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chapter_7 - Principles of Macroeconomics, 9e ­ TB1...

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Unformatted text preview: Principles of Macroeconomics, 9e ­ TB1 (Case/Fair/Oster) Chapter 7 1 Unemploy ment, Inflation, and LongRun 7.1 G r o w t h Une mpl oym ent 1 M ul ti pl e C 1) h o i c e We can safely say that total output can increase if there is a(n) A) increase in the size of the labor force and a decrease in the productivity of workers. B) decrease in the size of capital and an increase in the productivity of machines. C) increase in the number of machines per worker. D) decrease in the number of workers per machine. Answer: C Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 2) The productivity of workers is defined as the A) total output B) produced by the labor force. output produced by a worker per hour. C) number of D) hours a worker spends at work. number of workers needed to produce one day's volume of output. Answer: B Diff: 2 Topic: Unemployment Skill: Definition 3) The capital per worker ratio is a measure of A) how many tools or machines each worker has to work with. B) how productive workers are. C) how much GDP is growing. D) how much borrowed money is needed per worker. Answer: A Diff: 2 Topic: Unemployment Skill: Definition 4) Productivi ty is the ratio of A) total output to the total number of worker hours. B) total output to the total population. C) total output to the total number of unemployed. D) total capital to the total number of workers. Answer: A Diff: 1 Topic: Unemployment Skill: Definition 5) For the 1952-2003 period in the United States, output per worker hour A) increased at a constant rate. B) decreased C) during the 1960s. fluctuated D) around an upward trend. showed the largest increase during the 1980s. Answer: C Diff: 1 Topic: Unemployment Skill: Fact 6) All of the following explain the growth in output per worker hour during the 20th century EXCEPT A) the quality of B) labor improved during that period. the quantity of labor increased during that period. C) the quality of capital improved during that period. D) the worker capital ratio decreased during that period. Answer: B Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 7) Bob is unemployed if he A) is temporarily laid off. B) is not looking for a job. C) has looked for a job for two months and then quit looking. D) A and C are correct Answer: A Diff: 1 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 8) For you to be considered out of the labor force, you can be A) a full-time B) student. a full-time C) retiree. a full-time D) volunteer. any of the above Answer: D Diff: 1 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 9) Cheryl from college a month ago and is now without work. She accepted a job that will start next month. Today, graduated Cheryl is A) not in the labor force. B) in the labor C) force. employed. D) a discouraged worker. Answer: B Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 10) The number of people unemployed equals A) the number of people employed minus the labor force. B) the labor force plus the number of people employed. C) the labor force minus the number of people employed. D) the number of people employed divided by the labor force. Answer: C Diff: 1 Topic: Unemployment Skill: Definition 11) Jake retired from the police force. He started working an hour or two a day at a paid job in city's courthouse. Jake is A) employed. B) in the labor C) force. unemployed. D) not in the labor force. Answer: A Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 12) Diane lost her job and immediately started looking for another job. As a result the A) unemployment rate increases. B) labor force C) increases. labor force D) decreases. unemployment rate remains constant. Answer: A Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking Refer to the information provided in Table 7.1 below to answer the questions that follow. Table 7.1 13) Refer to Table 7.1. The labor force equals A) 14,000 people. B) 17,000 people. C) 18,000 people. D) 21,000 people. Answer: B Diff: 2 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 14) Refer to Table 7.1. The unemployment rate is A) 17.6%. B) 16.7%. C) 14.3%. D) 25.0%. Answer: A Diff: 2 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 15) Refer to Table 7.1. The labor-force participation rate is A) 75.0%. B) 66.7%. C) 77.8%. D) 80.9%. Answer: D Diff: 2 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 16) Refer to Table 7.1. The employment rate is A) 85.7%. B) 83.3%. C) 82.4%. D) 75.0%. Answer: C Diff: 2 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Table 7.2 below to answer the questions that follow. Table 7.2 17) Refer to Table 7.2. The labor force A) equals 150 B) million. equals 130 C) million. equals 170 D) million cannot be determined from this information. Answer: A Diff: 3 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 18) Refer to Table 7.2. The total number of people unemployed is A) 20 million. B) 13 million. C) 17 million. D) 15 million. Answer: D Diff: 3 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 