Chapter 7 Practice Questions
In computing a price index, A. the base year must be one for which the inflation rate was zero. B. the quantities in the market basket stay the same while the prices differ. C. both the quantities in the market basket and the prices change from year to year. D. the most recent year is always set equal to 100.
B
Which of the following individuals is NOT counted as unemployed? A. Jamil, who recently quit his job and is looking for a new position B. Jack, who has become discouraged about ever finding a job and has stopped looking C. Jennifer, who just graduated from college and is now seeking employment with the company of her dreams. D. Jane, who was recently fired and is now applying for another job
B
According to the text, during which time period did the United States have the highest unemployment rates? A. 2000s B. 1980s C. 1930s D. 1950s
C
An example of a cyclically unemployed individual is A. Mary, who lost her job in the textile industry following a decrease in the tariff on textiles. B. Bob, who lost his job in an oil production company after a surge in global oil supply led to falling oil prices. C. Charles, who lost his job as a real estate salesperson when the housing market went soft. D. Alice, who quit her job to enter college.
C
If the current price of a market basket of goods is $850 and the base year price for the same market basket is $500, what is the value of the price index? A. 100 B. 120 C. 170 D. 140
C
If the rate of inflation is 6 percent and the real interest rate is 2 percent, the nominal interest rate should be A. 4 percent. B. 2 percent. C. 8 percent. D. -2 percent.
C
In a small country, the adult population is 10,000. In that country, 7,000 people are in the labor force and 6,300 people are employed. The unemployment rate equals A. 0.63 percent. B. 7 percent. C. 10 percent. D. an undetermined amount given the lack of information.
C
In sequential order, the four phases of the business cycle are A. trough, peak, expansion, contraction. B. contraction, trough, peak, expansion. C. peak, contraction, trough, expansion. D. expansion, contraction, peak, trough.
C
The United States experienced a deep recession between 2007 and 2009. Which type of unemployment would most likely increase during that period of recession? A. structural unemployment B. frictional unemployment C. cyclical unemployment D. seasonal unemployment
C
The business cycle phase that must come before the peak is a(n) A. recession. B. trough. C. expansion. D. contraction.
C
The cost of inflation to society includes I. The opportunity costs of resources used by people to protect themselves against inflation II. The costs associated with recalculating prices A. I only B. II only C. Both I and II D. Neither I nor II
C
The greater the inflation rate, the A. better it is to hold money as cash. B. slower the decrease in the purchasing power of money. C. faster the decrease in the purchasing power of money. D. better it is to put money into savings accounts.
C
The nominal value of a good is A. the good's value expressed in purchasing power terms. B. the good's anticipated value one year from now. C. the price of the good in today's dollars. D. the price of the good in today's dollars, minus an anticipated inflation premium.
C
The population of a small town is 5,000. There are 4,000 people in the labor force, and 3,500 people are employed. The unemployment rate equals A. 5 percent. B. 10 percent. C. 12.5 percent. D. 35 percent
C
The price index that measures the changes in prices of ALL goods and services produced by the economy is the A. CPI. B. PPI. C. Gross Domestic Product (GDP) deflator. D. fixed-quantity index.
C
The rate of unemployment is calculated as the number of A. unemployed workers divided by the number of employed workers. B. people in the civilian labor force divided by the number of unemployed. C. unemployed divided by the number of people in the civilian labor force. D. employed workers divided by the number of unemployed workers.
C
The term "business fluctuations" refers to A. changes in the value of the dollar. B. changes in the full employment level of economic activity. C. changes in overall business activity, as evidenced by changes in national income, employment, and the price level. D. changes in the general price level from inflation to deflation, or vice versa
C
To be officially classified as unemployed, a person must be A. at least 18 and not working. B. laid off or fired. C. at least 16, not working and actively seeking employment. D. collecting unemployment benefits.
C
Unemployment is measured as A. all adults in the civilian labor force who are not working. B. all teens and adults in the civilian labor force who are not working. C. all adults in the civilian labor force who are willing and able to work and who are actively looking for work, but have not found a job. D. all adults in the civilian labor force, regardless of whether or not they have been engaged in actively seeking employment, who do not have the job they want.
