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Unformatted text preview: Economics 1: TEST 3
Identify the choice that best completes the statement or answers the question.
____ 1. The unemployment rate equals the
a. number of employed persons divided by the number of unemployed persons.
b. number of unemployed persons divided by the civilian non-institutional population.
c. number of unemployed persons divided by the civilian labor force.
d. sum of unemployed persons and discouraged workers divided by the civilian labor force. ____ 2. In an economy with 100 million people, 70 million hold jobs and 19 million are not working but are
looking for jobs. The number counted as unemployed is
a. 81 million.
b. 19 million.
c. 51 million.
d. 70 million.
e. 49 million. ____ 3. Unemployment that arises as a result of the time it takes for unemployed people to locate a job utilizing
their transferable skills is called __________ unemployment.
d. frictional ____ 4. The unemployment due to changes in the types of skills employers require is called __________
d. frictional ____ 5. The cyclical unemployment rate is defined as the __________ unemployment rates.
a. sum of the structural and the frictional
b. difference between the structural and the frictional
c. difference between the existing (actual) and the natural
d. sum of the natural and the frictional ____ 6. Is it possible for the economy to be at full employment and still have some people who are unemployed?
a. No, full employment means that no one is unemployed.
b. Yes, since full employment exists if the economy is operating at the natural unemployment
rate and there is always some natural unemployment.
c. Yes, since full employment exists if the economy is operating at the frictional
unemployment rate and there is always some frictional unemployment.
d. Yes, since full employment equals the sum of the cyclical unemployment rate and the
natural unemployment rate, and there is always some cyclical unemployment.
e. none of the above ____ 7. Jones lost his job in industry A, but he has skills that can be transferred to industry B (which is currently
hiring). Smith lost a job in industry C, but his skills cannot be transferred to industry B or to any other
industry. Jones is __________ unemployed and Smith is __________ unemployed.
a. structurally; frictionally
b. structurally; structurally
c. frictionally; frictionally
d. frictionally; structurally ____ 8. Which of the following statements is false?
a. A discouraged worker is counted as an unemployed worker.
b. The frictional unemployment rate is greater than the natural unemployment rate.
c. The natural unemployment rate is greater than the structural unemployment rate.
d. a and b
e. b and c ____ 9. Look at the following data: The frictional unemployment rate is 2 percent, the structural unemployment
rate is 3.5 percent, and the actual unemployment rate is 9.5 percent. The natural unemployment rate is
____________ percent and the cyclical unemployment rate is __________ percent.
a. 1.5; 4
b. 5.5; 4
c. 1.5; 6
d. 6; 15 ____ 10. Look at the following data: The frictional unemployment rate is 1.5 percent, the natural unemployment
rate is 4.5 percent, and the cyclical unemployment rate is -1 percent. The structural unemployment rate is
_________ percent and the actual unemployment rate (in this economy) is ___________ percent.
a. 6; 3.5
b. 3; 5.5
c. 3; 3.5
d. 6; 5.5
____ 11. Which of the following illustrates double counting?
a. The total market value of the steel used to produce a car and the total market value of the
car itself are summed.
b. The total market value of tennis rackets and the total market value of tennis balls are
c. The total market value of picture frames and the total market value of camera film are
d. The total market value of eyeglasses and the total market value of carpet are summed.
e. b and c
____ 12. Underground activities are not counted in GDP because
a. some underground activities are illegal and the government doesn't want to place, for
instance, drug dealers on an equal footing with small businesses.
b. there are no written records of underground activities.
c. of a decision made in the 1930s and no one has gotten around to changing it yet.
d. although it is possible to accurately measure underground activities, it is harder than
measuring above-ground activities because with the latter, one doesn't have to dig as deep. ____ 13. Which of the following is counted in GDP?
a. the purchase of 100 shares of Microsoft stock
b. the services of a real estate broker
c. government transfer payments
d. the sale of a used car
e. none of the above
____ 14. Which of the following would not be included in the measurement of GDP?
a. a bill from a car mechanic
b. wages of a card dealer working in a Las Vegas casino
c. commissions of a stockbroker
d. the increased value of shares of stock
e. c and d
____ 15. Which of the following would definitely not be included in the measurement of GDP?
a. value of the services of a painter who paints your garage
b. value of the services of a person who mows his or her own lawn
c. value of the services of a maid who cleans your house
d. value of the services of a plumber who fixes your kitchen sink
____ 16. Which of the following is a characteristic of the contraction phase of the business cycle?
a. lower unemployment rates
b. a decline in Real GDP
c. higher inflation rates
d. all of the above
____ 17. GDP can rise as a result of a rise in __________________, while Real GDP can rise as a result of a rise in
a. prices or output; prices only.
b. prices only; prices or output.
c. prices or output; output only.
d. prices or output; prices or output, as well.