19) Refer to Table 7.2. The total number of people employed is A) 153 million. B) 117 million. C) 135 million. D) 180 million. Answer: C Diff: 3 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 20) The unemployment rate is A) unemployed/po pulation × 100. B) (employed C) unemployed)/labor force × 100. (labor force D) employed)/labor force × 100. (employed labor force)/employed × 100. Answer: C Diff: 3 Topic: Unemployment Skill: Definition 21) The people classified as employed is 260,000 and the number of people classified as unemployed is 30,000. number of The size of the labor force A) equals 290,000. B) equals 230,000. C) equals 260,000. D) equals 320,000. Answer: A Diff: 1 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 22) The people classified as employed is 350,000 and the number of people in the labor force is 500,000. The number of total number of people classified as unemployed is A) 350,000. B) 150,000. C) 425,000. D) 500,000. Answer: B Diff: 1 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 23) If the people classified as unemployed is 20,000 and the number of people classified as employed is 400,000, number of what is the unemployment rate? A) 2.0% B) 4.8% C) 5.0% D) 9.2% Answer: B Diff: 2 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 24) If the people classified as unemployed is 20,000 and the number of people classified as employed is 620,000, number of what is the unemployment rate? A) 3.1% B) 10.6% C) 1.6% D) 632% Answer: A Diff: 2 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 25) If the number of people employed is 150,000 and the labor force is 170,000, the unemployment rate is A) 6.25%. B) 11.76%. C) 2.5%. D) 6.55%. Answer: B Diff: 2 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 26) If the ment rate is 6.2% and the number of people employed is 200,000, the total number of people unemploy unemployed is approximately A) 12,400 people B) 10,970 people. C) 13,220 people. D) cannot be determined from this information Answer: C Diff: 3 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 27) If the ment rate is 6.2% and the number of people employed is 200,000, the labor force is approximately unemploy A) 212,400 people. B) 210,970 people C) 213,220 people. D) cannot be determined from this information Answer: C Diff: 3 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 28) If the labor force is 320,000 and the total population 16 years of age or older is 400,000, the labor-force participation rate is A) 72%. B) 76%. C) 80%. D) 88%. Answer: C Diff: 2 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 29) If the labor- force participation rate is 82% and the total population 16 years of age or older is 1 million people, the labor force is A) 910,000 people. B) 820,000 people. C) 740,000 people. D) 180,000 people. Answer: B Diff: 2 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 30) If the unemployed equals 30,000, the number of employed equals 60,000, and the number not in the labor force number of is 10,000, the labor-force participation rate A) is 90%. B) is 67%. C) is 88.9%. D) cannot be determined from this information. Answer: A Diff: 3 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 31) If the unemployed equals 240,000 and the number of employed equals 300,000, the labor-force participation number of rate A) is 80%. B) is 24%. C) is 55.6%. D) cannot be determined from this information. Answer: D Diff: 2 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 32) In the U.S. the highest unemployment rate is for ________ and the lowest is for ________. A) AfricanB) American teenagers; white males men over 55; C) women below 25 AfricanD) American teenagers; white females African- American women over 25; white males Answer: A Diff: 1 Topic: Unemployment Skill: Fact 33) When an individual quits his/her job and decides to stay at home for a while, the labor-force participation rate A) decreases. B) increases. C) stays the same. D) may increase or decrease, depending on the length of time he/she stays at home. Answer: A Diff: 1 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 34) Mike has graduated from college and is now looking for a job, but has not yet found one. This causes the just unemployment rate to ________ and the labor-force participation rate to ________. A) increase; B) decrease stay the same; stay the same C) increase; D) increase increase; stay the same Answer: C Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 35) Discourag ed workers are A) considered B) cyclically unemployed. considered C) structurally unemployed. considered D) frictionally unemployed. not considered as part of the labor force. Answer: D Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 36) In June people classified as unemployed and the size of the labor force is 600,000. The only change between there are June and July is that 10,000 of the unemployed give up looking for work. Which of the following is true? 30,000 A) In June the B) unemployment rate was 6% and in July the unemployment rate was 3.8%. The C) unemployment rate in both June and July was 5%. In June the D) unemployment rate was 5% and in July the