Macro Economics

2. If nominal GDP is $9,600 billion and the GDP deflator is 118.5, then real GDP is: A. $6,586.7 billion. B. $10,852.7 billion. C. $3,657.0 billion. *D. $8,101.3 billion.*

$8,101.3 billion.

11. According to Okun's Law, if unemployment rises by 5 percent while imports and exports increase at roughly the same rate, the economy will lose output equal to: A. 1 percent. B. 2 percent. C. 5 percent. *D. 10 percent.*

10 percent. Response Feedback: For every 1% increase in unemployment, Okun's Law forecasts a 2% decrease in GDP.

20. Suppose a country has 1 billion people, 75 percent of whom are in the labor force, with 90 million unemployed. Full employment occurs at 2 percent. Based on the information above, what is the unemployment rate? *A. 12.0 percent* B. 25.0 percent C. 9.0 percent D. 8.3 percent

12.0 percent Response Feedback: The unemployment rate can be found by dividing the number unemployed by the number in the labor force.

14. If the CPI increases from 110 to 125 for one year, the rate of inflation for that year is: A. 15 percent. *B. 13.6 percent.* C. 1.13 percent. D. 50 percent

13.6 percent. 125-110=15 15/110= 13.6

2. Suppose a country has 1 billion people, 75 percent of whom are in the labor force, with 90 million unemployed. Full employment occurs at 2 percent. Based on the information above, by what percentage has real output failed to reach its potential according to the revised Okun's Law? A. 2 percent B. 10 percent C. 12 percent *D. 20 percent*

20 PERCENT Response Feedback: Okun's Law tells us the amount in percentage terms GDP falls for every 1% increase in unemployment. In this case unemployment is 12 percent, that's 10 percent higher than full employment; therefore GDP is twice that percentage short of potential GDP, or 20 percent.

1. If the population of a country is 250,000 people, its labor force consists of 145,000 people, 35,000 people are unemployed, 10,000 are unable to work, and 5,000 are unwilling to work, the unemployment rate is: 22.1 percent. 14.0 percent. *24.1 percent.* 19.4 percent.

24.1 percent. Response Feedback: unemployed/labor force=UNEMPLOYMENT RATE 35,000/145,000

15. Suppose a country has 10 million people, three-fourths of those individuals are in the labor force, with 500,000 unemployed. Full employment occurs at 5 percent. Based on the information above, what is the unemployment rate? *A. 6.67 percent* B. 75 percent C. 7.5 percent D. 5 percent

6.67 percent Response Feedback: unemployed/labor force = unemployment rate.

6. The Consumer Price Index is: A. A measure of changes in the average price of all goods and services. *B. A measure of changes in the average price of consumer goods and services.* C. Used to measure the impact of business speculation on consumers. D. The impact felt by consumers who move into a higher tax bracket because of inflation.

A measure of changes in the average price of consumer goods and services.

9. Inflation is: A. A rise in the price of every good and service. B. An increase in relative prices of all goods and services. C. A situation in which purchasing power increases. *D. An increase in the average level of prices of goods and services.*

An increase in the average level of prices of goods and services.

10. Those that work part-time and do not desire full-time employment are referred to as: *A. Employed.* B. The phantom unemployed. C. Underemployed D. Discouraged workers.

Employed. Response Feedback: Unless one is out of work and actively seeking work, one will be classified as employed.

13. The type of unemployment that economists generally associate with normal growth of the labor force and expanding job opportunities in a dynamic economy is: *A. Frictional unemployment.* B. Seasonal unemployment. C. Cyclical unemployment. D. Structural unemployment.

Frictional unemployment. Response Feedback: There is always a certain amount of unemployment in the economy

6. Economics can be defined as the study of: A. For whom resources are allocated to increase efficiency. B. How society spends the income of individuals. *C. How scarce resources are allocated to best meet society's goals.* D. What scarce resources are used to produce goods and services.

How scarce resources are allocated to best meet society's goals.

3. The labor-force participation rate is the number: A. Of unemployed divided by the number of employed. B. Of employed divided by the number in the labor force. C. Of employed divided by the total population. *D. In the labor force divided by the total population.*

In the labor force divided by the total population. Response Feedback: The labor force participation rate measures the percentage of the population either employed or unemployed.

5. When the U.S. unemployment rate decreased in the late 1990s, so did all of the following except: A. Crime rates. B. Divorce rates. C. Child abuse. *D. Income per capita.*

Income per capita. Response Feedback: Poverty rates tend to rise when unemployment rises.

