Question 1

If the nominal interest rate is 6% and the inflation rate is 2%, then the real interest rate is

Accepted Answer

A)  8%. 
B)  4%. 
C)  3%. 
D)  2%. 
E)  1%. 
A)  8%. 
B)  4%. 
C)  3%. 
D)  2%. 
E)  1%.

Question 2

Mike has been unemployed for over a year. He hasn't looked for a job in the last three months, but he's just started looking for work again. Because Mike started looking for a new job

Accepted Answer

A)  the unemployment rate increased. 
B)  the labor force participation rate decreased. 
C)  the unemployment rate decreased. 
D)  the working-age population increased. 
A)  the unemployment rate increased. 
B)  the labor force participation rate decreased. 
C)  the unemployment rate decreased. 
D)  the working-age population increased.

Question 3

The producer price index tracks the prices firms receive for goods and services at all stages of production.

Accepted Answer

A) True 
 B)False

Question 4

If you want to earn a real interest rate of 3% on money you lend and you expect that inflation will be 2%, what nominal rate of interest will you charge?

Accepted Answer

A)  1% 
B)  5% 
C)  6% 
D)  9% 
A)  1% 
B)  5% 
C)  6% 
D)  9%

Question 5

You borrow $10,000 from a bank for one year at a nominal interest rate of 5%. If inflation over the year is 2%, what is the real interest rate you are paying?

Accepted Answer

A)  2% 
B)  2.5% 
C)  3% 
D)  5% 
A)  2% 
B)  2.5% 
C)  3% 
D)  5%

Question 6

Table 20-5
  
-Refer to Table 20-5. Consider the following values of the consumer price index for 2017 and 2018. The inflation rate for 2018 was equal to

Accepted Answer

A)  215 percent. 
B)  21.5 percent. 
C)  8.0 percent. 
D)  3.9 percent. 
A)  215 percent. 
B)  21.5 percent. 
C)  8.0 percent. 
D)  3.9 percent.

Question 7

Figure 20-1  
-Refer to Figure 20-1. Based on the graph of the labor market above, if a minimum wage of $8 per hour is imposed, which of the following will result?

Accepted Answer

A)  The quantity of labor demanded by firms will rise. 
B)  The quantity of labor demanded by firms will fall. 
C)  The unemployment rate will fall. 
D)  Both A and C will occur. 
A)  The quantity of labor demanded by firms will rise. 
B)  The quantity of labor demanded by firms will fall. 
C)  The unemployment rate will fall. 
D)  Both A and C will occur.

Question 8

Why would a firm pay efficiency wages?

Accepted Answer

An efficiency wage is a wage that is hig

Question 9

The PPI is the

Accepted Answer

A)  price parity index. 
B)  prime producer index. 
C)  producer price index. 
D)  production performance indicator. 
A)  price parity index. 
B)  prime producer index. 
C)  producer price index. 
D)  production performance indicator.

Question 10

Suppose you lend $1,000 at an interest rate of 10 percent over the next year. If the expected real interest rate at the beginning of the loan contract is 4 percent, then what rate of inflation over the upcoming year would be most beneficial to you as the lender? An inflation rate

Accepted Answer

A)  equal to 0 percent. 
B)  greater than 6 percent. 
C)  equal to 6 percent. 
D)  equal to 4 percent. 
A)  equal to 0 percent. 
B)  greater than 6 percent. 
C)  equal to 6 percent. 
D)  equal to 4 percent.

Question 11

Which of the following is true about the consumer price index?

Accepted Answer

A)  It accounts for people switching to goods whose prices have fallen. 
B)  It assumes that consumers purchase the same amount of each product in the market basket each month. 
C)  It frequently updates the price changes of new products added to the market basket, as these have a tendency to fall. 
D)  It filters out the part of price increases that occurs because of quality improvements in products. 
A)  It accounts for people switching to goods whose prices have fallen. 
B)  It assumes that consumers purchase the same amount of each product in the market basket each month. 
C)  It frequently updates the price changes of new products added to the market basket, as these have a tendency to fall. 
D)  It filters out the part of price increases that occurs because of quality improvements in products.

Question 12

Explain what economists mean by full employment and why this rate of unemployment is not zero.

Accepted Answer

Full employment occurs in the macro econ

Question 13

The nominal interest rate will be less than the real interest rate when

Accepted Answer

A)  the rate of inflation is positive but decreasing. 
B)  the rate of inflation is positive and increasing. 
C)  the rate of inflation is negative. 
D)  the real interest rate is negative. 
A)  the rate of inflation is positive but decreasing. 
B)  the rate of inflation is positive and increasing. 
C)  the rate of inflation is negative. 
D)  the real interest rate is negative.

Question 14

The Bureau of Labor Statistics has taken several steps to reduce the bias in the consumer price index. Which of the following is not one of the steps taken to reduce the bias?

Accepted Answer

A)  using statistical methods to reduce the size of the quality bias 
B)  updating the market basket every two years, rather than every 10 years 
C)  incorporating substitutions by consumers when prices of specific products rise rapidly 
D)  conducting a point-of-purchase survey to track where consumers actually make their purchases 
A)  using statistical methods to reduce the size of the quality bias 
B)  updating the market basket every two years, rather than every 10 years 
C)  incorporating substitutions by consumers when prices of specific products rise rapidly 
D)  conducting a point-of-purchase survey to track where consumers actually make their purchases

Question 15

Using a broader measure of the unemployment rate where discouraged workers and part-time workers who wished to work full time were counted as unemployed, the BLS estimates the unemployment rate in April 2017 would have ________ compared to the measured unemployment rate.

