Unit 2 Test Review

If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is: A. $510 billion. B. $490 billion. C. $10 billion. D. $990 billion.

A

If both the real interest rate and the nominal interest rate are 3 percent, then the: A. inflation premium is zero. B. real GDP must exceed the nominal GDP. C. nominal GDP must exceed real GDP. D. inflation premium also is 3 percent.

A

A large negative GDP gap implies: A. an excess of imports over exports. B. a low rate of unemployment. C. a high rate of unemployment. D. a sharply rising price level.

C

Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is: A. unemployed. B. employed. C. not in the labor force. D. in the labor force.

C

Inflation initiated by increases in wages or other resource prices is labeled: A. demand-pull inflation. B. demand-push inflation. C. cost-push inflation. D. cost-pull inflation.

C

Inflation means that: A. all prices are rising, but at different rates. B. all prices are rising and at the same rate. C. prices on average are rising, although some particular prices may be falling. D. real incomes are rising.

C

The phase of the business cycle in which real GDP is at a minimum is called: A. the peak. B. a recession. C. the trough. D. the underside.

C

The type of unemployment associated with recessions is called: A. frictional unemployment. B. structural unemployment. C. cyclical unemployment. D. seasonal unemployment.

C

Real GDP measures

current output at base year prices.

Year Units of Output Price of Bagel Per Unit Price Index (Year 1 = 100) 1 10 $10 100 2 12 20 200 3 15 30 300 4 20 40 400 The table contains data for a hypothetical single-product economy. Real GDP in year 4 is

$200

Year Units of Output Price Per Unit 1 3 $3 2 4 4 3 6 5 4 7 7 5 8 8 Assume an economy that makes only one product and that year 3 is the base year. Output and price data for a five-year period are shown in the table. Real GDP for year 5 is

$40

According to the Bureau of Labor Statistics, to be officially unemployed a person must: A. be in the labor force. B. be 21 years of age or older. C. have lost a job. D. be waiting to be called back from a layoff.

A

Demand-pull inflation: A. occurs when total spending in the economy is excessive. B. is measured differently than cost-push inflation. C. can be present even during an economic depression. D. is also called "hyperinflation."

A

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates? A. expansion B. recession C. peak D. trough

A

The labor force includes: A. employed workers and persons who are officially unemployed. B. employed workers, but excludes persons who are officially unemployed. C. full-time workers, but excludes part-time workers. D. permanent employees, but excludes temporary employees.

A

Labor force consists of which of the following? (more than one) A. Unemployed B. Total Population C. Employed D. Discouraged Workers

A C

. The natural rate of unemployment is the: A. unemployment rate experienced at the depth of a depression. B. full-employment unemployment rate. C. unemployment rate experienced by the least-skilled workers in the economy. D. unemployment rate experienced by the most-skilled workers in the economy.

B

Assume that Kyle is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Kyle will be considered as: A. cyclically unemployed. B. frictionally unemployed. C. structurally unemployed. D. employed.

B

Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is: A. 3 percent. B. 6 percent. C. 7 percent. D. 53 percent.

B

Demand-pull inflation: A. occurs when prices of resources rise, pushing up costs and the price level. B. occurs when total spending exceeds the economy's ability to provide output at the existing price level. C. occurs only when the economy has reached its absolute production capacity. D. is also called cost-push inflation.

B

If potential GDP is $400 billion and there is a negative GDP gap of $15 billion, real GDP is: A. $415 billion. B. $385 billion. C. $15 billion. D. $785 billion.

B

In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output? A. military goods B. capital goods C. textile products D. agricultural commodities

B

Recurring upswings and downswings in an economy's real GDP over time are called: A. recessions. B. business cycles. C. output yo-yos. D. total product oscillations.

B

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called: A. frictional unemployment. B. structural unemployment. C. cyclical unemployment. D. compositional unemployment.

