Question 1

When the economy moves into recession, some companies lay off workers. Those unemployed workers are experiencing cyclical unemployment.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following would be considered a leading indicator?

Accepted Answer

A)  Prime interest rate 
B)  Personal income 
C)  Money supply 
D)  Inventories to sales ratio 
E)  Unemployment duration 
A)  Prime interest rate 
B)  Personal income 
C)  Money supply 
D)  Inventories to sales ratio 
E)  Unemployment duration

Question 3

The Great Depression was the most severe recession experienced by the U.S. economy, during which national output had declined by 25 percent.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following factors may lead to a decline in the real value of money?

Accepted Answer

A)  Increase in the rate of interest 
B)  Decline in aggregate demand in the economy 
C)  Decrease in money supply 
D)  Increase in the average price level 
E)  Decrease in aggregate output 
A)  Increase in the rate of interest 
B)  Decline in aggregate demand in the economy 
C)  Decrease in money supply 
D)  Increase in the average price level 
E)  Decrease in aggregate output

Question 5

The official unemployment rate is:

Accepted Answer

A)  the number of unemployed people divided by the number of employed people. 
B)  the number of unemployed people divided by the total size of the population. 
C)  the number of unemployed people divided by the size of the non-institutionalized population. 
D)  the number of unemployed people divided by the size of the labor force. 
E)  the number of unemployed people divided by the number of people aged 16 or under. 
A)  the number of unemployed people divided by the number of employed people. 
B)  the number of unemployed people divided by the total size of the population. 
C)  the number of unemployed people divided by the size of the non-institutionalized population. 
D)  the number of unemployed people divided by the size of the labor force. 
E)  the number of unemployed people divided by the number of people aged 16 or under.

Question 6

The natural rate of unemployment is always more than the actual rate of unemployment because it excludes frictional and seasonal unemployment rates.

Accepted Answer

A) True 
 B)False

Question 7

To be counted as part of the labor force, a person must:

Accepted Answer

A)  be less than 65 years old. 
B)  have worked at some time in the past. 
C)  be employed in some productive activity. 
D)  be working or actively looking for work. 
E)  be above 16 years of age. 
A)  be less than 65 years old. 
B)  have worked at some time in the past. 
C)  be employed in some productive activity. 
D)  be working or actively looking for work. 
E)  be above 16 years of age.

Question 8

Unemployment will decrease over time if:

Accepted Answer

A)  actual GDP increases faster than potential GDP. 
B)  actual GDP increases at the same rate as potential GDP. 
C)  acutal GDP remains the same but potential GDP increases. 
D)  actual GDP increases at a less than proportionate rate than potential GDP. 
E)  actual GDP decreases but potential GDP increases. 
A)  actual GDP increases faster than potential GDP. 
B)  actual GDP increases at the same rate as potential GDP. 
C)  acutal GDP remains the same but potential GDP increases. 
D)  actual GDP increases at a less than proportionate rate than potential GDP. 
E)  actual GDP decreases but potential GDP increases.

Question 9

Assume that for a given year, the nominal interest rate is 9 percent while inflation rises to 11 percent indicating a 4 percent higher rate than anticipated. Which group of people is made better off by the inflation?

Accepted Answer

A)  Those who lend at fixed interest rates 
B)  Those who borrow at fixed interest rates 
C)  Those who borrow at variable interest rates 
D)  Those who receive fixed incomes 
E)  Those who save at variable interest rates 
A)  Those who lend at fixed interest rates 
B)  Those who borrow at fixed interest rates 
C)  Those who borrow at variable interest rates 
D)  Those who receive fixed incomes 
E)  Those who save at variable interest rates

Question 10

The NBER focuses primarily on the value of real GDP while deciding whether an economic contraction is a recession, because it is measured monthly and allows the identification of the month in which business-cycle turning points occur.

Accepted Answer

A) True 
 B)False

Question 11

The table given below lists the average price level in a country for four consecutive years.
  
-Refer to the Table 7.2. How many times more goods and services could be purchased with one dollar in 1992 than in 1995?

Accepted Answer

A)  1.064 
B)  1.07 
C)  1.093 
D)  1.93 
E)  1.96 
A)  1.064 
B)  1.07 
C)  1.093 
D)  1.93 
E)  1.96

Question 12

The figure given below represents the business cycle of an economy.?Figure 7.1
  
-Refer to Figure 7.1. The overall upward trend in real GDP reflected by this figure implies that:

Accepted Answer

A)  the real GDP gap is widening over time. 
B)  cyclical unemployment is growing at positive rates. 
C)  consumer purchasing power is falling over time. 
D)  on average, labor productivity is declining. 
E)  expansionary phases outweigh contractionary phases in the economy over time. 
A)  the real GDP gap is widening over time. 
B)  cyclical unemployment is growing at positive rates. 
C)  consumer purchasing power is falling over time. 
D)  on average, labor productivity is declining. 
E)  expansionary phases outweigh contractionary phases in the economy over time.

Question 13

The figure given below reports the GDP gap experienced by a country for four years in billions of dollars.?Figure 7.2
  
-Refer to Figure 7.2. Which time period is most likely to be associated with an economic expansion?