C
Unemployment resulting from business recessions that occur when aggregate demand is insufficient to create full employment is A. seasonal unemployment. B. structural unemployment. C. cyclical unemployment. D. frictional unemployment.
C
Which of the following would NOT be considered unemployed? A. An individual fired by her employer B. A new entrant to the labor force C. A newly retired worker D. A job leaver who is looking for a better job
C
A price index shows A. the relative price of necessities. B. the price of goods in the future. C. the current cost of a basket of goods. D. the cost of today's goods expressed in terms of the cost of goods in a base year.
D
An extremely severe recession is known as a A. contraction. B. peak. C. trough. D. depression.
D
Costs of unemployment include A. structural unemployment. B. reduction in the labor force. C. higher wages. D. the output lost due to the fact that the economy is not running at full employment.
D
For most people, the problems of inflation are caused by the fact that A. the inflation is anticipated. B. the inflation rate causes the purchasing power of money to increase. C. all prices change so there is no way to protect themselves against the decline in their wealth. D. the inflation is unanticipated.
D
If a person is fired for poor performance but possesses skills required to obtain another job after some searching, this person is considered A. a discouraged worker. B. seasonally unemployed. C. structurally unemployed. D. frictionally unemployed.
D
Including discouraged workers in the calculation of the unemployment rate would A. not change the reported rate. B. lower the reported rate. C. change the reported rate, but in an unpredictable manner. D. increase the reported rate.
D
Individuals who have stopped looking for work because they are convinced that they will not find a job are considered A. underemployed. B. part of the labor force. C. structurally unemployed. D. discouraged workers.
D
Suppose the actual inflation rate is less than the anticipated inflation rate. Given this information, we know with certainty that the real rate of interest A. is more than the nominal rate of interest. B. is negative. C. equals the nominal rate of interest. D. none of the above (i.e., more information is needed to answer this question).
D
The inflation rate has been 7 percent for 10 years, and the nominal interest rate has been 6 percent during this same time period. Suddenly, the public anticipates that the inflation rate will be 6 percent this coming year. The real rate of interest for the coming year is A. 2 percent. B. 6 percent. C. 4 percent. D. 0 percent.
D
The largest major change in the U.S. labor force participation rate during the last few decades has been A. the decrease in the number of working women. B. the increase in the number of illegal immigrants in the United States. C. the number of prisoners dropping out of the labor force. D. the increase in the number of working women.
D
The rate of unemployment is found by A. dividing the number unemployed by the number employed. B. dividing the number employed by the number unemployed. C. dividing the number employed by the number of people in the labor force. D. dividing the number unemployed by the number of people in the labor force.
D
A period of time in which the overall pace of business activity is falling is known as A. a contraction. B. an expansion. C. inflation. D. deflation.
A
An unexpected reduction in inflation would tend to benefit which of the following? A. creditors B. debtors C. neither creditors nor debtors D. creditors and debtors
A
Assume that there was a 5 percent increase in the price of all goods in 2015; if the base year is 2014, then the price index in 2015 will be A. 105. B. 95. C. 1100. D. 110.
A
Assume you borrow funds to buy a new car at 3 percent interest and you think that the economyminuswide rate of inflation over the life of the loan will be 2 percent. If you are correct in your assumption, your real rate of interest on the car loan will be A. 1 percent. B. 2 percent. C. 5 percent. D. 3 percent.
A
Cyclical unemployment occurs when A. a downturn in economic activity decreases employment. Your answer is correct.B. individuals enter the labor market and make the rounds of potential employers. C. individuals give up the search for employment. D. individuals with skills no longer valued in the domestic labor market cannot find employment.
A
During a period of unanticipated inflation, the group that is most likely to benefit is A. debtors. B. retired individuals. C. savers. D. creditors.
A
During a recession A. incomes fall and unemployment increases. B. incomes fall and unemployment falls. C. incomes rise and unemployment increases. D. incomes rise and employment decreases.
A
Environmental regulation reduces the demand for West Virginia coal and the unemployment rate in West Virginia increases. This is an example of A. structural unemployment. B. frictional unemployment. C. regulatory unemployment. D. cyclical unemployment.
