Multiple Choice Questions
1 Which of the following is characteristic of a downturn in the business cycle?
Higher prices
Higher unemployment rates
Growth in real output
Increased population
2 The price of one good compared to the price of other goods refers to:
Relative price.
The income effect.
Deflation.
Inflation.
3 Based on the HEADLINE article titled "Inflation and the Weimar Republic," which of the following is the best illustration of a change in relative prices due to hyperinflation?
"... businessmen traveling around the country found themselves borrowing funds from their customers each stage of the way. The cash they'd allocated for the entire trip barely sufficed to pay the way to the next stop."
"Workers were often paid daily and sometimes two or three times a day, so that they could buy goods in the morning before the inevitable afternoon price increase."
"Wholesale prices rose fortyfold . . . while retail prices rose even more rapidly."
"Those thrifty Germans who had placed their savings in corporate or government bonds saw their lifetime efforts come to naught."
4 Which of the following is an example of the price effect during a period of inflation?
You buy a lot of gasoline, and the price of gasoline rises more rapidly than the price level does.
Your income increases, but not as rapidly as the price level does.
You own municipal bonds that pay a low interest rate while the price level is rising.
You own a house, and its value rises more rapidly than the price level does.
5 Nominal income must have fallen if real income:
Falls and there is inflation.
Rises and there is inflation.
Falls and there is deflation.
Rises and there is deflation.
6 Which of the following is likely if an economy is in a recession or headed for one?
An increase in unemployment
An increase in consumer confidence
An increase in the rate of output
An increase in the rate of inflation
7 Throughout the business cycle, unemployment and production typically move in opposite directions.
TRUE
FALSE
8 Samantha quit her job in the city to look for a job in the country. While she is looking, Samantha experiences _______ unemployment.
Seasonal
Frictional
Structural
Cyclical
9 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?
$42,500
$44,100
$39,900
$42,000
10 If a market basket of goods cost $100 in the base year and $125 in a later year, then average prices have increased by:
125 percent.
25 percent.
80 percent.
225 percent.
11 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.
TRUE
FALSE
12 The Great Depression in the United States:
Was ended by World War I.
Caused real GDP to fall dramatically between 1929 and 1933.
Was marked by hyperinflation.
Ended with a higher real GDP per capita than when it began.
13 Which of the following is an essential part of the market mechanism?
Constant prices
Changing relative prices
Rising average prices
Falling average prices
14 To construct the Consumer Price Index, the Bureau of Labor Statistics must:
Find out what people buy and then survey how the prices of these items change.
Interview people to determine their willingness and ability to work and their average income.
Convert nominal incomes into real GDP and then compute the percentage increase on an annual basis.
Construct an index of the growth rate of real income to measure the growth of the economy.
15 Inflation is an increase in the average level of prices.
FALSE
TRUE
16 When the unemployment rate falls to the full-employment level:
Many resources are idle.
The size of the labor force decreases.
There is increased concern about deflation.
There is increased concern about inflation.
17 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:
53.0 percent.
6.0 percent.
6.4 percent.
94.0 percent.
18 Since World War II, the United States has experienced:
Several recessions but none as severe as the Great Depression.
An increase in output every year.
Several recessions and in each case a war was necessary to end it.
Only one recession and it was minor.
19 If an increase in the price of some goods outweighs other prices that remain constant or decrease then there is:
Reflation.
Stagflation.
Deflation.
Inflation.
20 An important measure of macroeconomic performance is the growth of GDP.
FALSE
TRUE
21 Frictional unemployment goes up when:
A corporation transfers a worker to another city.
There is inadequate demand for labor.
A worker quits one job in order to search for another.
Students quit work to return to school at the end of the summer.
22 If a market basket of goods cost $100 in the base year and $110 in a later year, then average prices have increased by:
110 percent.
100 percent.
90 percent.
10 percent.
23 If the Consumer Price Index (CPI) had a value of 128 in 2007, this means that during the period between the base year and 2007:
Prices of goods and services that the typical consumer buys increased by an average of 128 percent.
All prices increased by an average of 1.28 percent.
Prices of goods and services that the typical consumer buys increased by an average of 28 percent.
All prices increased by 28 percent.
24 Inflation acts like a tax because:
Inflation pushes everyone into higher tax brackets.
It takes income and wealth from some people and gives it to others.
The government tends to benefit during periods of inflation.
Everyone loses purchasing power during periods of inflation just like everyone must pay taxes.
26 Which of the following government policies or programs is most likely to reduce cyclical unemployment?
Those that stimulate economic growth
Increased job training
Additional health services
Additional job-placement services
27 Skip to text.
Table 10.1-Population and labor force data.
In Table 10.1, what is the unemployment rate in Year 1?
50 percent
16.7 percent
8.3 percent
41.7 percent
28 The labor force is smaller than the total population because the labor force does not include:
People looking for a job.
The very young and old.
People who have jobs.
Teachers.
29 If the CPI is 137 in Year Y, then it costs _______ in Year Y to buy the same market basket that cost _______ in the base period.
$37; $100
$137; $37
$100; $137
$137; $100
30 A decrease in the average level of prices of goods and services is known as:
The business cycle.
Deflation.
Inflation.
A recession.