Question 1

If the Consumer Price Index was 90 in one year and 100 in the following year, then the rate of inflation was about

Accepted Answer

A)  9 percent.
B)  10 percent.
C)  11 percent.
D)  12 percent.E) A) and D)
F) All of the above

Question 2

Inflation rates in the United States from 2005 to 2015 were within the range of about

Accepted Answer

A)  0 percent to 4 percent.
B)  5 percent to 8 percent.
C)  8 percent to 15 percent.
D)  12 percent to 25 percent.E) A) and B)
F) None of the above

Question 3

The natural rate of unemployment is

Accepted Answer

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.E) A) and D)
F) A) and B)

Question 4

Having negative real interest rates could stimulate the economy if, in response,

Accepted Answer

A)  consumers saved more.
B)  firms invested less.
C)  consumers saved less.
D)  firms borrowed less.E) B) and C)
F) All of the above

Question 5

If the Consumer Price Index was 170 in one year and 180 in the next year, then the rate of inflation was approximately

Accepted Answer

A)  5.5 percent.
B)  5.9 percent.
C)  6.3 percent.
D)  7.2 percent.E) A) and C)
F) A) and B)

Question 6

If the CPI rises from 125 to 140 from one year to the next, then the rate of inflation is 15 percent.

Accepted Answer

A) True 
 B)False

Question 7

During a severe recession, we would expect output to fall the most in

Accepted Answer

A)  the health care industry.
B)  the clothing industry.
C)  agriculture.
D)  the construction industry.E) B) and C)
F) A) and B)

Question 8

In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are

Accepted Answer

A)  excluded from the labor force.
B)  included as part of the unemployed.
C)  treated the same as part-time workers.
D)  used to determine the size of the labor force.E) All of the above
F) A) and B)

Question 9

What is the primary reason that changes in total spending lead to cyclical changes in output and employment?

Accepted Answer

A)  Government is unable to respond by changing the amount of money in circulation.
B)  Changes in total spending cause supply shocks that cause cyclical variation.
C)  Prices are sticky in the short run.
D)  Prices are flexible in the long run.E) B) and C)
F) A) and D)

Question 10

What is an advantage of mild inflation according to some economists?

Accepted Answer

A)  It helps to close the GDP gap.
B)  It reduces the inflation premium.
C)  It makes it easier for firms to adjust real wages downward as demand for their products falls.
D)  It reduces frictional, structural, and cyclical unemployment in the economy to make the economy more productive.E) None of the above
F) B) and C)

Question 11

Real income can be determined by

Accepted Answer

A)  dividing the price level by nominal income.
B)  inflating nominal income for inflation.
C)  dividing the annual rate of inflation into the number "70."
D)  deflating nominal income for inflation.E) All of the above
F) A) and B)

Question 12

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called

Accepted Answer

A)  frictional unemployment.
B)  structural unemployment.
C)  cyclical unemployment.
D)  compositional unemployment.E) A) and D)
F) B) and C)

Question 13

In the aftermath of the Great Recession, several governments engineered a negative nominal interest rate.Using the formula that relates nominal interest and real interest, negative nominal rates could imply any of the following, except

Accepted Answer

A)  negative inflation premium or negative real interest rates.
B)  zero inflation premium and negative real interest rates.
C)  zero inflation premium and high positive real interest rates.
D)  low inflation premium and a significantly negative real interest.E) A) and C)
F) C) and D)

Question 14

In the depth of the Great Depression, the unemployment rate in the United States was about

Accepted Answer

A)  15 percent.
B)  33 percent.
C)  25 percent.
D)  40 percent.E) A) and B)
F) A) and C)

Question 15

Inflation is undesirable because it

Accepted Answer

A)  arbitrarily redistributes real income and wealth.
B)  invariably leads to hyperinflation.
C)  usually is accompanied by declining real GDP.
D)  reduces everyone's standard of living.E) B) and C)
F) None of the above

Question 16

The percentage change in one's real income can be approximated by

Accepted Answer

A)  the percentage change in price level divided by the percentage change in nominal income.
B)  the percentage change in nominal income divided by the percentage change in price level.
C)  the percentage change in price level minus the percentage change in nominal income.
D)  the percentage change in nominal income minus the percentage change in the price level.E) A) and B)
F) B) and C)

Question 17

According to the Bureau of Labor Statistics, to be officially unemployed a person must

Accepted Answer

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.E) A) and C)
F) None of the above

Question 18

Compared to other industrial nations, inflation rates in the United States are

Accepted Answer

A)  significantly higher.
B)  significantly lower.
C)  significantly higher than those in Europe and significantly lower than those in Japan.
D)  neither significantly higher nor significantly lower.E) C) and D)
F) None of the above

Question 19

The GDP gap measures the difference between

Accepted Answer

A)  NDP and GDP.
B)  NI and PI.
C)  actual GDP and potential GDP.
D)  nominal GDP and real GDP.E) B) and D)
F) All of the above

Question 20

The phrase "too much money chasing too few goods" best describes

Accepted Answer

A)  the GDP gap.
B)  demand-pull inflation.
C)  the inflation premium.
D)  cost-push inflation.E) B) and C)
F) A) and D)

Exam 29: Business Cycles, Unemployment, and Inflation

If the Consumer Price Index was 170 in one year and 180 in the next year, then the rate of inflation was approximately

Correct AnswerverifiedShow Answer

Having negative real interest rates could stimulate the economy if, in response,

Correct AnswerverifiedShow Answer

According to the Bureau of Labor Statistics, to be officially unemployed a person must

Correct AnswerverifiedShow Answer

The percentage change in one's real income can be approximated by

Correct AnswerverifiedShow Answer

In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are

Correct AnswerverifiedShow Answer

If the Consumer Price Index was 90 in one year and 100 in the following year, then the rate of inflation was about

Correct AnswerverifiedShow Answer

Inflation rates in the United States from 2005 to 2015 were within the range of about

Correct AnswerverifiedShow Answer

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called

Correct AnswerverifiedShow Answer

In the aftermath of the Great Recession, several governments engineered a negative nominal interest rate.Using the formula that relates nominal interest and real interest, negative nominal rates could imply any of the following, except

Correct AnswerverifiedShow Answer

Compared to other industrial nations, inflation rates in the United States are

Correct AnswerverifiedShow Answer

During a severe recession, we would expect output to fall the most in

Correct AnswerverifiedShow Answer

The GDP gap measures the difference between

Correct AnswerverifiedShow Answer

Real income can be determined by

Correct AnswerverifiedShow Answer

What is an advantage of mild inflation according to some economists?

Correct AnswerverifiedShow Answer

In the depth of the Great Depression, the unemployment rate in the United States was about

Correct AnswerverifiedShow Answer

The natural rate of unemployment is

Correct AnswerverifiedShow Answer

Inflation is undesirable because it

Correct AnswerverifiedShow Answer

The phrase "too much money chasing too few goods" best describes

Correct AnswerverifiedShow Answer

What is the primary reason that changes in total spending lead to cyclical changes in output and employment?

Correct AnswerverifiedShow Answer

If the CPI rises from 125 to 140 from one year to the next, then the rate of inflation is 15 percent.

Correct AnswerverifiedShow Answer

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