unemployment rate was 3.39%. In June the unemployment rate was 3.8% and in July the unemployment rate was 6%. Answer: C Diff: 3 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 37) When 100 people who were previously looking for jobs stop looking for jobs, the A) unemployment rate increases. B) size of the labor force decreases. C) labor-force D) participation rate does not change. unemployment rate does not change. Answer: B Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 38) Classifyin g discouraged workers as unemployed would A) increase the B) unemployment rate. decrease the C) unemployment rate. not change the unemployment rate. D) have an indeterminate impact on the unemployment rate. Answer: A Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 39) In normal times the number of discouraged workers is approximately ________ of the labor force. A) .5% B) 4% C) 3% D) 1% Answer: D Diff: 1 Topic: Unemployment Skill: Fact 40) Which of the following groups has the highest unemployment rate among teenagers? A) white males B) African C) American males white females D) African American females Answer: B Diff: 1 Topic: Unemployment Skill: Fact 41) Which of the following statements is TRUE? A) The B) unemployment rate does not tell us anything about the duration of unemployment. The duration of unemployment decreases during recessions. C) The duration of unemployment increases during economic expansions. D) The median duration of unemployment is usually greater than the average duration. Answer: A Diff: 2 Topic: Unemployment Skill: Analytic AACSB: Analytic Skills 42) The labor force participation rate is the A) total number of people who are participating in the labor force. B) ratio of the C) number of employed people to the number of unemployed people. ratio of the D) labor force to the total population 16 years old or older. the number of people in the labor force minus the number of people who are unemployed. Answer: C Diff: 1 Topic: Unemployment Skill: Fact 43) During recessions, the number of discouraged workers ________ and this ________ the unemployment rate. A) falls; reduces B) decreases; C) increases increases; D) reduces increases; increases Answer: C Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 44) The Humphrey-Hawkins Act formally established a specific unemployment target for the economy of A) 2%. B) 4%. C) 6%. D) 8%. Answer: B Diff: 1 Topic: Unemployment Skill: Fact 45) When an s professor quits his/her job at a university and starts looking for a better job in another university, he/she economic is A) frictionally B) unemployed. structurally C) unemployed. cyclically D) unemployed. naturally unemployed. Answer: A Diff: 1 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 46) Increasing the efficiency of various employment agencies to find better matches for those looking for jobs will A) reduce the B) natural rate of unemployment. reduce C) structural unemployment. reduce cyclical unemployment. D) not affect frictional unemployment. Answer: A Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 47) A man is his job because he was late for work too many times. While he is searching for another job he would be fired from classified as A) not in the labor force because his employer had a legitimate reason for firing him. B) structurally C) unemployed. cyclically D) unemployed. frictionally unemployed. Answer: D Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 48) When the the rate of growth of the money supply to slow down the economy, the unemployment type that will be Fed slows directly affected is the A) frictional B) unemployment. structural C) unemployment. cyclical D) unemployment. natural rate of unemployment. Answer: C Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 49) When an is not working and is not looking for a job because he/she lacks any marketable job skills, he/she is individual A) structurally B) unemployed. frictionally C) unemployed. cyclically D) unemployed. none of the above Answer: D Diff: 1 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 50) Structural unemployment is the A) portion of that is due to changes in the structure of the economy that result in a significant loss of jobs in unemployment certain industries. B) unemployment that occurs during recessions and depressions. C) portion of D) unemployment that is due to the normal working of the labor market. unemployment when people become discouraged about their chances of finding a job so they stop looking for that results work. Answer: A Diff: 2 Topic: Unemployment Skill: Definition 51) An auto Ohio who loses her job because the company relocated the plant to another country represents an worker in example of A) frictional B) unemployment. structural C) unemployment. cyclical D) unemployment. natural unemployment. Answer: B Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 52) A textile firm closes a plant in Massachusetts and transfers production to a plant in South Carolina, where the firm can take advantage of cheaper labor. The plant supervisor at the Massachusetts plant is given the opportunity to move to South Carolina to become the plant