AP Macro Unemployment and Inflation

A minimum wage of $7.25 per hour might cause structural unemployment if the equilibrium wage in that labor market is: A . $7.25. B . $8.00. C . $10.00. D . $7.30. E . $6.85.

e

Anna recently moved to Boston in order for her husband Joe to begin a new job as an economics professor at Harvard. Anna is an experienced surgeon who is currently interviewing with several different hospitals in Boston. Anna is currently: A . seasonally unemployed. B . structurally unemployed. C . cyclically unemployed. D . counted as employed since she is likely to receive a job offer soon. E . frictionally unemployed.

e

If the cost of a market basket is $200 in Year 1 and $230 in Year 2, the price index for Year 2 with a Year 1 base is: A . 100. B . 90. C . 130. D . 200. E . 115.

e

Which one of the following price indices is commonly used to measure the cost of living? A . producer price index B . wholesale price index C . human development index D . GDP deflator E . consumer price index

e

9. During rapid price inflation, firms must frequently change prices. The cost of changing prices is known as the: A . menu costs. B . real interest rate costs. C . shoe-leather costs. D . unit-of-account costs. E . Fisher effect.

A

Unit-of-account costs of inflation are the: A . costs associated with money being a less reliable unit of measurement. B . costs of transactions associated with avoiding the inflation tax. C . costs associated with businesses changing prices. D . revenue the government gets from printing money. E . costs associated with searching for lower prices.

A

When hyperinflation forces Pedro to change the price stickers on the books in his bookstore very frequently to keep up with the aggregate price level, economists say that Pedro is experiencing a: A . shoe-leather cost. B . Fisher effect. C . unit-of-account cost. D . debt deflation. E . menu cost.

A

Which of the following statistics is used to measure changes in the prices that firms pay for goods and services? A . Producer Price Index B . Consumer Price Index C . GDP Deflator D . Cost of Living Index E . Stock Market Index

A

5. The invention of ATM machines reduced: A . menu costs of inflation. B . shoe-leather costs of inflation. C . unit-of-account costs of inflation. D . seignorage. E . search costs of inflation.

B

When inflation rises quickly: A. borrowers will be hurt and lenders will benefit. B . lenders will be hurt and borrowers will benefit. C . both borrowers and lenders will be hurt. D . both borrowers and lenders will benefit. E . lenders will be hurt and those on fixed incomes will benefit.

B

3. Which of the following is a LIKELY response to inflation? A . People choose to carry higher money balances. B . People tend to make fewer transactions. C . People tend to make more transactions. D . People tend to hold on to fewer interest-bearing assets. E . People tend to keep more cash on hand.

C

Increases in the average level of prices is called: A . depreciation. B . deflation. C . inflation. D . expectations. E . speculation.

C

The purpose of indexing Social Security payments to the CPI is to: A . increase corporate profits. B . justify continued government funding of the Bureau of Labor Statistics. C . avoid the privatization of Social Security. D . increase government tax revenue. E . maintain the purchasing power of retirees.

E

When hyperinflation forces Emily to visit her bank very frequently to keep her cash holdings to a minimum, economists say that Emily is experiencing a: A . search cost. B . menu cost. C . unit-of-account cost. D . Fisher effect. E . shoe-leather cost.

E

In order to be officially unemployed, a person must be: A . looking for work in the past 4 weeks. B . under 55 years old. C frictionally unemployed. . D . structurally unemployed. E . retired or a full-time student.

a

In periods of unexpected inflation: A . borrowers benefit since they repay their loans in dollars with lower real value. B . lenders benefit since they are repaid in dollars with a higher real value. C . neither borrowers nor lenders are affected by the inflation rate since their nominal interest rate stays the same. D . lenders benefit since the nominal interest rate does not change. E . borrowers are hurt since they repay their loans in dollars with higher real value.

a

Inflation can be measured by: A . the percentage change in the CPI. B . the absolute change in the CPI. C . the absolute change in the GDP deflator. D . the percentage change in nominal GDP. E . the percentage change in real GDP.

