Ch.10 Test Bank Docx The Business Cycle Gebhardt

Chapter 10 Test Bank KEY

1. The study of aggregate economic behavior is referred to as

A. microeconomics.

B. macroeconomics.

C. government policy.

D. the business cycle.

2. A basic purpose of macroeconomic theory is to

A. explain the business cycle.

B. stop economic contractions from occurring.

C. control the business cycle.

D. cause GDP to grow.

3. A basic purpose of macroeconomics is to explain

A. why businesses pollute.

B. how businesses choose the profit-maximizing rate of output.

C. why the economy expands or contracts.

D. how and why countries trade with each other.

4. Alternating periods of growth and contraction in real GDP define

A. the business cycle.

B. capitalism.

C. inflation.

D. macro equilibrium.

5. Which of the following is NOT a basic measure of macroeconomic performance?

A. output growth rates

B. unemployment rates

C. public goods production rates

D. inflation rates

6. Which of the following is a basic measure of macroeconomic performance?

A. the U.S. stock market growth

B. growth in output

C. the U.S. bond market growth

D. population growth

7. Which of the following is NOT one of the three basic measures of macroeconomic performance?

A. inflation rates

B. unemployment rates

C. antitrust law enforcement rates

D. GDP growth rates

8. The alternative combinations of goods and services that can be produced in a given time period with available resources and technology is referred to as