supervisor at that plant. He turns down this opportunity because of family obligations. While he is searching for a new job he would be classified as A) structurally B) unemployed. cyclically C) unemployed. frictionally D) unemployed. not in the labor force because he turned down the opportunity to relocate. Answer: A Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 53) An individual who cannot find a job because his or her job skills have become obsolete is an example of A) frictional B) unemployment. structural C) unemployment. cyclical D) unemployment. seasonal unemployment. Answer: B Diff: 1 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 54) The natural rate of unemployment is generally thought of as the A) ratio of the B) frictional unemployment rate to the cyclical unemployment rate. sum of C) structural unemployment and cyclical unemployment. sum of D) frictional unemployment and cyclical unemployment. sum of frictional unemployment and structural unemployment. Answer: D Diff: 1 Topic: Unemployment Skill: Definition 55) The sum of frictional and structural unemployment is thought of as the A) natural rate of unemployment. B) normal rate of unemployment. C) cyclical rate of unemployment. D) seasonal rate of unemployment. Answer: A Diff: 1 Topic: Unemployment Skill: Definition 56) Estimates for the natural rate of unemployment in the United States range from A) 4% to 6%. B) 4% to 10%. C) 4% to 5%. D) 4% to 8%. Answer: A Diff: 1 Topic: Unemployment Skill: Fact 57) If the labor market becomes more efficient so that the unemployed are more quickly matched with jobs, then A) the natural rate of unemployment will increase. B) the natural rate of unemployment will decrease. C) the natural rate of unemployment will not change. D) the natural rate of unemployment could either increase or decrease. Answer: B Diff: 1 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 58) During 1990s, companies started downsizing. One of the results of this downsizing was the permanent reduction the early in the number of middle management positions. This change in the way businesses operate would have A) increased the B) natural rate of unemployment. decreased the natural rate of unemployment. C) not affected the natural rate of unemployment. D) could have either increased or decreased the natural rate of unemployment. Answer: A Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 59) The increase in unemployment that occurs during recessions and depressions is called A) frictional B) unemployment. structural C) unemployment. cyclical D) unemployment. normal unemployment. Answer: C Diff: 1 Topic: Unemployment Skill: Definition 60) Cyclical unemployment is the A) portion of that is due to changes in the structure of the economy that result in a significant loss of jobs in unemployment certain industries. B) unemployment that occurs during recessions and depressions. C) portion of D) unemployment that is due to the normal working of the labor market. unemployment when people become discouraged about their chances of finding a job so they stop looking for that results work. Answer: B Diff: 1 Topic: Unemployment Skill: Definition 61) The demand for refrigerators falls when the economy enters a downturn. If a refrigerator manufacturer lays off workers during an economic downturn, this would be an example of A) frictional B) unemployment. natural C) unemployment. structural D) unemployment. cyclical unemployment. Answer: D Diff: 1 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 62) The is in a recession and the housing market is in a slump. As a result of this, a real estate firm lays off half of economy its real estate agents. This is an example of A) frictional B) unemployment. structural C) unemployment. cyclical D) unemployment. natural unemployment. Answer: C Diff: 1 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 63) During recession of the early 1980s, cyclical unemployment increased as the recession continued. This increase the severe in cyclical unemployment would have A) increased the B) natural rate of unemployment. decreased the natural rate of unemployment. C) had no effect on the natural rate of unemployment. D) caused structural unemployment to decrease. Answer: C Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 64) During Depression, real output fell by approximately ________ and the unemployment rate rose to about the Great ________. A) 15%; 15% B) 25%; 30% C) 30%; 40% D) 30%; 25% Answer: D Diff: 1 Topic: Unemployment Skill: Fact 65) Recession s today may cause lost output in the future because during a recession A) consumption B) tends to fall. investment C) tends to fall. imports tend to fall. D) government spending tends to increase. Answer: B Diff: 3 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 66) Related to Economics in Practice on p. 127 [439]: In the U.S. from 1955 to 1996, the labor force participation rate the ________ for men and ________ for women. A) increased; B) increased increased; C) decreased decreased; D) increased decreased; decreased Answer: C Diff: 1 Topic: Unemployment: Economics in Practice Skill: Fact 67) Related to Economics