Question 1

The smaller the underground economy the more will be the overstatement of the official unemployment rate.

Accepted Answer

A) True 
 B)False

Question 2

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 3

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 4

When the government provides generous unemployment benefits, unemployed workers have less incentive to look for jobs.

Accepted Answer

A) True 
 B)False

Question 5

Demand-pull inflation is caused by:

Accepted Answer

A) high unemployment of resources in the economy. 
B) increase in tax rates by the government. 
C) trade unions' pressure for wage hike. 
D) increased spending when the economy is producing at maximum capacity. 
E) the supply side of the market. 
A) high unemployment of resources in the economy. 
B) increase in tax rates by the government. 
C) trade unions' pressure for wage hike. 
D) increased spending when the economy is producing at maximum capacity. 
E) the supply side of the market.

Question 6

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 7

Which of the following people does an economist consider underemployed?

Accepted Answer

A) Someone who prefers to spend more time on leisure and less time on wage-earning activities 
B) A person who is working fewer hours at wage-earning activities than she or he desires 
C) A rock star who voluntarily chooses to work part-time 
D) Someone who is in prison and is willing to work from his cell 
E) A gardener who hates plants but still does the job because he or she has no other skills 
A) Someone who prefers to spend more time on leisure and less time on wage-earning activities 
B) A person who is working fewer hours at wage-earning activities than she or he desires 
C) A rock star who voluntarily chooses to work part-time 
D) Someone who is in prison and is willing to work from his cell 
E) A gardener who hates plants but still does the job because he or she has no other skills

Question 8

The natural rate of unemployment is the unemployment rate that would exist in the absence of _____.

Accepted Answer

A) structural unemployment 
B) educated unemployment 
C) cyclical unemployment 
D) frictional unemployment 
E) underemployment 
A) structural unemployment 
B) educated unemployment 
C) cyclical unemployment 
D) frictional unemployment 
E) underemployment

Question 9

Which of the following is observed in an economy during the contraction phase of the business cycle?

Accepted Answer

A) Nominal GDP begins to rise 
B) Real GDP remains constant 
C) Real GDP begins to fall 
D) Productivity of resources increase 
E) The rate of inflation falls 
A) Nominal GDP begins to rise 
B) Real GDP remains constant 
C) Real GDP begins to fall 
D) Productivity of resources increase 
E) The rate of inflation falls

Question 10

Which of the following countries experienced hyperinflation in the 1920s?

Accepted Answer

A) Argentina 
B) Chile 
C) Brazil 
D) Canada 
E) Germany 
A) Argentina 
B) Chile 
C) Brazil 
D) Canada 
E) Germany

Question 11

A variable-rate mortgage:

Accepted Answer

A) eliminates the risk of expected inflation. 
B) increases the efficiency of the economy. 
C) is offered at an interest rate that increases with inflation. 
D) is a fixed interest rate on a particular loan, but that fixed rate varies depending on the duration of the loan. 
E) shifts the risk of unexpected inflation from the borrower to the lender. 
A) eliminates the risk of expected inflation. 
B) increases the efficiency of the economy. 
C) is offered at an interest rate that increases with inflation. 
D) is a fixed interest rate on a particular loan, but that fixed rate varies depending on the duration of the loan. 
E) shifts the risk of unexpected inflation from the borrower to the lender.

Question 12

The figure given below represents the business cycle of an economy. Figure 7.1   Refer to Figure 7.1.At point D, lagging economic indicators should show that:

Accepted Answer

A) real GDP is expanding. 
B) real GDP falls to zero. 
C) real GDP is contracting. 
D) real GDP growth is zero. 
E) real GDP growth will be positive over time. 
A) real GDP is expanding. 
B) real GDP falls to zero. 
C) real GDP is contracting. 
D) real GDP growth is zero. 
E) real GDP growth will be positive over time.

Question 13

A coincident indicator will change before a recession starts.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is most likely to occur during recession?

Accepted Answer

A) Increase in wage rate 
B) Decrease in potential real GDP 
C) Increase in the market rate of interest 
D) Decrease in the average price level 
E) Decrease in the government transfer payments 
A) Increase in wage rate 
B) Decrease in potential real GDP 
C) Increase in the market rate of interest 
D) Decrease in the average price level 
E) Decrease in the government transfer payments

Question 15

Individuals who are under the age of 16 can sometimes be out of work, but they are still not included among the unemployed.

Accepted Answer

A) True 
 B)False

Question 16

Scenario 7.2 Suppose it has been recently predicted that in the year 2020, the total number of residents in the United States will be 315.5 million, the number of residents under 16 years of age will be 85 million, the number of institutionalized adults will be 17 million, the number of adults not actively looking for work will be 39 million, and the number of unemployed will be 21.5 million.
Refer to the data in Scenario 7.2.What will be the size of the labor force in the United States in the year 2020?

Accepted Answer

A) 153 million 
B) 294 million 
C) 174.5 million 
D) 198 million 
E) 315.5 million 
A) 153 million 
B) 294 million 
C) 174.5 million 
D) 198 million 
E) 315.5 million

Question 17

If the nominal interest rate is 6.3 percent and the inflation rate is 7.2 percent, then the real interest rate equals:

Accepted Answer

A) - 13.5 percent. 
B) + 13.5 percent. 
C) - 0.9 percent. 
D) -7.2 percent. 
E) + 1.1 percent. 
A) - 13.5 percent. 
B) + 13.5 percent. 
C) - 0.9 percent. 
D) -7.2 percent. 
E) + 1.1 percent.

Question 18

When there is an upward rise in the volume of economic activity, the economy is said to be in a recession.

Accepted Answer

A) True 
 B)False

Question 19

How is recession defined by the National Bureau of Economic Research [NBER]?

Accepted Answer

A) Two consecutive quarters of declining GDP 
B) A significant decline in total output, income, employment, and trade for six months to one year 
C) A dramatic decline in unemployment for less than six months 
D) A sharp increase in money supply and the market rate of interest 
E) A significant decline in stock prices over three consecutive quarters of a business year 
A) Two consecutive quarters of declining GDP 
B) A significant decline in total output, income, employment, and trade for six months to one year 
C) A dramatic decline in unemployment for less than six months 
D) A sharp increase in money supply and the market rate of interest 
E) A significant decline in stock prices over three consecutive quarters of a business year

Question 20

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 rising 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 rising over time. 
D) on average, labor productivity is declining. 
E) expansionary phases outweigh contractionary phases in the economy over time.

Exam 10: Unemployment and Inflation

The smaller the underground economy the more will be the overstatement of the official unemployment rate.

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

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?

When the government provides generous unemployment benefits, unemployed workers have less incentive to look for jobs.

Demand-pull inflation is caused by:

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

Which of the following people does an economist consider underemployed?

The natural rate of unemployment is the unemployment rate that would exist in the absence of _____.

Which of the following is observed in an economy during the contraction phase of the business cycle?

Which of the following countries experienced hyperinflation in the 1920s?

A variable-rate mortgage:

The figure given below represents the business cycle of an economy. Figure 7.1 Refer to Figure 7.1.At point D, lagging economic indicators should show that:

A coincident indicator will change before a recession starts.

Which of the following is most likely to occur during recession?

Individuals who are under the age of 16 can sometimes be out of work, but they are still not included among the unemployed.

If the nominal interest rate is 6.3 percent and the inflation rate is 7.2 percent, then the real interest rate equals:

When there is an upward rise in the volume of economic activity, the economy is said to be in a recession.

How is recession defined by the National Bureau of Economic Research [NBER]?

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:

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

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

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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