____ 18. Which of the following would be included in this year's GDP?
a. the value of a used car, at its sale price
b. the value of a new domestic automobile, at its sale price
c. a sale of Microsoft stock from one individual to another
d. the face value of a life insurance policy paid to a woman at the death of her husband
____ 19. When the expenditure approach is used to measure GDP, the major components of GDP are
a. consumption, investment, indirect business taxes, and depreciation.
b. employee compensation, rents, interest, self-employment income, and corporate profits.
c. employee compensation, corporate profits, depreciation, and indirect business taxes.
d. consumption, investment, government consumption and gross investment, and net exports.
____ 20. Gross domestic product is the sum of the purchase price multiplied by the quantity of
a. goods and services exchanged during the period.
b. final goods and services produced domestically during the period.
c. goods and services produced domestically during the period minus the depreciation of
d. final goods and services plus intermediate goods produced domestically during the period. ____ 21. Which of the following will increase this year's GDP?
a. the sale of a used economics textbook to the college bookstore
b. family lawn services provided by a 16-year-old son or daughter
c. $60,000 of income earned by an American college professor teaching in England
d. a $100 sales commission to a broker for a purchase of 100 shares of stock
e. $10 billion of damage caused by a hurricane that hit the coast of Florida
____ 22. The Liebowitz family purchased a used two-year-old sofa at Swanson's Used Furniture Store in March of
2007. How will this affect the 2007 GDP?
a. Only the sale value of the used sofa will be included in the 2007 GDP.
b. Only the commission received by the salesman will be included in the 2007 GDP.
c. The sale will have no effect on the 2007 GDP.
d. Both the sale value of the sofa and the commission will be included in the 2007 GDP.
____ 23. Which of the following is true of inflation?
a. It is an increase in the general price level of goods and services.
b. The purchasing power of money increases as the result of inflation.
c. Inflation is similar to interest payments on future money income, such as pensions and
receipts from outstanding loans.
d. Inflation has no effect on real resources.
____ 24. Which statement represents most correctly the relationship between nominal GDP and real GDP?
a. Nominal GDP measures base-year production using base-year prices, whereas real GDP
measures current production using current prices.
b. Nominal GDP measures current production using base-year prices, whereas real GDP
measures current production using current prices.
c. Nominal GDP measures current production using current prices, whereas real GDP
measures current production using base-year prices.
d. Nominal GDP measures current production using current prices, whereas real GDP
measures base-year production using base-year prices.
____ 25. The reporter on one broadcast network says 2008 GDP increased to an all-time high. Commenting on the
same figure, a second reporter says GDP in 2008 was less than in 2007. Which of the following
explanations is consistent with the statements of both reporters?
a. The first reporter was referring to real GDP, and the second was referring to nominal GDP.
b. The first reporter was referring to nominal GDP, and the second was referring to real GDP.
c. The first reporter was referring to GDP as measured by the expenditure approach, and the
second was referring to GDP as measured by the income cost approach.
d. The first reporter was referring to GDP as measured by the income cost approach, and the
second was referring to GDP as measured by the expenditure approach.
____ 26. If nominal GDP increases 4 percent during a year, and real GDP increases 7 percent during the same year,
which of the following must by true?
a. The total value of GDP must have increased 11 percent during the year.
b. The general level of prices as measured by the GDP deflator decreased by approximately 3
percent during the year.
c. The general level of prices as measured by the GDP deflator increased by approximately 3
percent during the year.
d. Imports must have been about 3 percent larger than exports during the year.
____ 27. Because of transactions which take place in the underground economy, the
a. GDP calculation tends to overstate the actual value of goods sold in the economy. b.
e. GDP calculation tends to accurately portray the value of goods sold in the economy.
GDP calculation tends to understate the actual value of goods sold in the economy.
value of the GDP calculation will be equal to the value of the national income calculation.
value of the GDP calculation through the expenditure approach will be greater then the
value calculated through the income approach. ____ 28. Because GDP does not fully account for improvements in the quality of goods, the GDP calculation
a. tends to overstate the true value of output in the United States.
b. tends to understate the true value of output in the United States.
c. provides an accurate value of output in the United States.
d. measures the value correctly because price changes always capture the value of quality
____ 29. The consumer price index (CPI) and the GDP deflator are designed to measure the degree to which
a. there have been changes in the proportions of national income generated by (and thus
earned by) the rich relative to the poor.
b. the cost of purchasing a bundle of goods has changed over time.
c. consumption patterns have changed with time.
d. consumer prices have risen over and above increases in worker wages.
____ 30. Which of the following is not a problem or shortcoming of GDP?
a. Goods produced in one period that are sold in the following period fail to get counted in
b. It tends to understate the growth of economic welfare because it does not fully and
accurately account for improvements in the quality of products.
c. GDP is not an accurate measure of welfare because it makes no adjustment for harmful
side effects (such as pollution) or destructive acts of nature.
d. GDP understates output because it fails to include nonmarket production such as that
which takes place in the household or in illegal markets.