in Practice on p. 127 [439]: If more women enter the labor force and the number of available the jobs remains unchanged, the unemployment rate will, ceteris paribus, A) increase. B) decrease. C) remain D) unchanged. equal the natural rate of unemployment. Answer: A Diff: 2 Topic: Unemployment: Economics in Practice Skill: Conceptual AACSB: Reflective Thinking 2 Tr ue /F al 1) s e When more people who are not working start looking for jobs, the labor-force participation rate increases. Answer: TRUE Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 2) Labor productivity is total output divided by the total number of worker hours. Answer: TRUE Diff: 1 Topic: Unemployment Skill: Definition 3) An increase in search costs will decrease structural unemployment. Answer: FALSE Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 4) The natural rate of unemployment is the unemployment rate during a period of full employment. Answer: TRUE Diff: 1 Topic: Unemployment Skill: Definition 5) Anyone 16 years of age or older who is not classified as employed is classified as unemployed. Answer: FALSE Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 6) If discouraged workers were counted as unemployed, the measured unemployment rate would increase. Answer: TRUE Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 7) An unemployment rate of 10% means that the average worker has been unemployed for 10% of the year. Answer: FALSE Diff: 1 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 8) If labor markets were perfectly efficient, the unemployment rate would fall to zero. Answer: FALSE Diff: 2 Topic: Unemployment Skill: Conceptual AACSB: Reflective Thinking 9) The natural rate of unemployment in the economy is determined by the Congress and the president of the country. Answer: FALSE Diff: 1 Topic: Unemployment Skill: Fact 7.2 Infl atio n 1 M ul ti pl e C 1) h o i c e In which of the following conditions is the inflation rate likely to fall and the unemployment rate likely to rise? A) hyperinflation B) recession C) boom D) stagflation Answer: B Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 2) Which of the following statements is TRUE? A) The costs of B) recessions are distributed equally among all groups of the population. Recessions tend to increase the demand for imports and therefore improve the nation's balance of payments. C) Recessions may increase efficiency by driving the least efficient firms in the economy out of business. D) A recession may lead to an increase in the inflation rate. Answer: C Diff: 3 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 3) An boom tends to ________ the demand for imports, which ________ a nation's balance of payments. economic A) reduce; B) worsens. reduce; C) improves. increase; D) improves. increase; worsens. Answer: D Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 4) The floods of 1993 caused the price of corn to increase. This is an example of A) inflation. B) deflation. C) a sustained D) inflation. the operations of supply and demand. Answer: D Diff: 2 Topic: Inflation Skill: Conceptual AACSB: Reflective Thinking 5) The in the demand for mainframe computers caused manufacturers of mainframe computers to reduce prices decrease by 20%. This is an example of A) inflation. B) deflation. C) a sustained D) inflation. the operations of supply and demand. Answer: D Diff: 2 Topic: Inflation Skill: Conceptual 6) Inflation is an increase in A) the price of one item. B) the overall price level. C) the average D) income level. real gross national product. Answer: B Diff: 1 Topic: Inflation Skill: Definition 7) An increase in the overall price level is A) inflation. B) deflation. C) a price index. D) a recession. Answer: A Diff: 1 Topic: Inflation Skill: Definition 8) Deflation is a decrease in A) the price of one item. B) the overall price level. C) the average D) income level. real gross national product. Answer: B Diff: 1 Topic: Inflation Skill: Definition 9) An increase in the overall price level that continues over a significant period of time is A) high inflation. B) sustained C) recovery. sustained D) inflation. super inflation. Answer: C Diff: 1 Topic: Inflation Skill: Definition 10) A price index is A) a measurement showing how the average price of a bundle of goods changes over time. B) a measurement showing the cost of a bundle of goods at a point in time. C) a sustained D) increase in the overall price level. a decrease in the overall price level. Answer: A Diff: 1 Topic: Inflation Skill: Definition Refer to the information provided in Table 7.3 below to answer the questions that follow. Table 7.3 11) Refer to Table 7.3. Suppose 2006 is the base year. The price index in 2006 is A) 1,000. B) 100. C) 1. D) 10. Answer: B Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 12) Refer to Table 7.3. If 2006 is the base year, the price index in 2005 is A) 96.0. B) 104.0. C) 111.9. D) 89.3. Answer: D Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 13) Refer to Table 7.3. If 2006 is the base year, the price index in 2007 is A) 93.9. B) 106.1. C) 94.2. D) 105.8. Answer: B Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 