A. the business cycle.

B. real GDP.

C. nominal GDP.

D. the production possibilities.

9. For a particular economy, the production possibilities curve shows the

A. maximum potential output.

B. maximum level of pollution.

C. change in the price level.

D. level of market power.

10. The production possibilities will definitely shift outward if

A. land and capital increase and, at the same time, the labor force decreases.

B. available resources decrease and, at the same time, technology improves.

C. the labor force increases and, at the same time, technology improves.

D. the labor force decreases and, at the same time, land and capital decrease.

11. Business cycles in the United States

A. are similar in length, but vary greatly in magnitude.

B. vary greatly in length, frequency, and magnitude.

C. are similar in frequency and magnitude.

D. are similar in length and magnitude.

12. Which of the following is characteristic of a downturn in the business cycle?

A. higher unemployment rates

B. higher prices

C. growth in real output

D. increased population

13. Which of the following is characteristic of a downturn in the business cycle?

A. lower unemployment rates

B. an increase in population

C. a decrease in real output

D. a decrease in population

14. Which of the following is during the expansionary phase of the business cycle?

A. the unemployment rate increases

B. the inflation rate decreases

C. real GDP increases

D. population falls

15. As the economy falls from the peak to the trough of the business cycle

A. inflationary pressures should increase as unemployment rises.

B. cyclical unemployment should increase and real GDP should decline.

C. frictional unemployment should fall because people find jobs more quickly.

D. structural unemployment will be eliminated.

16. The total value of goods and services produced within a nation's borders, measured in constant prices refers to

A. nominal GDP.

B. real inflation.

C. per capita GDP.

D. real GDP.

17. Real GDP measures changes in

A. prices, but not output.

B. output, but not prices.

C. prices and output.

D. inflation.

18. Nominal GDP is defined as the

A. value of output in current dollars.

B. dollar value of services but not goods.

C. output produced by domestically owned factors of production regardless of where the factors are located.

D. value of output in constant prices.

19. When calculating nominal GDP, the volume of output is measured using

A. weight.

B. the number of people employed.

C. the market value adjusted for inflation.

D. the current market value.

20. Since the Great Depression, U.S. real GDP has increased

A. by small, constant increments.

B. at a constant geometric rate.

C. at an average rate of 3 percent per year.

D. at an average rate of 7 percent per year.

21. A decline in an economy's level of output can lead to

A. a lower standard of living.

B. a decrease in unemployment.

C. higher opportunity costs.

D. increased consumer confidence.

22. An extremely deep and long period of negative economic growth is most accurately called

A. inflation.

B. deflation.

C. a recession.

D. a depression.

23. A decline in real GDP for at least two consecutive quarters is referred to as

A. a recession.

B. a depression.

C. deflation.

D. inflation.

24. The Great Depression in the United States

A. was marked by hyperinflation.

B. was ended by World War I.

C. ended with a higher real GDP per capita than when it began.

D. caused real GDP to fall dramatically between 1929 and 1933.

25. Since World War II, the United States has experienced

A. an increase in output every year.

B. only one minor recession.

C. several recessions but none as severe as the Great Depression.

D. several recessions that required wars to end them.

26. Immediately following the years 1929–1933, the U.S. economy

A. resumed growing at the long-term trend for real GDP of 3 percent every year.

B. suffered sporadic decreases in the growth rate of GDP.

C. grew dramatically and steadily over a 20-year period with a record long growth period.

D. experienced World War II, which resulted in rapid growth and rapid deflation.

27. The impact of World War II on the U.S. economy was

A. to raise the growth rate of real GDP to approximately 19 percent per year.

B. to lower the per capita GDP by 3 percent per year.

C. deflation at the rate of 10 percent per year.

D. higher cyclical unemployment up to nearly 25 percent for the economy.

28. Which of the following is likely if an economy is headed for a recession?

A. an increase in consumer confidence

B. an increase in the rate of inflation

C. an increase in unemployment

D. an increase in the rate of output

29. All persons over age 16 who are either working for pay or actively seeking paid employment refers to

A. per capita GDP.

B. the labor force.

C. the unemployment rate.

D. the CPI.

30. Which of the following individuals would be part of the labor force?

A. the CEO of General Motors

B. a retired schoolteacher

C. a stay-at-home mom

D. a woman serving seven years in the penitentiary for selling drugs

31. The labor force is smaller than the total population because the labor force does not include

A. people who have jobs.

B. the very young and old.

C. people looking for a job.

D. teachers.

32. People are unemployed if they are over 16 and not working due to

A. the inability to find a job even though they are looking.

B. a two-week summer vacation.

C. a strike.

D. the lack of motivation to look for work.

33. The unemployment rate is calculated by dividing

A. the number of unemployed by the size of the population and multiplying by 100.

B. 1.0 by the percentage of the employed population and multiplying by 100.

C. the number of unemployed by the size of the labor force and multiplying by 100.

D. the number of employed by the labor force and multiplying by 100.

34. To be officially counted as unemployed, one must be

A. fired from previous employment.

B. a participant in a state unemployment benefits program.

C. available for only full-time employment.

D. actively seeking employment and currently not working.

35. Who among the following would be counted as unemployed?

A. Amy, who is on vacation but will soon return to the same job

B. Bob, a college student looking for summer work

C. Carol, who is on welfare and not actively looking for a job

D. Dave, who is on strike

36. If the population of a country is 1,000,000 people, its labor force consists of 600,000, and 60,000 people are unemployed, the unemployment rate is

A. 6.0 percent.

B. 6.6 percent.

C. 10.0 percent.

D. 60.0 percent.

37. If the population of a country is 1,000,000 people, its labor force consists of 500,000, and 40,000 people are unemployed, the unemployment rate is

A. 50.0 percent.

B. 8.0 percent.

C. 7.4 percent.

D. 4.0 percent.

38. If the population of a country is 220 million people, its labor force consists of 115 million, and 99 million people are employed, the unemployment rate is

A. 1.1 percent.

B. 13.9 percent.

C. 45.0 percent.

D. 52.3 percent.

39. Suppose that in a population of 100 million people, 50 million are in the labor force and 47 million are employed. The unemployment rate is

A. 6.0 percent.

B. 6.4 percent.

C. 53.0 percent.

D. 94.0 percent.

40. Population and Labor Force Data

According to the Population and Labor Force Data table, what is the unemployment rate in Year 1?

A. 50.0 percent

B. 41.7 percent

C. 16.7 percent

D. 8.3 percent

41. Population and Labor Force Data

According to the Population and Labor Force Data table, what is the unemployment rate in Year 10?

A. 0.05 percent

B. 10.00 percent

C. 45.00 percent

D. 50.50 percent

42. Population and Labor Force Data

According to the Population and Labor Force Data table, what is the number of unemployed in Year 1?

A. 15 million

B. 75 million

C. 90 million

D. 105 million

43.Population and labor force data

According to the Population and Labor Force Data table, what is the number of unemployed in Year 10?

A. 110 million

B. 100 million

C. 90 million

D. 10 million

44. Labor Force Data

According to the Labor Force Data table, what is the unemployment rate in Year 1?

A. 20.0 percent

B. 41.4 percent

C. 51.7 percent

D. 80.0 percent

45. Labor Force Data

According to the Labor Force Data table, what is the unemployment rate in Year 10?

A. 84.2 percent

B. 57.6 percent

C. 48.5 percent

D. 15.8 percent

46. Labor Force Data

According to the Labor Force Data table, what is the number of unemployed in Year 1?

A. 20 million

B. 30 million

C. 140 million

D. 170 million

47. Labor Force Data

According to the Labor Force Data table, what is the number of unemployed in Year 10?

A. 70 million

B. 40 million

C. 30 million

D. 20 million

48. When construction workers seek work because the ground is covered in snow and ice, the unemployment rate goes up. This situation is an example of

A. frictional unemployment.

B. seasonal unemployment.

C. structural unemployment.

D. cyclical unemployment.

49. Which of the following types of unemployment would best characterize a swimming instructor's unemployment during the winter months?

A. structural unemployment

B. frictional unemployment

C. seasonal unemployment

D. cyclical unemployment

50. Which of the following types of unemployment would best characterize a tax accountant's unemployment after tax returns are due?