____ 31. If the base year for the GDP deflator is 1996, the value of the GDP deflator for 1996
a. is 10.
b. is 100.
c. is 150.
d. cannot be determined from the data given.
____ 32. If the Consumer Price Index in 2008 was 150 and the CPI in 2009 was 165, the rate of inflation between
2008 and 2009 would be
a. 9.09 percent.
b. 10 percent.
c. 15 percent.
d. 110 percent.
____ 33. Economists use the term "business cycle" to refer to
a. the growth of small businesses into major corporations.
b. changes in products that occur from improved technology.
c. fluctuations in the level of real output and employment.
d. periods of increases and decreases in the rate of inflation. ____ 34. The recessionary phase of the business cycle is characterized by
a. decreasing real output and increasing unemployment. b. decreasing real output and declining unemployment.
c. increasing real output and increasing unemployment.
d. increasing real output and declining unemployment.
____ 35. A person is considered unemployed if she is
a. working at a part-time job.
b. taking a vacation from a job.
c. working at a full-time job in a foreign country.
d. not working but is actively looking for work.
____ 36. How would the Bureau of Labor Statistics classify a person who is not working and refuses an offer of
employment in order to keep looking for a better job?
a. not in the labor force
d. a discouraged worker
1 ____ 37. Full employment is the situation in which the economy operates at an unemployment rate equal to the
a. structural and frictional unemployment.
b. cyclical and frictional unemployment.
c. structural and cyclical unemployment.
d. structural, frictional, and cyclical unemployment.
____ 38. When the rate of cyclical unemployment is zero, the
a. natural rate of unemployment must also be zero.
b. rate of frictional unemployment must be negative.
c. economy must have entered a recessionary stage.
d. economy is considered to be at full employment.
____ 39. The economy is considered to be at full employment when
a. the actual rate of unemployment is less than the natural rate.
b. the leading economic indicators are unchanged for two consecutive quarters.
c. structural unemployment is zero.
d. frictional plus structural unemployment is less than the natural rate.
e. the rate of cyclical unemployment is zero.
____ 40. Which of the following will most likely cause a decrease the natural rate of unemployment?
a. an increase in the minimum wage
b. an increase in unemployment benefits
c. an increase in experienced workers aged 25 and over as proportion of the labor force
d. an increase in the labor force participation rate of teenagers
____ 41. Which of the following will most likely increase the natural rate of unemployment?
a. a decrease in the minimum wage
b. an increase in unemployment benefits
c. an increase in the number of people who stop looking for a job
d. an increase in the proportion of prime-age workers as a share of the labor force ____ 42. Suppose you received a 3 percent increase in your nominal wage. Over the year, inflation ran about 6
percent. Which of the following is true? a.
e. Your real wage fell.
Your nominal wage fell.
Both your nominal and real wages decreased.
Although your nominal wage fell, your real wage increased.
Both nominal and real wages increased. ____ 43. Which of the following would be classified as unemployed?
a. mothers who choose to stay at home with their preschool-age children
b. retirees who are no longer working at a job
c. students attending school full time
d. a 20-year old looking for her first job
____ 44. Which one of the following persons would be considered unemployed?
a. a person not working who has given up searching for a job
b. a part-time worker looking for a full-time job
c. a construction worker who was laid off due to cold weather
d. a full-time college student who is not a member of the labor force
____ 45. Each month, the Bureau of Labor Statistics calculates unemployment by
a. surveying all workers in the economy.
b. surveying a random sample of households.
c. making projections based on census data.
d. surveying large business and government employers.
____ 46. Which one of the following persons would be classified as unemployed by the Bureau of Labor Statistics?
a. Sean, who is in the midst of a two-week vacation from his regular job
b. Susan, who is unable to work her regular job this week because of illness
c. Joe, who is on layoff waiting for better weather so he can return to his construction job
d. Kim, who is working four hours each week at McDonald's while looking for a full-time
____ 47. A general mismatch between the skills of unemployed workers and the skills needed by employers with
job openings results in
a. frictional unemployment.
b. structural unemployment.
c. cyclical unemployment.
d. a higher labor force participation rate.
____ 48. When individuals are unemployed because they lack the qualifications to fill available jobs, this is called
a. frictional unemployment.
b. natural unemployment.
c. cyclical unemployment.
d. structural unemployment.
____ 49. When people become unemployed because of a higher minimum wage, this type of unemployment is
____ 50. A person who argues that inflation "robs us of the purchasing power of our paychecks" should also
consider that inflation a.
d. increases the value of the dollar, making paychecks worth more.
will increase the size of paychecks as well as the prices of goods.
does not affect the value of the dollar, either in paychecks or in prices.
only affects the prices of things that we buy, not the prices of things that we sell. ...
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- Spring '11