a

Periods of recession are likely to be marked by: A . increasing rates of unemployment. B . decreasing rates of unemployment C . increasing employment. D . unchanged rates of employment. E . unchanged rates of unemployment.

a

The threat of future inflation: A . makes people reluctant to loan money for long periods. B . makes people eager to loan money for long periods. C . has no effect on loaning money. D . increases the value of money paid back in the future. E . makes people reluctant to borrow money for long periods.

a

Which of the following would describe a person who is counted as unemployed by the government? I. Stan does not have a job but is actively seeking employment. II. Beverly has a part-time job but would prefer a full-time job. III. Moesha does not have a job because she recently retired. A . I only. B . II only. C . III only. D . I and II only. E . I, II and III.

a

Alex expects the inflation rate to be 4%. If Alex borrows money at a nominal interest rate of 5%, his real interest rate is: A . positive and greater than the nominal interest rate. B . positive and less than the nominal interest rate. C . positive and equal to the nominal interest rate. D . negative and less than the nominal interest rate. E . equal to zero.

b

If a worker becomes unemployed due to an increase in the minimum wage, that worker is: A . frictionally unemployed. B . structurally unemployed. C . cyclically unemployed. D . engaged in job search. E . minimally unemployed.

b

The ______ is the most widely used measure of inflation in the United States. A . producer price index B . consumer price index C . GDP deflator D . national income account E . growth rate of real GDP

b

The presence of discouraged workers in the economy tends to: A . raise the official unemployment rate. B . lower the official unemployment rate. C . lower the number of people who are frictionally unemployed. D . increase the number of people who are structurally unemployed. E . have no impact on the official unemployment rate.

b

Unemployment rates tend to: A . be the same across geographic areas. B . vary depending upon age groups and ethnicities. C . increase when an expansion in the economy occurs. D . stay the same only when there is cyclical unemployment. E . fall during economic recessions.

b

Unemployment that results when there are more people seeking jobs in a labor market than there are jobs available is considered A . frictional unemployment. B . structural unemployment. C . cyclical unemployment. D . natural unemployment. E . seasonal unemployment.

b

8. Unit-of-account costs refer: A . to the increases in prices during inflation. B . the decrease in value of money during inflation. C . the loss of reliability of money as a relative unit of measurement. D . the increased costs of servicing bank accounts during inflation. E . the gradual erosion of purchasing power during inflation.

c

Deflation is a(n): A . decrease in the purchasing power of a unit of money. B . appreciation of the nation's currency. C . decrease in the average level of prices. D . increase in the average level of prices. E . problem only for developing nations.

c

Efficiency wages encourage: A . workers to look for a better job. B . potential workers to remain out of the labor force. C . workers to retain their current job. D . workers to get more job training. E . lower levels of unemployment.

c

If a country has a working-age population of 200 million, 135 million people with jobs, and 15 million people unemployed and seeking employment, then its unemployment rate is: A . 4%. B . 7.5%. C . 10%. D . 67.5%. E . 30%

c

The aggregate price level is: A . the average price of shares on the stock market. B . the average price of commodities. C . the overall level of prices in the economy. D . the average rate of inflation. E . the overall level of wages in the economy.

c

You have gone to the bank to borrow money for one year. The nominal rate is 7.5%. The real rate of interest is 4%. Over the course of the year, overall prices increased by 4%. This rate of inflation hurt the _____ because the actual rate of inflation was _____ than the anticipated rate of inflation. A . borrower; lower B . borrower; higher C . lender; higher D . lender; lower E lender; equal to

c

Cyclical unemployment is characterized as: A . unemployment that occurs when people are between jobs. B . a situation when there are not good matches between available jobs and the skills people have. C . the normal unemployment around which the actual unemployment rate fluctuates. D . the deviation in the actual rate of unemployment away from the natural rate. E . unemployment that occurs when people go back to school for retraining.

d

Discouraged workers are those individuals: A . who are getting paid too little. B . who do not like their jobs. C . who are working part time but are looking for a full-time job. D . who have given up looking for a job. E . who are employed but extremely dissatisfied with their jobs.

d

The natural level of unemployment contains no_________ unemployment. A . minority B . structural C . frictional D . cyclical E . actual

d