A
Fully anticipated inflation occurs when A. the actual inflation rate equals the anticipated inflation rate. B. the anticipated inflation rate and the unanticipated inflation rate are equal. C. the inflation rate is zero. D. the actual inflation rate is less than the anticipated inflation rate.
A
If the U.S. economy enters a recession, the A. unemployment rate tends to increase. Your answer is correct.B. economy experiences full employment. C. labor force tends to increase. D. entire population will be partially unemployed.
A
If there is unemployment and all businesses are operating at less than full capacity, then A. society is producing inside its production possibilities curve. B. society is at the wrong point on the production possibilities curve. C. we are not experiencing a net social cost to unemployment because it is offset by the capacity levels of the factories. D. there are too many workers, and some people ought to leave the labor force.
A
In the United States, the labor-force participation rate since 1960 has been A. increasing for females. B. unchanged for both males and females. C. declining for both males and females. D. declining for females.
A
Inflation is best defined as A. a sustained increase in the average of all prices of goods and services in an economy. B. a sustained increase in the price of a single good or service. C. a sustained increase in the price of ALL goods and services in an economy. D. a relative price increase.
A
Last year a pair of jeans had a price of $20 and this year the price is $25. Which of the following expresses this price change accurately? A. If this year is the base year, the index number for last year would be 80. B. If last year is the base year, the index number for this year would be 80. C. If last year is the base year, the index number for this year would be 120. D. If this year is the base year, the index number for last year would be 120.
A
The annual rate of inflation averaged 2 percent during the past decade, but borrowers and lenders anticipate that the price level will rise at a rate of 3 percent next year. The current nominal interest rate is 7 percent. The real rate of interest is A. 4 percent. B. 9 percent. C. 10 percent. D. 5 percent.
A
The broadest indication of economyminuswide inflation is captured by the A. Gross Domestic Product (GDP) deflator. B. Personal Consumption Expenditure Index. C. Producer Price Index. D. Consumer Price Index.
A
The labor force includes individuals who are: I. Employed II. Unemployed III. Discouraged workers A. Both I and II. B. I only. C. Both I and III. D. All I, II and III..
A
The population is 1,000 million, the labor force is 750 million, and the number of unemployed is 30 million. What is the unemployment rate? A. 4 percent B. 10 percent C. 3 percent D. 7.5 percent
A
The real rate of interest is defined as A. the nominal rate of interest minus the anticipated inflation rate. B. the nominal rate of interest plus the anticipated inflation rate. C. zero. D. the nominal rate of interest.
A
The real rate of interest is the A. nominal rate of interest minus the anticipated rate of inflation. B. current rate which the government pays on its debt. C. difference between the bank's lending and savings rates. D. current rate actually paid by the borrower.
A
The total civilian labor force is comprised of A. the unemployed and the employed. B. only the employed. C. all individuals over 16 years of age, whether or not they work or are seeking work. D. only full-time employed individuals between the ages of 18 and 55.
A
The value of your money income, in terms of buying goods and services, is referred to as your money's A. purchasing power. B. transaction cost. C. staying power. D. rigidity factor.
A
Unanticipated positive inflation will create A. losses for creditors and gains for debtors. B. losses for both creditors and debtors. C. gains for creditors and losses for debtors. D. gains for both creditors and debtors.
A
When did the United States register its lowest unemployment rate? A. at the end of World War II B. In the economic boom of the 1990s C. in the 1920s D. in the Roaring Nineties (1890s)
A
Which of the following people would be considered unemployed? A. Edna, who lost her job as a teacher and is currently searching for a new job B. Lenny, who is working part time at a fast food restaurant C. Homer, who lost his job at the power plant and is not looking for work D. Abe, who is retired
A
Which of the following price indexes is designed to measure changes in the prices of goods and services purchased by a typical individual? A. Consumer Price Index B. Producer Price Index C. Index of Leading Economic Indicators D. Gross Domestic Product (GDP) Deflator
A
Dee's assembly line job has been replaced by robots, and Dee lacks abilities and skills required to attain other jobs. She is considered A. structurally unemployed. B. frictionally unemployed. C. a discouraged worker. D. seasonally unemployed.