A. seasonal unemployment

B. frictional unemployment

C. underemployment

D. cyclical unemployment

51. After quitting one job, some people with marketable skills find that it takes several months to find a new job that best matches their skill set. This is an example of which type of unemployment?

A. structural unemployment

B. frictional unemployment

C. cyclical unemployment

D. seasonal unemployment

52. Samantha quit her job in the city to look for a job in the country. While she is looking, Samantha experiences _______ unemployment.

A. structural

B. seasonal

C. frictional

D. cyclical

53. After graduating from college, it takes Kim several months to find a professional job. This is an example of which type of unemployment?

A. structural unemployment

B. seasonal unemployment

C. cyclical unemployment

D. frictional unemployment

54. A plumber quits his job in Dallas and moves to San Francisco where additional plumbers are needed, but it takes a couple of months for him to find a job. He is said to be

A. frictionally unemployed.

B. structurally unemployed.

C. cyclical unemployed.

D. underemployed.

55. Frictional unemployment goes up when

A. students quit work to return to school at the end of the summer.

B. a corporation transfers a worker to another city.

C. a worker quits one job in order to search for another.

D. there is inadequate demand for labor.

56. An office worker who loses her job because she does not have the necessary computer skills is likely

A. frictionally unemployed.

B. seasonally unemployed.

C. cyclically unemployed.

D. structurally unemployed.

57. Structural unemployment can occur

A. because of a mismatch between skills and jobs.

B. when firms fail because of a seasonal downturn.

C. when an industry experiences a cyclical downturn.

D. when there is inadequate demand for jobs.

58. Automobile workers in Detroit are unemployed because robots are now being used on assembly lines but, at the same time, job vacancies exist for computer programmers. In this case, the automobile workers are an example of

A. cyclical unemployment.

B. structural unemployment.

C. frictional unemployment.

D. seasonal unemployment.

59. A teenager without a high school diploma is unable to find work because all of the available jobs require a certain minimum reading level. Which of the following best characterizes the type of unemployment this teenager represents?

A. frictionally unemployment.

B. structurally unemployment.

C. cyclical unemployment.

D. seasonally unemployment.

60. Which of the following is likely to reduce the level of structural unemployment?

A. a lower GDP level for the economy

B. longer periods of unemployment between jobs

C. federally funded job-training programs

D. an increase in the number of youth and women in the labor force

61. Which of the following is an example of structural unemployment?

A. Shi is looking for work but never finished high school so her skills are perceived as limited by employers.

B. Sean just graduated from college and is planning to apply for professional positions.

C. Shamille was laid off as an architect because the economy is in a recession.

D. Shani is a hair stylist who cannot find work because her own hair is purple.

62. Unemployment that occurs when there are not enough jobs for the number of people in the labor force is referred to as

A. frictional unemployment.

B. structural unemployment.

C. cyclical unemployment.

D. seasonal unemployment.

63. A stock person who is laid off by a department store because retail sales across the country have decreased is _______ unemployed.

A. frictionally

B. structurally

C. cyclically

D. chronically

64. Which of the following types of unemployment is most directly related to real GDP growth?

A. structural unemployment

B. seasonal unemployment

C. frictional unemployment

D. cyclical unemployment

65. Which of the following is an example of cyclical unemployment?

A. Qadir is employed in the summer as a lifeguard but cannot find a position in the winter.

B. Quincy left their job in Dallas to search for a new job in Idaho.

C. Quinlan worked as an engineer until they were laid off because of a decrease in aggregate demand.

D. Quinn has few job-related skills so they are never hired even though they continue to apply.

66. Which of the following government policies or programs is most likely to reduce cyclical unemployment?

A. tax incentives to invest in more capital that will contribute to higher production levels

B. increased job training for computer programmers

C. additional job-placement services for seasonal workers

D. additional health services for disabled veterans

67. According to macroeconomists, a goal for the economy is

A. zero unemployment.

B. high unemployment.

C. steadily decreasing unemployment.

D. zero cyclical unemployment.

68. One reason our full employment goal is not zero percent is because

A. frictional unemployment will always exist.

B. cyclical unemployment will always exist.

C. population growth makes such a goal impossible.

D. discouraged workers make such a goal impossible.

69. Inflation is defined as

A. the level of prices at full-employment.

B. an increase in the price of expensive items, such as cars.

C. an increase in the average level of prices.

D. an increase in relative prices.

70. When the unemployment rate falls to the full-employment level

A. there is increased concern about inflation.

B. many resources are idle.

C. the size of the labor force decreases.

D. there is increased concern about deflation.

71. If consumers tend to buy higher quantities of goods and services for which prices rose in the past year compared to the quantities of goods and services for which prices fell, we would say the economy has likely experienced