B

Which of the following constitute the types of unemployment occurring at the natural rate of unemployment? A. Frictional and cyclical unemployment. B. Structural and frictional unemployment. C. Cyclical and structural unemployment. D. Frictional, structural, and cyclical unemployment.

B

Cost-push inflation may be caused by: A. a decline in per unit production costs. B. a decrease in wage rates. C. a negative supply shock. D. an increase in resource availability.

C

If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is: A. $360 billion. B. $660 billion. C. $320 billion. D. $20 billion.

C

If potential GDP is $330 billion and there is a positive GDP gap of $30 billion, real GDP is: A. $300 billion. B. $30 billion. C. $360 billion. D. $630 billion.

C

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is: A. 8 percent. B. 5 percent. C. 3 percent. D. 2 percent.

C

If the unemployment rate in Spain in 6.9% and the natural unemployment rate is 5%, then: A. structural unemployment is about 3 percent. B. frictional unemployment is about 2 percent. C. cyclical unemployment is about 2 percent. D. hidden unemployment is about 5 percent.

C

If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the: A. frictional unemployment rate is 5 percent. B. cyclical unemployment rate and the frictional unemployment rate together are 5 percent. C. cyclical unemployment rate is 4 percent. D. natural rate of unemployment will eventually increase.

C

Kara voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kara presently is: A. cyclically unemployed. B. structurally unemployed. C. frictionally unemployed. D. not a member of the labor force.

C

Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result: A. the official unemployment rate will fall. B. the official unemployment rate will rise. C. the official unemployment rate will remain unchanged. D. the size of the labor force will increase.

C

Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon where she anticipates that a new job will be available. We can say that Susie is faced with: A. seasonal unemployment. B. cyclical unemployment. C. structural unemployment. D. frictional unemployment.

C

The phase of the business cycle in which real GDP declines is called: A. the peak. B. an expansion. C. a recession. D. the trough.

C

The GDP gap measures the difference between: A. NDP and GDP. B. NI and PI. C. actual GDP and potential GDP. D. nominal GDP and real GDP.

C

The United States' economy is considered to be at full employment when: A. about 4-5 percent of the total population is unemployed. B. 90 percent of the labor force is employed. C. about 4-5 percent of the labor force is unemployed. D. 100 percent of the labor force is employed.

C

The natural rate of unemployment is: A. higher than the full-employment rate of unemployment. B. lower than the full-employment rate of unemployment. C. that rate of unemployment occurring when the economy is at its potential output. D. found by dividing total unemployment by the size of the labor force.

C

The unemployment rate is the: A. ratio of unemployed to employed workers. B. number of employed workers minus the number of workers who are not in the labor force. C. percentage of the labor force that is unemployed. D. percentage of the total population that is unemployed.

C

A college graduate using the summer following graduation to search for a job would best be classified as: A. not officially a member of the labor force. B. a part of structural unemployment. C. a part of cyclical unemployment. D. a part of frictional unemployment.

D

During a severe recession, we would expect output to fall the most in: A. the healthcare industry. B. the clothing industry. C. agriculture. D. the construction industry.

D

The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are: A. military goods and capital goods. B. services and nondurable consumer goods. C. clothing and education. D. capital goods and durable consumer goods.

D

Unemployment rate is: A. Employed-Unemployed B. Labor force-Employed C. Employed/Unemployed D. Unemployed/Labor Force

D

Which of the following is a final good or service?

a haircut purchased by a father for his 12-year-old son

GDP can be calculated by summing

consumption, investment, government purchases, and net exports.

Which of the following activities is excluded from GDP, causing GDP to understate a nation's production?

goods and services produced in the underground economy

A nation's gross domestic product (GDP)

is the dollar value of all final output produced within the borders of the nation during a specific period of time.

GDP data is criticized as being inaccurate measures of economic welfare because

it does not take into account changes in the amount of leisure, it does not take into account all changes in product quality, and it does not take into account the adverse effects of economic activity on the environment

Real GDP is

the nominal value of all goods and services produced in the domestic economy, corrected for inflation or deflation.