extremely rapidly

As a result of hyperinflation in Zimbabwe,

prices were 150 million times higher at the end of 2008 than they were at the beginning

Cyclical unemployment results from

prolonged declines in business activity

An increase in unemployment benefits is likely to do which of the following?

reduce a person's incentive to look for work

Inflation

reduces the real income of workers when wages increase less than prices do

Which of the following is most likely to reduce structural unemployment?

retraining workers in marketable skills

Unemployment rates __________ during contractions and __________ during expansions.

rise, fall

If the official unemployment rate increases in January from its December level because the Christmas season is over, we can conclude that __________ unemployment is responsible for the increase.

seasonal

The impact of __________ unemployment is removed from official unemployment figures that are reported monthly.

seasonal

Seasonal unemployment refers to unemployment that results from

seasonal decreases in demand for labor

The type of unemployment most likely to be experienced by a touring professional golfer is

seasonal unemployment

Juanita earned a B.S. in engineering and went to work for a defense contractor. When the government cut spending, Juanita and 99 others were laid off. The only other business in the town is growing grapes, but the growers refuse to hire laid-off engineers, knowing they will leave at the first opportunity. The unemployment Juanita is experiencing is

structural

Which type of unemployment is experienced by a person who is laid off at an office because new technology reduces the need to handle customer service inquiries?

structural

Frictional unemployment refers to unemployment that results from

taking the time to find the best job

In the United States,

the average inflation rate was higher after 1950 than before

The higher you think the inflation rate is likely to be,

the higher the nominal interest rate you will offer as a borrower and want as a lender

The higher the anticipated inflation rate,

the more workers will ask for in wages, and the more firms will agree to pay

The labor force consists of all

the noninstitutionalized population over 16 in the economy who hold jobs or are looking for them

In periods of high inflation,

the purchasing power of money is decreasing

If the nominal interest rate is 5 percent and there is no inflation,

the real interest rate is 5 percent

If the aggregate supply curve shifts leftward,

the resulting increase in the price level is usually called cost-push inflation

If the aggregate demand curve shifts rightward,

the resulting increase in the price level is usually called demand-pull inflation

Unanticipated inflation redistributes income across groups in society. Among the winners are

those who borrow at fixed interest rates