A
A recession causes a decrease in the demand for housing, resulting in substantial layoffs in the construction industry. This is an example of A. frictional unemployment. B. cyclical unemployment. C. structural unemployment. D. seasonal unemployment.
B
Business fluctuations A. have no influence on inflation and unemployment. B. can influence inflation and unemployment. C. influence unemployment but not inflation. D. influence inflation but not unemployment.
B
Collin has lost his job with a telemarketing company, which has moved its operation to India. Collin is considered A. seasonally unemployed. B. structurally unemployed. C. frictionally unemployed. D. a discouraged worker.
B
Last year the price of a dozen eggs was $1, and this year the price is $1.30. Which of the following does NOT express this price change accurately? A. The price increased by 30 cents. B. If this year is the base year, the index number for last year would be 130. C. If last year was the base year, the index number for this year would be 130. D. The price increased 30 percent.
B
Suppose that Lee quits a job with the AAA Corporation in order to look for more rewarding employment. Lee would be A. counted as cyclically unemployed. B. counted as frictionally unemployed. C. counted as still being employed. D. included in the economy's "hidden employment."
B
Suppose the population of El Campo is 120,000. Of the population 16 years and older, 50,000 are employed, 10,000 have never worked and are not looking for work, 5,000 are not working and are looking for work, and 15,000 are retired and not looking for work. The number unemployed equals A. 10,000. B. 5,000. C. 20,000. D. 15,000.
B
The formula for computing a basic price index is A. cost of market basket in base year/ 100 x cost of market basket today. B. cost of market basket today /cost of market basket in base year x 100. C. 100 / cost of market basket in base year + cost of market basket today. D. cost of market basket in base year /cost of market basket today x 100.
B
The price level has been rising 5 percent a year for 10 years and is expected to continue to do so. The nominal rate of interest is 6 percent. The real rate of interest is A. 10 percent. B. 1 percent. C. 11 percent. D. minus1 percent.
B
The purchasing power of money increases when A. there is inflation. B. there is deflation. C. the inflation rate increases. D. there are more dollars in the economy.
B
The rate of inflation and the purchasing power of money are A. randomly related. B. inversely related. C. positively related. D. totally unrelated.
B
The unemployment rate will decrease when A. the duration of unemployment increases. B. people get discouraged and quit looking for work. C. the average workweek falls from 40 to 39 hours. D. the age of the labor force increases.
B
Unanticipated inflation occurs when A. the inflation rate is zero. B. the actual inflation rate differs from the anticipated inflation rate. C. everyone knows perfectly the true rate of inflation. D. there is no change in the purchasing power of money.
B
When the unanticipated inflation rate is zero, A. both creditors and debtors lose at the expense of the government. B. neither creditors not debtors gain or lose. C. debtors gain at the expense of creditors. D. creditors gain at the expense of debtors.
B
A cutback in the space program due to a slow economy causes an increase in unemployment among aeronautical engineers. This is an example of A. structural unemployment. B. frictional unemployment. C. cyclical unemployment. D. seasonal unemployment.
C
According to the Bureau of Labor Statistics, if you voluntarily leave your job to search for another job, then you A. are eligible for unemployment compensation. B. may not re-enter the labor force for six months. C. are classified as unemployed. D. are classified as a job loser.
C
An increase in the labor force participation rate A. implies that the unemployment rate must rise. Your answer is not correct.B. means there are more discouraged workers. C. is consistent with either a rise or a fall in the unemployment rate. D. implies that the unemployment rate must fall.
C
A country's labor force is equal to A. the number of employed people. B. the population between the ages of 16 and 65. C. the total number of employed and unemployed people. D. the total number of employed people, unemployed people, and discouraged workers
C
In the base year the price index A. equals 100 times the cost of the market basket in the base year. B. will be between 1 and 100. C. will always equal 100. D. will equal the year.
C
Official unemployment rates may underestimate the true rate of unemployment because the official rate A. may include some individuals who are not actually in the labor force. B. includes those workers who only work part time. C. fails to include discouraged workers. D. does not include individuals receiving any type of unemployment compensation.