A. inflation.

B. deflation.

C. stagflation.

D. reflation.

72. During a period of inflation

A. specific prices are rising, and relative prices are falling.

B. both relative prices and average prices are rising.

C. relative prices are rising, but it is not certain what is happening to average prices.

D. average prices are rising, but it is not certain what is happening to relative prices.

73. A decrease in the average level of prices of goods and services is known as

A. deflation.

B. the business cycle.

C. a recession.

D. inflation.

74. Deflation occurs when the

A. price of large ticket items, such as appliances, decreases.

B. price decreases for some goods and services outweigh price increases on all other goods and services.

C. economy reaches full employment.

D. average price of goods and services does not change.

75. When there is no deflation or inflation in an economy

A. prices of all goods change by the same percentage.

B. relative prices remain unchanged.

C. average prices remain unchanged.

D. full employment is achieved.

76. The price of one good compared to the price of other goods refers to

A. relative price.

B. inflation.

C. deflation.

D. the income effect.

77. Which of the following will definitely cause a change in the relative prices of two goods?

A. an increase in the average price of the two goods

B. nominal price changes for the two goods, adjusted for inflation

C. different rates of change in the prices of the two goods

D. a decrease in the average price of the two goods

78. If the price of computers falls during a period when the average price level remains constant, which of the following has occurred?

A. inflation

B. a change in relative prices

C. deflation

D. a recession

79. Which of the following is an essential part of the market mechanism?

A. changing relative prices

B. constant prices

C. falling average prices

D. rising average prices

80. If the inflation rate is zero, changes in relative prices signal a change in the _____ for the economy.

A. production possibilities

B. unemployment rate

C. level of GDP

D. desirable mix of output

81. During a period of inflation

A. all prices will rise.

B. people who have borrowed money may be better off.

C. the real incomes of everyone will decrease.

D. all prices will fall.

82. Inflation acts like a tax because

A. the government tends to benefit during periods of inflation.

B. it takes income and wealth from some people and gives it to others.

C. inflation pushes everyone into higher tax brackets.

D. everyone loses purchasing power during periods of inflation just like everyone must pay taxes.

83. Nominal income

A. reflects the purchasing power of money.

B. is income adjusted for inflation.

C. is the amount of income, measured in current dollars.

D. is the amount of income, measured in constant dollars.

84. Real income

A. is income adjusted for unemployment.

B. is income without any adjustment.

C. reflects the purchasing power of money.

D. reflects the stability of the labor force.

85. If the number of dollars you receive every year is the same, but prices are rising, then your nominal income

A. rises, but your real income falls.

B. rises and your real income rises.

C. stays the same, but your real income falls.

D. stays the same, but your real income rises.

86. Nominal income must have fallen if real income

A. falls and there is inflation.

B. falls and there is deflation.

C. rises and there is inflation.

D. rises and there is deflation.

87. When a person's nominal income falls in a period of inflation then the person's real income

A. definitely falls.

B. definitely rises.

C. depends upon relative price changes.

D. can rise or fall.

88. Suppose a recent college graduate has an annual nominal income of $42,000 for the first year she works. If the annual inflation rate is 5 percent, what salary would she need in the second year to maintain the same real income?

A. $39,900

B. $42,000

C. $42,500

D. $44,100

89. Patricia's nominal annual income in 2009 was $60,000. If the rate of inflation is constant at 10 percent, in order to keep Patricia's real income constant, her nominal income in the year 2010 should be

A. $60,000.

B. $54,000.

C. $66,000.

D. $70,000.

90. Ben's nominal annual income in 2009 was $40,000. If the rate of inflation is constant at 10 percent, in order to keep Ben's real income constant, his nominal income in the year 2010 should be

A. $50,000.

B. $44,000.

C. $40,000.

D. $36,000.

91. Suppose that at the start of this year you got a salary increase of 10 percent from your employer. The prices of the goods and services you typically purchase increase 10 percent during the year. At the end of the year, you have experienced

A. higher real income and higher nominal income.

B. higher real income but lower nominal income.

C. no change in nominal income.

D. no change in real income.

92. Which of the following is an example of the price effect during a period of inflation?

A. Your income increases, but not as rapidly as the price level does.

B. You buy a lot of gasoline, and the price of gasoline rises more rapidly than the price level does.

C. You own a house, and its value rises more rapidly than the price level does.

D. You own municipal bonds that pay a low interest rate while the price level is rising.

93. Suppose the cost of medical care rose 200 percent from 1990 to 2012 and average prices for the economy rose 150 percent. Relative to others, people who purchased medical care received

A. lower real income, as a result of the price effect.

B. higher real income, as a result of the price effect.

C. lower real income, as a result of the wealth effect.

D. higher real income, as a result of the wealth effect.

94. Suppose the cost of milk rose 100 percent from 1990 to 2012 and average prices for the economy rose 133 percent. Relative to others, people who purchased milk received

A. lower real income, as a result of the price effect.

B. higher real income, as a result of the price effect.

C. lower real income, as a result of the wealth effect.

D. higher real income, as a result of the income effect.

95. Which of the following is an example of the income effect during a period of inflation?

A. You buy lots of peanut butter, which decreases in price while the price level rises.

B. You own stock that increases in value more rapidly than the price level does.

C. You own a house, and its value rises at the same rate as the price level does.

D. Your income is fixed and does not increase even though the price level is rising.

96. Generally speaking, which of the following groups would tend to gain real income from the wealth effects of inflation?