13. If your rent increases from $1,000 to $1,100 over a period of one year and your income rises from $6,000 to $7,000, then it is true that your nominal income has: A. Increased but your real income has decreased. *B. Increased and your real income has increased.* C. Decreased and your real income has decreased. D. Increased but your real income has remained the same.

Increased and your real income has increased.

4. What is the likely consequence of an unemployment rate falling below the rate at which "full employment" is achieved? A. The threat of recession *B. Increased inflationary pressures* C. An increase in discouraged workers D. Political upheaval

Increased inflationary pressures Response Feedback: When scarce resources are sought after by many, prices tend to rise.

5. If the price of iPods rises 10 percent during a year when the level of average prices rises 3 percent, the relative price of iPods compared with other goods: A. Remains constant. *B. Increases.* C. Decreases. D. More information is required to answer this question.

Increases.

4. A friend tells you that his income has risen every year by 5 percent. At the same time prices, on average, have risen by 5 percent. Your friend claims he is better off. Your friend: *A. Is experiencing money illusion.* B. Really is better off as he suggests. C. Has experienced an increase in nominal and real income. D. Has experienced an increase in real income only.

Is experiencing money illusion

13. The basic factors of production include: A. Land, labor, money, and capital. B. Land, labor, money, and inputs. C. Labor and capital. *D. Land, labor, capital, and entrepreneurship.*

Land, labor, capital, and entrepreneurship.

3. All of the following are macroeconomic effects of inflation except: A. Uncertainty. B. Speculation. C. Bracket creep. *D. Lower taxes*

Lower taxes.

10. When the invisible hand does not produce optimal outcomes for the economy, there is evidence of: *A. Market failure.* B. Government failure. C. Macroeconomic failure. D. Scarcity.

MARKET FAILURE

7. A production-possibilities curve indicates the: A. Combinations of goods and services an economy is actually producing. *B. Maximum combinations of goods and services an economy can produce given its available resources and technology.* C. Maximum combinations of goods and services an economy can produce given unlimited resources. D. Average combinations of goods and services an economy can produce given its available resources and technology.

Maximum combinations of goods and services an economy can produce given its available resources and technology.

7. The term "nominal income" refers to: A. Money income adjusted for any change in the price level. B. Real purchasing power. C. Real purchasing power deflated for rising prices. *D. Money income measured in current dollars.*

Money income measured in current dollars.

16. Jack graduated from college last month, but he has not yet started looking for a job. Jack is: A. Frictionally unemployed. B. Structurally unemployed. B. A discouraged worker and is part of the unemployment statistic. *D. Not part of the labor force and is not counted in the unemployment rate.*

Not part of the labor force and is not counted in the unemployment rate. Response Feedback: If one is not actively seeking work, then one is not considered unemployed or part of the labor force.

15.If Korea is currently producing at efficiency, and it proceeds to increase the size of its military, then, as long as nothing else changes, its: A. Production-possibilities curve will shift outward. B. Production-possibilities curve will shift inward. C. Production of non-military goods will increase. *D. Production of non-military goods will decrease.*

Production of non-military goods will decrease.

8. If deflation is 0.5 percent per year and you receive a 1 percent decrease in your salary, then your: A. Real income falls, but your nominal income remains unchanged. *B. Real and nominal income both fall.* C. Real income remains unchanged, but your nominal income rises. D. Real and nominal income both rise.

Real and nominal income both fall.

12. Income in constant prices is: A. Nominal income. *B. Real income.* C. Bracket creep. D. Income effect.

Real income.

14. Automobile workers in Detroit who are unemployed because of foreign imports at the same time that job vacancies exist for coal miners in West Virginia would most likely be classified as: *A. Structurally unemployed.* B. Cyclically unemployed. C. Frictionally unemployed. D. Seasonally unemployed.

Structurally unemployed. Response Feedback: Structural unemployment exists when change makes obsolescent certain jobs.

Unemployment was particularly high during: *The Great Depression.* World War II. The Korean War. The Vietnam War.

The Great Depression. Response Feedback: Severe economic contractions like the Great Depression lead to very high levels of unemployment.

9. Opportunity cost is: A. Only measured in dollars and cents. B. The dollar cost to society of producing the goods. C. The difficulty associated with using one good in place of another. *D. The alternative that must be given up in order to get something else.*

The alternative that must be given up in order to get something else.