C
Typically during a recession, A. incomes and unemployment rise. B. incomes fall, and unemployment falls. C. incomes fall, and unemployment rises. D. incomes increase, and unemployment falls.
C
Ups and downs in business activity are referred to as A. ebb and flow. B. contractions. C. business fluctuations. D. variability.
C
When the economy is experiencing a contraction, there is an increase in A. structural unemployment. B. frictional unemployment. C. cyclical unemployment. D. seasonal unemployment.
C
Which of the following best fits the definition of unemployed? A. Retired and not working B. Not working at a gainful pursuit, either in or out of the home C. Not working but looking for a job D. Working less than a full work week
C
Which of the following is true about the labor force? A. It includes those over 16 who are employed. B. It includes those over 16 who are unemployed. C. Both A and B are correct. D. None of the above is correct.
C
Which one of the following individuals would be classified as structurally unemployed? A. Fay lost her job in early January when the Christmas store where she worked closed. B. Joe was laid off by by his construction company because there was a reduction in the number of houses built in the winter. Your answer is not correct.C. Tommy lost his job at a Macy department store, which had lost considerable business to online shopping services. D. Gail lost her job with the state because there was a reduction in the state budget.
C
A sustained decrease in the average of all prices of goods and services in the economy is known as A. disinflation. B. inflation. C. hyperinflation. D. deflation.
D
An example of a frictionally unemployed individual is A. Cynthia, who has few skills and is no longer looking for work. B. Charles, who has lost his job as an auto worker because of increased imports. C. Sam, who lost his job as a real estate salesperson when the housing market went soft. D. Mary, who quit her job to find work closer to her home.
D
By definition, the labor force participation rate is A. the annual rate of growth in the number of people who are unemployed and searching for available government-provided unemployment benefits. B. the annual rate of growth in the number of people who are either employed or searching for available jobs. C. the percentage of institutionalized working-age individuals who are employed or seeking employment. D. the percentage of noninstitutionalized working-age individuals who are employed or seeking employment.
D
Suppose medical care makes up 5 percent of the CPI index, and that prices rise in the medical care area faster than in the rest of the economy. An elderly couple spends 15 percent of their income on medical care. For this couple, the CPI A. is a good measure of inflation since the bias inherent in the CPI is offset by the increased emphasis on health care for this family. B. overstates the inflation rate because this family is not typical of the country as a whole. C. understates the inflation rate because the CPI always understates inflation. D. understates the inflation rate because of the importance of medical care for this family.
D
The Consumer Price Index (CPI) is a A. statistical measure of average prices using annually updated weights based on surveys of consumer spending. B. price index measuring the changes in prices of all new goods and services produced in the economy. C. statistical measure of a weighted average of prices of commodities that firms produce and sell. D. statistical measure of a weighted average of prices of a specific set of goods and services purchased by consumers in urban areas.
D
The statistical measure of the weighted average of prices of goods purchased by a typical individual is called the A. Producer Price Index. B. Personal Consumption Expenditure Index. C. Gross Domestic Product (GDP) deflator. D. Consumer Price Index.
D
The year that is chosen as the point of reference for comparison of prices in other years is known as the A. price index. B. consumer price index. C. purchasing power. D. base year.
D
Under which one of the following situations would you be better off? A. You have paid $500 for a $1,000 U.S. savings bond that matures in 10 years and unanticipated inflation is 10 percent per year. B. You have $10,000 in your savings account paying 5 percent per year and unanticipated inflation is 8 percent per year. C. You lend a friend $10,000 at 2 percent to be repaid in one year and unanticipated inflation is 4 percent during the year. D. You borrowed $10,00 at 2 percent to pay for this year's college expenses and unanticipated inflation is 3 percent during the year.
D
Which of the following statements is NOT true about inflation? A. During an inflationary period, the prices of some goods will increase while the price of some goods will decrease. B. Inflation is a sustained increase in the average prices of goods in the economy. C. When there is inflation, the purchasing power of a dollar decreases. D. During an inflationary period, the prices of all goods will increase.
D