Accepted Answer

A)  Years 1 to 2 
B)  Years 1 to 3 
C)  Year 4 only 
D)  Years 1 to 4 
E)  Years 3 to 4 
A)  Years 1 to 2 
B)  Years 1 to 3 
C)  Year 4 only 
D)  Years 1 to 4 
E)  Years 3 to 4

Question 14

The more difficult it is for a firm to adjust its labor force in the face of economic fluctuation, the more likely the firm is to hire new workers.

Accepted Answer

A) True 
 B)False

Question 15

The figure given below reports the GDP gap experienced by a country for four years in billions of dollars.?Figure 7.2
  
-Refer to Figure 7.2. The difference between potential and actual GDP consistently widens between points:

Accepted Answer

A)  A and B. 
B)  B and D. 
C)  A and D. 
D)  B and C. 
E)  C and D. 
A)  A and B. 
B)  B and D. 
C)  A and D. 
D)  B and C. 
E)  C and D.

Question 16

At potential real GDP:

Accepted Answer

A)  there is zero unemployment. 
B)  there is no seasonal unemployment. 
C)  there is no frictional unemployment. 
D)  unemployment is at its natural rate. 
E)  cyclical unemployment equals approximately 5 percent. 
A)  there is zero unemployment. 
B)  there is no seasonal unemployment. 
C)  there is no frictional unemployment. 
D)  unemployment is at its natural rate. 
E)  cyclical unemployment equals approximately 5 percent.

Question 17

Inflation is defined as the sustained increase in relative prices.

Accepted Answer

A) True 
 B)False

Question 18

A leading indicator:

Accepted Answer

A)  changes in either direction before a recession starts. 
B)  usually declines before a recession starts. 
C)  generally changes after real GDP changes. 
D)  remains unaffected by changes in real GDP. 
E)  does not change with business cycles. 
A)  changes in either direction before a recession starts. 
B)  usually declines before a recession starts. 
C)  generally changes after real GDP changes. 
D)  remains unaffected by changes in real GDP. 
E)  does not change with business cycles.

Question 19

Which of the following is not a coincident indicator of the business cycle?

Accepted Answer

A)  Unemployment claims 
B)  Payroll employment 
C)  Industrial production 
D)  Personal income 
E)  Manufacturing and trade sales 
A)  Unemployment claims 
B)  Payroll employment 
C)  Industrial production 
D)  Personal income 
E)  Manufacturing and trade sales

Question 20

Which of the following is true of hyperinflation?

Accepted Answer

A)  It causes the value of a currency to deteriorate so quickly that people become reluctant to hold that currency. 
B)  It is a situation in which people hoard currency expecting its value to increase in recent future. 
C)  It is a simultaneous increase in inflation and decrease in the quality of products. 
D)  It occurred in the United States in the 1970s. 
E)  It is a synonym for cost-push inflation. 
A)  It causes the value of a currency to deteriorate so quickly that people become reluctant to hold that currency. 
B)  It is a situation in which people hoard currency expecting its value to increase in recent future. 
C)  It is a simultaneous increase in inflation and decrease in the quality of products. 
D)  It occurred in the United States in the 1970s. 
E)  It is a synonym for cost-push inflation.

Exam 7: Unemployment and Inflation

When the economy moves into recession, some companies lay off workers. Those unemployed workers are experiencing cyclical unemployment.

Which of the following would be considered a leading indicator?

The Great Depression was the most severe recession experienced by the U.S. economy, during which national output had declined by 25 percent.

Which of the following factors may lead to a decline in the real value of money?

The official unemployment rate is:

The natural rate of unemployment is always more than the actual rate of unemployment because it excludes frictional and seasonal unemployment rates.

To be counted as part of the labor force, a person must:

Unemployment will decrease over time if:

Assume that for a given year, the nominal interest rate is 9 percent while inflation rises to 11 percent indicating a 4 percent higher rate than anticipated. Which group of people is made better off by the inflation?

The NBER focuses primarily on the value of real GDP while deciding whether an economic contraction is a recession, because it is measured monthly and allows the identification of the month in which business-cycle turning points occur.

The table given below lists the average price level in a country for four consecutive years. -Refer to the Table 7.2. How many times more goods and services could be purchased with one dollar in 1992 than in 1995?

The figure given below represents the business cycle of an economy.?Figure 7.1 -Refer to Figure 7.1. The overall upward trend in real GDP reflected by this figure implies that:

The figure given below reports the GDP gap experienced by a country for four years in billions of dollars.?Figure 7.2 -Refer to Figure 7.2. Which time period is most likely to be associated with an economic expansion?

The more difficult it is for a firm to adjust its labor force in the face of economic fluctuation, the more likely the firm is to hire new workers.

The figure given below reports the GDP gap experienced by a country for four years in billions of dollars.?Figure 7.2 -Refer to Figure 7.2. The difference between potential and actual GDP consistently widens between points:

At potential real GDP:

Inflation is defined as the sustained increase in relative prices.

A leading indicator:

Which of the following is not a coincident indicator of the business cycle?

Which of the following is true of hyperinflation?

The Wealth of Nations: Ownership and Economic Freedom

Scarcity and Opportunity Costs

The Market and Price System

The Aggregate Economy

National Income Accounting

An Introduction to the Foreign Exchapterange Market and the Balance of Payments

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchapterange Rates and Financial Links Between Countries

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