14) Refer to Table 7.3 If 2006 is the base year, the price index in 2008 is A) 81.2. B) 118.8. C) 123.2. D) 86.8. Answer: C Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 15) Refer to Table 7.3. If 2006 is the base year, the inflation rate between 2006 and 2007 is A) 3.9%. B) 10.2%. C) 7.4%. D) 6.1%. Answer: D Diff: 3 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 16) Refer to If 2006 is the base year, the inflation rate between 2006 and 2007 is ________ %, and the inflation rate Table 7.3. between 2007 and 2008 is ________ %. A) 7.4; 13.9 B) 6.1; 16.1 C) 3.9; 17.1 D) 10.2; 10.4 Answer: B Diff: 3 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 17) Refer to Table 7.3. The lowest inflation rate is between the years A) 2007 and 2008. B) 2006 and 2007. C) 2005 and 2006. D) cannot be determined from the given information Answer: B Diff: 3 Topic: Inflation Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Table 7.4 below to answer the questions that follow. Table 7.4 18) Refer to Table 7.4. The bundle price for the goods in period 2006 is A) $100. B) $41. C) $50.50. D) $57.50. Answer: B Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 19) Refer to Table 7.4. If 2006 is the base period, the price index in 2006 is A) 1000. B) 100. C) 10. D) 1. Answer: B Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 20) Refer to Table 7.4. If 2006 is the base year, the price index in 2007 is A) 81.9. B) 123.2. C) 119.1. D) 76.8. Answer: B Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 21) Refer to Table 7.4. If 2006 is the base year, the price index in 2008 is A) 71.3. B) 140.2. C) 59.8. D) 128.7. Answer: B Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 22) Refer to Table 7.4. If 2006 is the base year, the inflation rate between 2006 and 2007 is A) 12.4%. B) 19.1%. C) 23.2%. D) 17.6%. Answer: C Diff: 3 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 23) Refer to Table 7.4. If 2006 is the base year, the inflation rate between 2006 and 2008 is A) 28.7%. B) 17.4%. C) 25.1%. D) 40.2%. Answer: D Diff: 3 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 24) Refer to Table 7.4. If 2007 is the base year, the inflation rate between 2007 and 2008 is A) 12.2%. B) 7.0%. C) 13.9%. D) 9.4%. Answer: C Diff: 3 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 25) If period base year, the bundle price of goods in period 1 is $300, and the bundle price of goods in period 2 is 1 is the $320, the period 2 price index is A) 93.8. B) 106.2. C) 93.3. D) 106.7. Answer: D Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 26) If 2007 is year, the bundle price of goods in 2007 is $500, and the bundle price of goods in 2008 is $700, the 2008 the base price index is A) 128.6. B) 140.0. C) 71.4. D) 60.0. Answer: B Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 27) If the price index in period 2 is 109 and the price index in period 3 is 125, the rate of inflation between period 2 and period 3 is A) 16%. B) 9%. C) 14.7%. D) 8.7%. Answer: C Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 28) If 2007 is the base year and the inflation rate between 2007 and 2008 is 6.4%, the price index in 2008 is A) 16.4. B) 106.4. C) 64. D) cannot be determined from this information because the index in the base year is not given Answer: B Diff: 3 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 29) If 2007 is the base year and the inflation rate between 2007 and 2008 is -4.5, the price index in 2008 is A) 104.5. B) -145. C) 95.5. D) cannot be determined from this information because the base year is not known Answer: C Diff: 3 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 30) If the price index in 2007 is 115 and the price index in 2008 is 102, the rate of inflation between 2007 and 2008 is A) 12.7%. B) -11.3%. C) -13.0%. D) 13.0%. Answer: B Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 31) The index used most often to measure inflation is the A) producer price index. B) consumer price index. C) wholesale price index. D) GDP deflator. Answer: B Diff: 1 Topic: Inflation Skill: Fact 32) If the CPI in 2007 was 114.7 and the CPI in 2008 was 124.5, then the rate of inflation between 2007 and 2008 was A) 9.8%. B) 8.5%. C) 7.9%. D) 14.7%. Answer: B Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 33) If the CPI in 2007 was 104 and the CPI in 2008 was 106, then the rate of inflation between 2007 and 2008 was A) 2.0%. B) 1.92%. C) 1.89%. D) 2.2%. Answer: B Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 34) If the CPI 1 is 180 and the CPI in period 2 is 240, then the rate of inflation between period 1 and period 2 is in period A) 66.7%. B) 25%. C) 33.33%. D) 50%. Answer: C Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 35) The CPI in period 1 is 300 and the CPI in period 2 is 150. The rate of inflation between period 1 and period 2 is A) -50%. B) -100%. C) 33.33%. D) -60%. Answer: A Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 36) Which of the following statements is FALSE? A) One problem bundle index as a measure of the cost of living is that it does not account for substitutions that with any fixed- consumers might make in response to price