Macro Exam 2: part 1.

If the nominal interest rate is 4% and the inflation rate is 1%, then the real interest rate is 5%.

False

Unit-of-account costs arise from the way inflation makes money a less reliable measure of value.

T

Radhika just graduated from college. She recently quit her part-time job to focus on finding a full-time job that better uses the skills she acquired in college. Radhika is considered to be:

frictionally unemployed.

When the economy is at full employment, _____ is zero.

a.cyclical unemployment b.frictional unemployment c.the natural rate of unemployment d.unemployment A.

Natural unemployment equals _____ unemployment plus _____ unemployment.

a.cyclical; structural b.frictional; structural unemployment plus cyclical c.frictional; structural d.frictional; cyclical B.

A drop in the inflation rate is called:

a.hyperinflation. b.disinflation. c.stagflation. d.deflation. B.

Internet employment agencies have simplified the job search for the applicants. They have also led to a(n) _____ unemployment.

a.increase in frictional b.decrease in frictional c.decrease in structural d.increase in cyclical B.

Since 1960 in the United States, the price level has:

a.increased. b.decreased. d.fluctuated randomly by large amounts. c.remained the same. A.

Structural unemployment occurs when:

a.new workers enter the work force. b.the economy expands. c.there is a surplus of labor. d.there is cyclical unemployment. C.

Unit-of-account costs refer to the problem associated with high inflation rates that:

a.result in increased costs associated with necessary changes in the list price of items. b.decrease the costs associated with holding less money. c.makes money a less reliable unit of measurement. d.cause people to expend extra effort to reduce their holdings of money. C.

People who are changing jobs are counted in _____ unemployment.

a.structural b.involuntary c.frictional d.cyclical C.

Economists claim that the unemployment rate can understate the true level of unemployment because none of the following groups is included EXCEPT:

a.underemployed workers. b.discouraged workers. c.workers without jobs who have looked for work in the past four weeks. d.marginally attached workers. C.

Alex expects the inflation rate to be 4%. If Alex borrows money at a nominal interest rate of 5%, his real interest rate is:

less than the nominal interest rate.

Unemployment rates are usually higher in Europe than in the United States because:

unemployment benefits are more generous in Europe than in the United States.

If Jim's income is $80,000 and the price level is 4, then Jim's real income is:

a.$320,000. b. $84,000. c.$80,000. d.$20,000. D.

The Republic of Livonia has an adult population of 100 million; 60% of Livonia's population is employed, and 10% of the people are unemployed. The labor force participation rate in Livonia is: Group of answer choices

a.7%. b.60%. c.10%. d.70%. D.

Which of the following is a LIKELY response to inflation?

a.People tend to hold on to fewer interest-bearing assets. b.People choose to carry higher money balances. c.People tend to make more transactions. d. People tend to make fewer transactions. C

Generous unemployment benefits are likely to cause:

a.a reduction in job search time. b.a decrease in the unemployment rate. c.an increase in the unemployment rate. d.an increase in the employment level. C.

Between 1921 and 1923 Germany underwent:

a.an increase in the purchasing power of its currency. b.disinflation. c.hyperinflation. d.deflation. C.

Unexpected inflation _____ lenders and _____ borrowers.

a.benefits; does not affect b.hurts; benefits c.does not affect; benefits d.benefits; hurts B.

As the average age of the labor force increased from the end of the 1970s to the end of the 1990s, the natural rate of unemployment:

decreased.

If money income remains the same while the average price level doubles:

real income will fall.

Efficiency wages are:

set above equilibrium wages to act as an incentive for better performance.

Cyclical unemployment is a result of recessions and economic downturns and is not considered a part of the natural rate of unemployment.

t

During times of high inflation people hold less cash and make more withdrawals, so banks often open new branches.

t

Real interest rates can be positive, zero, or negative, but nominal interest rates can only be zero or positive.

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