A. people who purchase long-term bonds when interest rates are low

B. people who have passbook savings accounts

C. people who own assets that are appreciating faster than the inflation rate

D. people who hold all of their assets in the form of cash

97. Which of the following is an example of the wealth effect during a period of inflation?

A. A firm receives a fixed price for the services it sells while the price level is rising.

B. You hold money in a savings account that earns 5 percent interest while the price level rises 2 percent.

C. Your income stays constant while the price level doubles.

D. You pay for utilities that are becoming more expensive as the price level is rising.

98. The value of an original painting, held as an asset, increased in value by 100 percent from 1970 to 2012. Suppose that during the same period, average prices in the economy rose by 150 percent. The owner of the painting, relative to those who do not own paintings, experienced a

A. higher real income, as a result of the wealth effect.

B. higher real income, as a result of the price effect.

C. lower real wealth, as a result of the wealth effect.

D. lower real income, as a result of the income effect.

99. The value of a piece of land, held as an asset, increased in value by 200 percent from 1985 to 2012. Suppose during the same period average prices in the economy rose by 165 percent. The owner of the land, relative to those who do not own land, experienced a

A. higher real wealth, as a result of the wealth effect.

B. higher real income, as a result of the price effect.

C. lower real income, as a result of the income effect.

D. higher real income, as a result of the income effect.

100. The uncertainty of inflation is likely to affect

A. production and consumption decisions.

B. production decisions, but not consumption decisions.

C. consumption decisions, but not savings.

D. the elderly on fixed incomes, but not current wage earners.

101. The uncertainty that results from inflation causes changes in

A. consumption, but not saving and investment behavior.

B. consumption, saving, and investment behavior.

C. saving and investment behavior, but not consumption.

D. income, but not consumption.

102. The Consumer Price Index is

A. a measure of changes in the relative prices of significant consumer goods.

B. a measure of changes in the price of all goods and services.

C. a measure of changes in the average price of consumer goods and services.

D. used to determine if the economy is functioning at full employment.

103. The Consumer Price Index is used specifically to measure the

A. inflation rate producers face.

B. inflation rate consumers face.

C. growth rate of the economy.

D. business cycle.

104. To construct the Consumer Price Index, the Bureau of Labor Statistics must

A. convert nominal prices into real prices and then compute the percentage increase on an annual basis.

B. interview people to determine their willingness and ability to pay for various goods and services.

C. construct an index of the growth rate of real income to measure the growth of the economy.

D. find out what people buy and then survey how the prices of these items change.

105. If the Consumer Price Index (CPI) had a value of 128 in the year 2015, this means that during the period between the base year and 2015

A. all prices increased by 28 percent.

B. all prices increased by an average of 1.28 percent.

C. prices of goods and services that the typical consumer buys increased by an average of 28 percent.

D. prices of goods and services that the typical consumer buys increased by an average of 128 percent.

106. If the CPI is 137 in the year 2005, then it costs _______ in 2005 to buy the same market basket that cost _______ in the base period.

A. $37; $100

B. $137; $37

C. $100; $137

D. $137; $100

107. If the CPI is 112 in the year 2006, then it costs _______ in 2006 to buy the same market basket that cost _______ in the base period.

A. $112; $100

B. $12; $100

C. $100; $112

D. $112; $12

108. If the CPI is 119 in the year 2005, then it costs _______ in 2005 to buy the same market basket that cost _______ in the base period.

A. $100; $119

B. $119; $100

C. $19; $100

D. $100; $19

109. If a market basket of goods cost $100 in the base year and $125 in a later year, then average prices have increased by

A. 25 percent.

B. 80 percent.

C. 125 percent.

D. 225 percent.

110. If a market basket of goods cost $100 in the base year and $110 in a later year, then average prices have increased by

A. 110 percent.

B. 100 percent.

C. 90 percent.

D. 10 percent.

111. If a market basket of goods cost $100 in the base year and $143 in a later year, then average prices have increased by

A. 243 percent.

B. 143 percent.

C. 70 percent.

D. 43 percent.

112. If a market basket of goods cost $100 in the base year and $108 in a later year, then average prices have increased by