17. Full employment in the U.S. economy means that: A. Frictional unemployment has been reduced to zero. B. The total unemployment rate has been reduced to zero. *C. The economy has reached the lowest level of unemployment compatible with price stability.* D. Structural unemployment has reached its minimum as a result of increased spending and the economy is moving toward the peak of the business cycle.

The economy has reached the lowest level of unemployment compatible with price stability. Response Feedback: Employing more and more resources tends to drive up resource prices; full employment means reaching the point of full resource utilization consistent with price stability.

1. A point on a nation's production-possibilities curve represents: A. An undesirable combination of goods and services. B. Combinations of production that are unattainable, given current technology and resources. C. Levels of production that will cause both unemployment and inflation. *D. The full employment of resources to achieve a particular combination of goods and services.*

The full employment of resources to achieve a particular combination of goods and services.

18. Unemployment is defined as: *A. The inability of labor force participants to find jobs.* B. The inability of citizens to find jobs that utilize their capabilities. C. The proportion of the labor force that is unemployed. D. A decrease in the labor force.

The inability of labor force participants to find jobs. Response Feedback: When one is without a job and actively seeking work, then one is considered unemployed.

8. Macroeconomics focuses on the performance of: A. Individual consumers. B. Government agencies. *C. The overall economy.* D. All of the above.

The overall economy.

9. Which of the following is included in the labor force? A. A hard-working homemaker who does not want to be employed outside the home B. A man doing ten years in prison for armed robbery *C. The president of Microsoft* D. A retired commander of the armed forces

The president of Microsoft Response Feedback: One has to be employed or actively searching to be considered part of the labor force.

11. The fundamental problem of economics is: A. The law of increasing opportunity costs. *B. The scarcity of resources relative to human wants.* C. How to get government to operate efficiently. D. How to create employment for everyone.

The scarcity of resources relative to human wants.

14. A mixed economy: A. Is justified by the superiority of laissez faire over government intervention. *B. Utilizes both market and nonmarket signals to allocate goods and services.* C. Relies on the use of central planning by private firms rather than the government. D. Is one that allows trade with other countries.

Utilizes both market and nonmarket signals to allocate goods and services.

5. In terms of the production-possibilities curve, inefficiency is represented by: A. All points on the curve. B. All points outside the curve. *C. All points inside the curve.* D. A rightward shift of the curve.

All points inside the curve.

3. The role of the entrepreneur in an economy is to: *A. Bring the factors of production together and assume the risk of production.* B. Work with government planners to determine what goods are produced. C. Arrange bank financing for the owners of new businesses. D. Ensure full employment of labor.

Bring the factors of production together and assume the risk of production.

4. A consequence of the economic problem of scarcity is that: *A. Choices have to be made about how resources are used.* B. here is never too much of any good or service produced. C. The production of goods and services must be controlled by the government. D. The production-possibilities curve is bowed outward.

Choices have to be made about how resources are used.

7. During an economic downturn, consumers spend considerably less on goods and services. This results in layoffs, and the laid off workers are classified as: *A. Cyclically unemployed.* B. Structurally unemployed. C. Frictionally unemployed. D. Seasonally unemployed.

Cyclically unemployed. Response Feedback: Cyclical unemployment arises when buyers are not spending enough to support current levels of production.

1. During a period of unanticipated inflation: *A. Debtors are better off and creditors are worse off.* B. Debtors and creditors are both better off because of lower real interest rates. C. Individuals on fixed incomes are better off. D. All individuals are worse off because of the level of uncertainty.

Debtors are better off and creditors are worse off.

15. Deflation is a/an ____________ in the average level of prices of goods and services. A. Increase *B. Decrease* C. Stagnation D. Increase followed by a decrease

Decrease

8. All of the following are considered to be possible side effects of increased unemployment except: A. Admissions to mental institutions. B. Fatal heart attacks. C. Increased crime. *D. Decreased stress levels.*

Decreased stress levels. Response Feedback: More unemployment would seem to increase stress levels.

10. Inflation ________________ the purchasing power of money. A. Increases *B. Decreases* C. Does not affect D. Stabilizes

Decreases

11. If the price of Bluetooth headsets rises 12 percent during a year when the level of average prices rises 13 percent, the relative price of Bluetooth headsets: A. Remains constant. B. Increases. *C. Decreases.* D. More information is required to answer this question.

Decreases.