changes. B) The producer price index is considered to be a leading indicator of future inflation rates. C) The best overall indicator of inflationary pressures in the economy is the GDP deflator. D) The consumer price index somewhat understates changes in the cost of living. Answer: D Diff: 3 Topic: Inflation Skill: Fact 37) A price index that tends to be a leading indicator of future inflation rates is the A) consumer price index. B) producer price index. C) GDP price D) index. retail price index. Answer: B Diff: 3 Topic: Inflation Skill: Fact 38) The broadest-based price index available is the A) GDP deflator. B) producer price index. C) consumer price index. D) wholesale price index. Answer: A Diff: 2 Topic: Inflation Skill: Fact 39) Most economists consider the ________ as the best overall indicator of inflationary pressures in the economy. A) producer price index B) GDP deflator C) wholesale price index D) consumer price index Answer: B Diff: 1 Topic: Inflation Skill: Fact 40) Which of the following statements is FALSE? A) An individual living on a fixed income is always made worse off as a result of inflation. B) Those individuals C) receiving welfare benefits have been harmed by inflation because increases in welfare payments have not kept pace with inflation. Inflation will D) have no effect on an individual whose income is indexed to the inflation rate. Some people in society benefit from inflation. Answer: C Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 41) The difference between the interest rate on a loan and the inflation rate is the A) nominal interest rate. B) inflation C) premium. real interest D) rate. expected interest rate. Answer: C Diff: 2 Topic: Inflation Skill: Definition 42) Which of the following increases the real interest rate? A) a decrease in B) the nominal interest rate, holding the inflation rate constant an increase in both the nominal interest rate and the inflation rate by the same percentage points C) a decrease in D) the inflation rate, holding the nominal interest rate constant a decrease in both the nominal interest rate and the inflation rate by the same percentage points Answer: C Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 43) If Mr. is paid an interest rate of 4% on his savings, but the inflation rate is 7%, the real interest rate Mr. Garrison Garrison earns is A) 4%. B) -3%. C) -7%. D) 28%. Answer: B Diff: 1 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 44) You want 10% real return on a loan that you are planning to make, and the expected inflation rate during the period to make a of the loan is 4%. You should charge a nominal interest rate of A) 6%. B) -6%. C) 10%. D) 14%. Answer: D Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 45) Lola make an 6% real return on a loan that she is planning to make, and the expected inflation rate during the wants to period of the loan is 5%. She should charge an interest rate of A) 6%. B) 16%. C) 11%. D) 1%. Answer: C Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 46) If the inflation rate is smaller than the nominal interest rate, the real interest rate is A) positive. B) negative. C) zero. D) either positive or zero. Answer: A Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 47) Eliza $100 from Sandy. Sandy wants to make 4% real return on his money, so they both agree on a 4% interest wants to rate paid next year. Eliza and Sandy did not anticipate any inflation, yet the actual inflation turned out to borrow be -5% next year. In this case, A) Eliza will pay an 9% real interest rate. B) Sandy is better off. C) Eliza will pay a 4% nominal interest rate. D) all of the above Answer: D Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 48) Dean from Tim. Tim wants to make a 10% real return on his money, so they both agree on a 10% interest rate borrows paid next year. Dean and Tim did not anticipate any inflation, yet the actual inflation turned out to be 4% $400 next year. In this case, A) Tim is better B) off. Dean will pay $56 a year from now on. C) Dean is better off. D) Tim will receive more than 10% of real rate of return a year from now. Answer: C Diff: 2 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 49) Which of the following is a cost of anticipated inflation? A) Debtors are B) made worse off. If people are not fully informed about the price level changes, resources will be misallocated. C) The degree of risk associated with investments in the economy increases. D) Creditors are made worse off. Answer: B Diff: 2 Topic: Inflation Skill: Conceptual AACSB: Reflective Thinking 50) Stopping inflation A) can only benefit the economy, because the price level will be reduced. B) may be costly, if the inflation is stopped by inducing a recession. C) may be costly, but the benefits of stopping inflation will always outweigh the costs of such actions. D) will have no benefits or costs associated with it. Answer: B Diff: 2 Topic: Inflation Skill: Conceptual AACSB: Reflective Thinking 51) Which of the following statements is FALSE? A) Whether you gain or lose B) during a period of inflation depends on whether your income rises faster or slower than the prices