A. 8 percent.

B. 92.5 percent.

C. 108 percent.

D. 208 percent.

113. The Full Employment and Balanced Growth Act of 1978 established a goal for inflation of _______.

A. zero percent

B. between one and ten percent

C. four to six percent

D. under three percent

114. Price stability refers to

A. a constant average price level.

B. the absence of significant changes in the average price level.

C. an inflation rate of zero.

D. increases in prices equal to or less than the growth rate of the economy.

115. The U.S. goal for price stability

A. is an inflation rate of 3 to 6 percent.

B. is an inflation rate of zero or less.

C. changes each year based on economic performance.

D. is an inflation rate of fewer than 3 percent.

116. The CPI tends to overestimate the rate of inflation because

A. only the goods and services that consumers buy are included in the calculation.

B. some price increases are an indication of higher quality products.

C. the CPI measures changes in average prices, not changes in relative prices.

D. some price increases are simply the result of greedy producers and sellers.

117. The News Wire article in the text titled "Economy Sharpest Decline in 26 Years" discusses the reduction in output for the U.S. economy. Which type of unemployment is most likely in this situation?

A. structural

B. frictional

C. cyclical

D. seasonal

118. Based on the News Wire article titled "Hyperinflation Brings Weimar Republic to Standstill," which of the following is the best illustration of the price effect of inflation?

A. Profits fell as employees demanded frequent wage increases.

B. Businesspeople traveling around the country were forced to borrow funds from their customers as the cash they'd allocated for the entire trip barely sufficed to pay the way to the next stop.

C. Those who had saved immediately found their lifetime retirement savings to be worthless.

D. Debtors immediately tried to pay off debts with the now worthless currency they had.

119. Based on the News Wire article titled "Hyperinflation Brings Weimar Republic to Standstill," which of the following is the best illustration of the wealth effect of inflation?

A. Businessmen traveling around the country were forced to borrow funds from their customers as the cash they'd allocated for the entire trip barely sufficed to pay the way to the next stop.

B. Workers were often paid two or three times per day.

C. Debtors immediately tried to pay off debts with the now worthless currency they had.

D. Profits fell as employees demanded frequent wage increases.

120. Based on the News Wire article titled "Hyperinflation Brings Weimar Republic to Standstill," which of the following is the best illustration of a change in relative prices due to hyperinflation?

A. Input prices rose rapidly and these were passed quickly onto the consumers.

B. Those who had saved immediately found their lifetime retirement savings to be worthless.

C. Workers were often paid two or three times per day.

D. Businessmen traveling around the country were forced to borrow funds from their customers as the cash they'd allocated for the entire trip barely sufficed to pay the way to the next stop.

121. Macroeconomics focuses on individual firms and industries.

Macroeconomics studies economic behavior as a whole, the sum of all individual decisions.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 10-01 Explain how growth of the economy is measured.
Topic: Assessing Macro Performance

122. Macroeconomics is the study of the economy as a whole.

Macroeconomics studies economic behavior as a whole, the sum of all individual decisions.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 10-01 Explain how growth of the economy is measured.
Topic: Assessing Macro Performance

123. A basic purpose of macroeconomics is to explain monopoly behavior.

Macroeconomics studies economic behavior as a whole, not with any focus on a singular firm.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 10-01 Explain how growth of the economy is measured.
Topic: Assessing Macro Performance

124. The business cycle is the alternating periods of economic growth and contraction.

The business cycle represents changes to output through time, both increases and decreases.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 10-01 Explain how growth of the economy is measured.
Topic: Assessing Macro Performance

125. The basic measures of macroeconomic performance include the national debt, the trade deficit, and interest rates.

The three basic measures of macro performance are: output, unemployment, and inflation.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-01 Explain how growth of the economy is measured.
Topic: Assessing Macro Performance

126. An important measure of macroeconomic performance is the growth of GDP.

The three basic measures of macro performance are: output, unemployment, and inflation.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-01 Explain how growth of the economy is measured.
Topic: Assessing Macro Performance

127. Important measures of economic performance include economic growth, employment, and price stability.

Growth indicates how output is changing through time, employment is the opposite of unemployment, and price stability the opposite of inflation. Combined, these are all important measures of the primary macroeconomic indicators.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-01 Explain how growth of the economy is measured.
Topic: Assessing Macro Performance

128. The U.S. stock market and the U.S. bond market are considered by economists to be the most important measures of the economy.

The production level, price of goods and services, and the employment of the population are considered by economists to be the most important measures of the economy.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-01 Explain how growth of the economy is measured.
Topic: Assessing Macro Performance

129. Throughout the business cycle, unemployment and production typically move in opposite directions.

When production increases unemployment tends to decrease, and vice versa.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-01 Explain how growth of the economy is measured.
Topic: GDP Growth

130. The production of goods and services in the U.S. has risen steadily since 1929.

Years of above-average growth seem to alternate with years of sluggish growth and years in which total output actually declines.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-05 Recite the U.S. track record on growth, unemployment, and inflation.
Topic: GDP Growth

131. Since the Great Depression, the United States has experienced a number of recessions, but none as severe as the Great Depression.

