Question 1

A person who argues that inflation "robs us of the purchasing power of our paychecks" should also consider that inflation

Accepted Answer

A)  increases the value of the dollar, making paychecks worth more. 
B)  will increase the size of paychecks as well as the prices of goods. 
C)  does not affect the value of the dollar, either in paychecks or in prices. 
D)  only affects the prices of things that we buy, not the prices of things that we sell.

Question 2

Which of the following about unemployment is true?

Accepted Answer

A)  When a dynamic labor market is operating efficiently, mostly cyclical unemployment will be present. 
B)  Some unemployment will be present even when a dynamic labor market is operating efficiently. 
C)  When full employment is present, the rate of unemployment will be zero. 
D)  When full employment is present, there will not be any frictional unemployment. 
E)  When full employment is present, it will be impossible to sustain the current rate of output in the future.

Question 3

If borrowers and lenders expect a higher rate of inflation,

Accepted Answer

A)  nominal interest rates will tend to fall. 
B)  real interest rates will tend to fall. 
C)  nominal interest rates will tend to rise. 
D)  real interest rates will tend to rise.

Question 4

Nicole has just finished high school and started looking for her first job, but has not yet found one. As a result, the unemployment rate

Accepted Answer

A)  increases, and the labor-force participation rate is unaffected. 
B)  increases, and the labor-force participation rate increases. 
C)  is unaffected, and the labor-force participation rate increases. 
D)  increases, and the labor-force participation rate decreases.

Question 5

Which of the following is true?

Accepted Answer

A)  Anticipated inflation is an increase in the price level that comes as a surprise, at least to most individuals. 
B)  Unanticipated inflation is a change in the price level that is widely expected. 
C)  Decision makers are generally able to anticipate slow steady rates of inflation with a fairly high degree of accuracy. 
D)  Inflation will increase the prices of goods and services that households purchase but not the wage rates of workers.

Question 6

Suppose the population (age 16 and over) of Italy is 48 million; 4 million are unemployed, and 40 million hold jobs. Indicate the rate of unemployment and the employment/population ratio of New Zealand.

Accepted Answer

A)  The unemployment rate is 10 percent, and the employment/population ratio is 75 percent. 
B)  The unemployment rate is 9.1 percent, and the employment/population ratio is 91.7 percent. 
C)  The unemployment rate is 10 percent, and the employment/population ratio is 83.3 percent. 
D)  The unemployment rate is 9.1 percent, and the employment/population ratio is 83.3 percent.

Question 7

Which of the following about business cycles is true?

Accepted Answer

A)  A "depression" is a recession that is mild and relatively brief. 
B)  The expansions and contractions of business cycles last varying lengths of time. 
C)  The timing of business fluctuations is regular and, therefore, easily predictable. 
D)  During the recessionary phase of the business cycle, the rate of unemployment is generally quite low.

Question 8

After a particular loan has been paid off, neither the borrower nor the lender has lost purchasing power. Therefore, it must be true that actual inflation was

Accepted Answer

A)  greater than expected inflation. 
B)  equal to expected inflation. 
C)  less than expected inflation. 
D)  greater than the nominal rate of interest.

Question 9

Figure 8-1  In Figure 8-1, the recession phase of the business cycle can be represented by point(s):

Accepted Answer

A)  CDE. 
B)  BCD. 
C)  EFG. 
D)  A and E.

Question 10

The type of unemployment that occurs because of a recession is called

Accepted Answer

A)  frictional unemployment. 
B)  seasonal unemployment. 
C)  natural unemployment. 
D)  cyclical unemployment.

Question 11

Use the data below to answer the following question.  What is the unemployment rate of the economy?

Accepted Answer

A)  3.3 percent 
B)  4 percent 
C)  5 percent 
D)  5.3 percent

Question 12

The type of unemployment resulting from the fact that labor market information is less than perfect is called

Accepted Answer

A)  frictional unemployment. 
B)  natural unemployment. 
C)  cyclical unemployment. 
D)  structural unemployment.

Question 13

The type of unemployment caused by changes in the business cycle is

Accepted Answer

A)  cyclical unemployment. 
B)  natural unemployment. 
C)  frictional unemployment. 
D)  structural unemployment.

Question 14

In contrast with unanticipated inflation, anticipated inflation implies that

Accepted Answer

A)  the government was informed about inflation. 
B)  most decision makers expected the general increase in the price level. 
C)  the increase in the general level of prices was growth of GDP. 
D)  the increase in the general level of prices was expected by borrowers but not lenders.

Question 15

The value of money

Accepted Answer

A)  remains constant during periods of inflation. 
B)  varies inversely with the general price level. 
C)  varies directly with the general price level. 
D)  varies indirectly with output.

Question 16

During  the recession of 2008-2009, the length of time qualified workers were permitted to draw unemployment benefits was increased from 26 to up to 99 weeks. Economic theory indicates that this extension would

Accepted Answer

A)  reduce the opportunity cost of job search and lead to longer spells of unemployment. 
B)  increase the opportunity cost of job search and lead to shorter spells of unemployment. 
C)  reduce the long-term rate of unemployment. 
D)  increase the current supply of labor and make it easier for employers to hire workers.

Question 17

Answer the following questions:
a.What is meant by the term "business cycle"?
b.What economic indicators would indicate where the economy is in the business cycle? Explain.
c.Give the four phases of the business cycle in their order of occurrence.
d.What criterion must be met for our economy to be officially in a recession?

Accepted Answer

The answer of Answer the following questions:
a.What is meant by...

Question 18

At the beginning of a year, decision makers expect the general level of prices to increase at a 6 percent annual rate. The CPI increases from 150 to 154.5 during the year; this indicates that

Accepted Answer

A)  decision makers underestimated the rate of inflation during the year. 
B)  decision makers overestimated the rate of inflation during the year. 
C)  decision makers accurately forecast the rate of inflation during the year. 
D)  the rate of inflation during the year was 4.5 percent.

Question 19

The reduction of structural unemployment in the United States' economy may require

Accepted Answer

A)  an increase in the minimum wage. 
B)  a reduction in government spending. 
C)  an decrease in interest rates. 
D)  increased spending on worker retraining.

Question 20

If the labor force grows at a faster rate than the number employed, the

Accepted Answer

A)  unemployment rate will fall. 
B)  unemployment rate will rise. 
C)  labor force participation rate will fall. 
D)  employment rate will rise.

Exam 8: Economic Fluctuations, Unemployment, and Inflation