of the things you buy. Inflation that is higher than expected benefits debtors, and inflation that is lower than expected benefits creditors. C) There are no D) costs or losses associated with anticipated inflation. When inflation occurs regularly, the degree of risk associated with investments in the economy increases. unanticipated Answer: C Diff: 3 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 52) When unanticipated inflation occurs regularly, the degree of risk associated with investments in the economy A) increases. B) decreases. C) remains stable. D) falls to zero. Answer: A Diff: 3 Topic: Inflation Skill: Conceptual AACSB: Reflective Thinking 53) Which of the following is TRUE? A) A recession will lead to reduced output in the future, but inflation has no effect on future output. B) Both recessions and inflations may reduce output in the future. C) A recession will lead to reduced output in the future, but inflation will lead to increased output in the future. D) A recession will lead to increased output in the future, but inflation will lead to decreased output in the future. Answer: B Diff: 2 Topic: Inflation Skill: Conceptual AACSB: Reflective Thinking 2 Tr ue /F al 1) s e The CPI overstates changes in the cost of living because it does not allow for substitutions that consumers might somewhat make in response to price changes. Answer: TRUE Diff: 3 Topic: Inflation Skill: Analytic AACSB: Analytic Skills 2) A 100% increase in the price of salt changes the CPI more than a 10% increase in rent. Answer: FALSE Diff: 2 Topic: Inflation Skill: Fact 3) An inflation rate that is lower than expected benefits creditors. Answer: TRUE Diff: 3 Topic: Inflation Skill: Conceptual AACSB: Reflective Thinking 4) There are no costs associated with inflation if the inflation rate is perfectly anticipated. Answer: FALSE Diff: 2 Topic: Inflation Skill: Conceptual AACSB: Reflective Thinking 5) The actual real rate of interest is the nominal rate less the actual inflation rate. Answer: TRUE Diff: 2 Topic: Inflation Skill: Definition 7.3 Lon gRun Gro wth 1 M ul ti pl e C 1) h o i c e Which of the following is NOT a desirable feature in an economy? A) rapid increase in output per worker B) rapid increase in the general price level C) low D) unemployment low inflation Answer: B Diff: 1 Topic: Long-Run Growth Skill: Conceptual AACSB: Reflective Thinking 2) Which of the following is a desirable characteristic in an economy? A) high inflation B) rapid increase in the general price level C) low D) unemployment low employment Answer: C Diff: 1 Topic: Long-Run Growth Skill: Conceptual AACSB: Reflective Thinking 3) Which of the following is a desirable characteristic in an economy? A) growing per B) capita output rapid increase in the general price level C) population D) growing the same rate as output population growing faster than output Answer: A Diff: 1 Topic: Long-Run Growth Skill: Conceptual AACSB: Reflective Thinking 4) Which of the following is a desirable characteristic in an economy? A) growing per B) capita output high inflation C) cyclical D) unemployment sustained deflation Answer: A Diff: 1 Topic: Long-Run Growth Skill: Conceptual AACSB: Reflective Thinking 5) Output in an economy can be increased by A) adding more B) workers. limiting the C) work week. using fewer D) machines. decreasing inflation. Answer: A Diff: 1 Topic: Long-Run Growth Skill: Conceptual AACSB: Reflective Thinking 6) Human capital is A) the machines B) people own. the money C) people have. the mental or D) physical skills people have. the property people own. Answer: C Diff: 2 Topic: Long-Run Growth Skill: Definition 7) The average growth rate of output in the U.S. economy since 1900 has been A) 3.4%. B) 2.3%. C) 6.3%. D) 10.5%. Answer: A Diff: 1 Topic: Long-Run Growth Skill: Fact 8) A prolonged and deep recession is a A) hyperinflation. B) slowdown. C) contraction. D) depression. Answer: D Diff: 1 Topic: Long-Run Growth Skill: Definition 9) Which of the following is not considered capital? A) a factory a B) company builds to produce other output a tractor C) produced by John Deere the knowledge an individual acquires through education D) 10,000 U.S. dollars Answer: D Diff: 2 Topic: Long-Run Growth Skill: Conceptual AACSB: Reflective Thinking 2 Tr ue /F al 1) s e The only source of economic growth is growth in the number of workers in the economy. Answer: FALSE Diff: 2 Topic: Long-Run Growth Skill: Conceptual AACSB: Reflective Thinking 2) Workers who take a job related training course are enhancing their human capital. Answer: TRUE Diff: 2 Topic: Long-Run Growth Skill: Conceptual AACSB: Reflective Thinking 3) If the population is growing as fast the economy, then per capita output is growing. Answer: FALSE Diff: 2 Topic: Long-Run Growth Skill: Conceptual AACSB: Reflective Thinking 4) If more workers have more capital to work with, then production will increase. Answer: TRUE Diff: 2 Topic: Long-Run Growth Skill: Conceptual AACSB: Reflective Thinking 5) Productivi ty is output per worker hour. Answer: TRUE Diff: 2 Topic: Long-Run Growth Skill: Definition ...
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