The most prolonged setback occurred during the Great Depression.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-05 Recite the U.S. track record on growth, unemployment, and inflation.
Topic: GDP Growth

132. People who are not working for pay but are actively looking for work are not included in the labor force.

The labor force is comprised of people over 16 who are either actively seeking employment or are already employed.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 10-02 Tell how unemployment is measured and affects us.
Topic: Unemployment

133. If a person who has the required job skills quits one job and takes two months to find another job, he is considered to be structurally unemployed.

This type of unemployment is correctly described as frictional unemployment as it is often short in duration and not related to a mismatch of skills and open jobs.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-04 Define full employment and price stability.
Topic: Unemployment

134. If a person who works as a snowplow operator during the winter cannot find employment in the summer, this is an example of seasonal unemployment.

At the end of the snowplow season, the operator must go searching for new jobs and this joblessness is primarily related to the time of year.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-04 Define full employment and price stability.
Topic: Unemployment

135. If a person cannot find a job after searching for one year because there is not enough demand in the economy, this is an example of cyclical unemployment.

Cyclical unemployment exists when the number of workers demanded falls short of the number of persons in the labor force. This typically happens as demand for the output workers produce falls.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-04 Define full employment and price stability.
Topic: Unemployment

136. If the labor force does not have the skills required for the available jobs, cyclical unemployment increases.

When workers do not have the appropriate skills for a position, this is considered structural unemployment rather than cyclical unemployment.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-04 Define full employment and price stability.
Topic: Unemployment

137. "Full employment" means that some people in the labor force are still unemployed.

Because there will always be frictional unemployment, there will always be people in the labor force who are unemployed as they transition to jobs that better fit their needs.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-04 Define full employment and price stability.
Topic: Unemployment

138. The U.S. "full employment" goal is between zero and two percent unemployment.

Most macro economists agree that the optimal unemployment rate lies somewhere between 4 and 6 percent.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-04 Define full employment and price stability.
Topic: Unemployment

139. Inflation is an increase in the average level of prices.

Inflation is an increase in the average level of prices, not a change in any specific price.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 10-03 Discuss why inflation is a problem and how it is measured.
Topic: Inflation

140. If relative prices change, then the inflation rate must change.

If relative prices change, average price may not change. A relative price of a good simply means that good may be more expensive in comparison with other goods.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-03 Discuss why inflation is a problem and how it is measured.
Topic: Inflation

141. Everyone is made worse off by inflation.

Not everyone suffers equally from inflation and some actually benefit (borrowers).

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-03 Discuss why inflation is a problem and how it is measured.
Topic: Inflation

142. Those with savings accounts typically benefit from periods of inflation.

Those with savings accounts may have more nominal wealth but real value of the savings has been reduced and so they do not benefit.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-03 Discuss why inflation is a problem and how it is measured.
Topic: Inflation

143. During periods of inflation, all prices will increase or at least remain constant.

During inflation, prices of only certain goods and services, not all goods and services, will go up.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-03 Discuss why inflation is a problem and how it is measured.
Topic: Inflation

144. If all prices and wages in the economy rise by the same percentage during the same time period, inflation does not cause a redistribution of income.

If wages rise at the same rate as inflation, no one is worse off.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-03 Discuss why inflation is a problem and how it is measured.
Topic: Inflation

145. The uncertainty of inflation can cause a decrease in consumption, but will not impact business spending and production.

The uncertainties of inflation may cause people to change their consumption, saving, or investment behavior.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-03 Discuss why inflation is a problem and how it is measured.
Topic: Inflation

146. The CPI is used to measure the change in the average price of consumer goods and services.

CPI is a measure (index) of changes in the average price of consumer goods and services based on surveys that indicate what the typical consumer buys.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-03 Discuss why inflation is a problem and how it is measured.
Topic: Inflation

147. Discuss the reason why economists prescribe a low, but not a zero, unemployment rate. What rate of unemployment do economists point to for a healthy economy?

Due to seasonal, frictional, structural, and cyclical unemployment the unemployment rate will not be zero. In particular, frictional unemployment suggests workers are actively looking for good work matches that would allow them to more productively add to output. As a result, this type of unemployment if considered good. Relatedly, most macroeconomists agree that the optimal unemployment rate lies somewhere between 4 and 6 percent, an estimate of frictional unemployment rates.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-04 Define full employment and price stability.
Topic: Unemployment

148. Explain why when the price of one good or service rises it is not inflation, but when average prices rise there is inflation.