Accepted Answer

A)  increased by more than 7 percentage points 
B)  almost doubled 
C)  decreased by less than 1 percentage point 
D)  barely changed 
A)  increased by more than 7 percentage points 
B)  almost doubled 
C)  decreased by less than 1 percentage point 
D)  barely changed

Question 16

Suppose that in 2018, all prices in the economy double and that all wages and salaries also double. In 2018 you

Accepted Answer

A)  are worse off than you were in 2017 as you can no longer afford to buy as many goods and services. 
B)  are better off than you were in 2017 as your salary is higher than it was in 2017 and you can now buy more goods and services. 
C)  are no better off or worse off than you were in 2017 as the purchasing power of your salary has remained the same. 
D)  cannot determine whether you are better off or worse off than you were in 2017, because the purchasing power of your salary cannot be determined. 
A)  are worse off than you were in 2017 as you can no longer afford to buy as many goods and services. 
B)  are better off than you were in 2017 as your salary is higher than it was in 2017 and you can now buy more goods and services. 
C)  are no better off or worse off than you were in 2017 as the purchasing power of your salary has remained the same. 
D)  cannot determine whether you are better off or worse off than you were in 2017, because the purchasing power of your salary cannot be determined.

Question 17

Table 20-15
  
-Refer to Table 20-15. Looking at the table above, real average hourly earnings were equal to ________ in 2017.

Accepted Answer

A)  $9 
B)  $9.52 
C)  $10 
D)  $12 
A)  $9 
B)  $9.52 
C)  $10 
D)  $12

Question 18

If the number of unemployed workers is 200 million, the number of employed workers is 300 million, and the working-age population is 800 million, what is the labor force participation rate?

Accepted Answer

A)  12.5% 
B)  37.5% 
C)  40% 
D)  62.5% 
A)  12.5% 
B)  37.5% 
C)  40% 
D)  62.5%

Question 19

When an economy is at its natural rate of unemployment, which of the following will be true?

Accepted Answer

A)  The unemployment rate will be 0%. 
B)  The labor force participation rate will be 100%. 
C)  The unemployment rate will be greater than 0%. 
D)  Only structural unemployment as a result of technological change will exist in the economy. 
A)  The unemployment rate will be 0%. 
B)  The labor force participation rate will be 100%. 
C)  The unemployment rate will be greater than 0%. 
D)  Only structural unemployment as a result of technological change will exist in the economy.

Question 20

Table 20-18
  
-Refer to Table 20-18. Looking at the table above, what is the rate of growth of real average hourly earnings from 2017 to 2018?

Accepted Answer

A)  7.8% 
B)  6.25% 
C)  4% 
D)  -4% 
A)  7.8% 
B)  6.25% 
C)  4% 
D)  -4%

Exam 20: Unemployment and Inflation

If the nominal interest rate is 6% and the inflation rate is 2%, then the real interest rate is

Mike has been unemployed for over a year. He hasn't looked for a job in the last three months, but he's just started looking for work again. Because Mike started looking for a new job

The producer price index tracks the prices firms receive for goods and services at all stages of production.

If you want to earn a real interest rate of 3% on money you lend and you expect that inflation will be 2%, what nominal rate of interest will you charge?

You borrow $10,000 from a bank for one year at a nominal interest rate of 5%. If inflation over the year is 2%, what is the real interest rate you are paying?

Table 20-5 -Refer to Table 20-5. Consider the following values of the consumer price index for 2017 and 2018. The inflation rate for 2018 was equal to

Figure 20-1 -Refer to Figure 20-1. Based on the graph of the labor market above, if a minimum wage of $8 per hour is imposed, which of the following will result?

Why would a firm pay efficiency wages?

The PPI is the

Suppose you lend $1,000 at an interest rate of 10 percent over the next year. If the expected real interest rate at the beginning of the loan contract is 4 percent, then what rate of inflation over the upcoming year would be most beneficial to you as the lender? An inflation rate

Which of the following is true about the consumer price index?

Explain what economists mean by full employment and why this rate of unemployment is not zero.

The nominal interest rate will be less than the real interest rate when

The Bureau of Labor Statistics has taken several steps to reduce the bias in the consumer price index. Which of the following is not one of the steps taken to reduce the bias?

Using a broader measure of the unemployment rate where discouraged workers and part-time workers who wished to work full time were counted as unemployed, the BLS estimates the unemployment rate in April 2017 would have ________ compared to the measured unemployment rate.

Suppose that in 2018, all prices in the economy double and that all wages and salaries also double. In 2018 you

Table 20-15 -Refer to Table 20-15. Looking at the table above, real average hourly earnings were equal to ________ in 2017.

If the number of unemployed workers is 200 million, the number of employed workers is 300 million, and the working-age population is 800 million, what is the labor force participation rate?

When an economy is at its natural rate of unemployment, which of the following will be true?

Table 20-18 -Refer to Table 20-18. Looking at the table above, what is the rate of growth of real average hourly earnings from 2017 to 2018?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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