Inflation is defined as a general increase in prices throughout the economy. The change in the price of one good is not enough to say that inflation has taken place. It would take many prices to rise to suggest that inflation has taken place in the economy.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-04 Define full employment and price stability.
Topic: Inflation

149. Define a recession and its effects on the rate of growth.

A recession is defined as two consecutive quarters of negative growth in output. When the rate of growth is negative, the economy is working inside the productions possibilities curve as resources become increasingly unused. The economy will experience unemployment. Fewer goods and services will be produced, which will hinder the ability of the economy to expand.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 10-04 Define full employment and price stability.
Topic: Inflation

150. The high unemployment during the Great Depression continued through

A. 1929.

B. 1931.

C. 1939.

D. 1943.

151. Which of the following would most likely cause an increase in the nominal GDP?

A. constant output and decreasing price levels

B. constant output and increasing price levels

C. increasing output with greater decreases in price levels

D. decreasing output and decreasing price levels

152. Joseph is unemployed. He was working at a thrift shop in Indiana but decided to go back to school full time to become an engineer. He would be classified as

A. structurally unemployed.

B. frictionally unemployed.

C. cyclically unemployed.

D. not in the labor force.

153. Business cycles demonstrate the smooth patterns of the GDP.

Business cycles experience erratic growth and recessions of varying duration, rather than following any smooth pattern.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 10-01 Explain how growth of the economy is measured.
Topic: GDP Growth

154. Everyone in the economy is hurt by inflation.

When inflation occurs, it acts like a tax in the sense that it redistributes income from some people and gives to others. In particular, borrowers are made better off while lenders are made worse off.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 10-03 Discuss why inflation is a problem and how it is measured.
Topic: Inflation

155. The Great Depression

A. was a severe and prolonged reduction in output and employment for the United States during the 1930s.

B. is another name for the economic downturn that followed World War II.

C. was the most severe recession since the Civil War, even though it lasted only 18 months.

D. was a severe and prolonged reduction in output and employment for the United States during the 1980s just prior to the long economic expansion of the 1990s.

156. GDP is defined as

A. the market value of all final goods and services produced in a country in a year.

B. the market value of all American goods and services, regardless of where production takes place.

C. the quantity of output of all goods and services produced plus all government transfer payments and financial transactions.

D. the quantity of intermediate and final goods and services produced in a country in a year.

157. When economists talk about real output they mean

A. output that is essential to human existence, as opposed to trivial output.

B. physical output multiplied by changes in the price level to obtain real values.

C. nominal output adjusted for changes in the price level to obtain values that reflect their real worth.

D. output that addresses the material needs of humans versus their spiritual needs.

158. We measure the total volume of output by calculating

A. physical volume.

B. the size of the labor force.

C. the total market value of output.

D. the rate of inflation.

159. The labor force consists of the

A. entire adult population.

B. members of the adult population who are currently employed

C. members of the population over age 16 who are unemployed, but actively seeking work

D. members of the population over age 16 who are employed, or who are actively seeking employment.

160. When the economy is operating at full employment

A. people are earning just enough so they can eat full meals each day.

B. the economy is operating at the lowest rate of unemployment consistent with price stability.

C. the unemployment rate is zero.

D. there is cyclical unemployment, but no frictional unemployment.

161. Which of the following individuals is frictionally unemployed?

A. Jai Lynn lost her job because her employer had to reduce staff during the recession.

B. James quit his teaching job in Virginia in order to relocate to Hawaii.

C. Jennifer has not been able to find a job because she lacks computer skills.

D. Jose has decided to stop looking for work in order to return to school.

162. If you receive a 3 percent wage increase and the inflation rate is 4 percent, your nominal income______ and your real income _________.

A. Increased; decreased

B. Increased; stayed the same

C. Decreased; increased

D. Decreased; stayed the same

163. Which of the following lists best represents the three basic measures of macroeconomic performance?

A. taxes, Social Security, and welfare

B. GDP growth, unemployment, and inflation

C. interest rates, the money supply, and the Federal Reserve

D. demand, supply, and equilibrium

164. A recession is technically ______ quarters or more of declining output or real GDP.

A. 1

B. 2

C. 3

D. 4

165. The unemployment rate is the percentage of the ______ that is unemployed.

A. total population

B. adult population

C. overall economy

D. labor force

166. A decrease in the average price level is called

A. deflation.

B. disinflation.

C. inflation.

D. hyperinflation.

167. The CPI is

A. an indicator of overall inflation.

B. a measure of changes in the average prices of consumer goods and services.

C. the Consumer Price Index.

D. All of these choices are correct.

168. One of the problems of using the CPI is that it

A. has difficulty adjusting for the improved quality of products in the market basket.

B. only includes the prices of goods purchased by businesses.

C. adjusts for the introduction of new products too quickly.

D. All of these choices are correct.

169. Which of the following groups may generally said to benefit from unanticipated inflation?

A. Social Security retirees

B. individuals with fixed-rate loans

C. businesses with long-term contracts to provide services

D. both individuals with fixed-rate loans and businesses with long-term contracts to provide services