CFO Mac12 TB 07

Principles of Macroeconomics, 12e (Case)
Chapter 7 Unemployment, Inflation, and Long-Run Growth
7.1 Unemployment
1) Bob is unemployed if he
A) is temporarily laid off.
B) is not looking for a job.
C) has looked for a job for two months and then quit looking.
D) A and C are correct
Answer: A
Diff: 1
Topic: Unemployment
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Macro-14
2) For you to be considered out of the labor force, you can be

A) a full-time student.
B) a full-time retiree.
C) a full-time volunteer.
D) any of the above
Answer: D
Diff: 1
Topic: Unemployment
Skill: Conceptual
3) Cheryl graduated from college a month ago and is now without work. She accepted a job that will start
next month. Today, Cheryl is
A) not in the labor force.
B) in the labor force.
C) employed.
D) a discouraged worker.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Conceptual
1
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4) The number of people unemployed equals
A) the number of people employed minus the labor force.
B) the labor force plus the number of people employed.
C) the labor force minus the number of people employed.
D) the number of people employed divided by the labor force.
Answer: C
Diff: 1
Topic: Unemployment
Skill: Definition
5) Jake retired from the police force. He started working an hour or two a day at a paid job in city's
courthouse. Jake is
A) employed.
B) in the labor force.
C) unemployed.
D) not in the labor force.
Answer: A
Diff: 2
Topic: Unemployment
Skill: Conceptual
6) Diane lost her job and immediately started looking for another job. As a result the
A) unemployment rate increases.
B) labor force increases.
C) labor force decreases.
D) unemployment rate remains constant.
Answer: A
Diff: 2
Topic: Unemployment
Skill: Conceptual
2
Refer to the information provided in Table 7.1 below to answer the questions that follow.
Table 7.1
7) Refer to Table 7.1. The labor force equals

A) 14,000 people.
B) 17,000 people.
C) 18,000 people.
D) 21,000 people.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Analytical
AACSB: Analytical Thinking
8) Refer to Table 7.1. The unemployment rate is

A) 14.3%.
B) 16.7%.
C) 17.6%.
D) 25.0%.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Analytical
9) Refer to Table 7.1. The labor-force participation rate is

A) 66.7%.
B) 75.0%.
C) 77.8%.
D) 80.9%.
Answer: D
Diff: 2
Topic: Unemployment
Skill: Analytical
3
10) Refer to Table 7.1. The employment rate is
A) 85.7%.
B) 83.3%.
C) 82.4%.
D) 75.0%.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Analytical
Table 7.2
11) Refer to Table 7.2. The labor force

A) equals 130 million.
B) equals 150 million.
C) equals 170 million
D) cannot be determined from this information.
Answer: B
Diff: 3
Topic: Unemployment
Skill: Analytical
12) Refer to Table 7.2. The total number of people unemployed is

A) 13 million.
B) 15 million.
C) 17 million.
D) 20 million.
Answer: B
Diff: 3
Topic: Unemployment
Skill: Analytical
4
13) Refer to Table 7.2. The total number of people employed is
A) 180 million.
B) 153 million.
C) 135 million.
D) 117 million.
Answer: C
Diff: 3
Topic: Unemployment
Skill: Analytical
14) The unemployment rate is

A) unemployed/population × 100.
B) (employed - unemployed)/labor force × 100.
C) (labor force - employed)/labor force × 100.
D) (employed - labor force)/employed × 100.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Conceptual
15) The number of people classified as employed is 260,000 and the number of people classified as
unemployed is 30,000. The size of the labor force
A) equals 230,000.
B) equals 260,000.
C) equals 290,000.
D) equals 320,000.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Analytical
16) The number of people classified as employed is 350,000 and the number of people in the labor force is
500,000. The total number of people classified as unemployed is
A) 150,000.
B) 350,000.
C) 425,000.
D) 500,000.
Answer: A
Diff: 2
Topic: Unemployment
Skill: Analytical
5
17) If the number of people classified as unemployed is 20,000 and the number of people classified as
employed is 400,000, what is the unemployment rate?
A) 2.0%
B) 4.8%
C) 5.0%
D) 9.2%
Answer: B
Diff: 2
Topic: Unemployment
Skill: Analytical
A) 1.6%
B) 3.1%
C) 10.6%
D) 632%
Answer: B
Diff: 2
Topic: Unemployment
Skill: Analytical
19) If the number of people employed is 150,000 and the labor force is 170,000, the unemployment rate is
A) 2.5%.
B) 6.25%.
C) 6.55%.
D) 11.76%.
Answer: D
Diff: 2
Topic: Unemployment
Skill: Analytical
20) If the unemployment rate is 6.2% and the number of people employed is 200,000, the total number of
people unemployed is approximately
A) 10,970 people
B) 12,400 people.
C) 13,220 people.
D) cannot be determined from this information
Answer: C
Diff: 3
Topic: Unemployment
Skill: Analytical
6
21) If the unemployment rate is 6.2% and the number of people employed is 200,000, the labor force is
approximately
A) 210,970 people.
B) 212,400 people
C) 213,220 people.
D) cannot be determined from this information
Answer: C
Diff: 3
Topic: Unemployment
Skill: Analytical
22) If the labor force is 320,000 and the total population 16 years of age or older is 400,000, the labor-force
participation rate is
A) 72%.
B) 76%.
C) 80%.
D) 88%.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Analytical
23) If the labor-force participation rate is 82% and the total population 16 years of age or older is 1 million
people, the labor force is
A) 910,000 people.
B) 820,000 people.
C) 740,000 people.
D) 180,000 people.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Analytical
24) If the number of unemployed equals 30,000, the number of employed equals 60,000, and the number
not in the labor force is 10,000, the labor-force participation rate
A) is 90%.
B) is 88.9%.
C) is 67%.
Answer: A
Diff: 2
Topic: Unemployment
Skill: Analytical
7
25) If the number of unemployed equals 240,000 and the number of employed equals 300,000, the labor-
force participation rate
A) is 80%.
B) is 55.6%.
C) is 24%.
Answer: D
Diff: 2
Topic: Unemployment
Skill: Analytical
26) In the United States in 2015, the highest unemployment rate was for ________ and the lowest was for
________.
A) African-American teenagers; white women
B) African-American men; white men
C) white teenagers; white men
D) African-American women; white men
Answer: A
Diff: 1
Topic: Unemployment
Skill: Fact
27) When an individual quits his/her job and decides to stay at home for a while, the labor-force
participation rate
A) decreases.
B) increases.
C) stays the same.
D) may increase or decrease, depending on the length of time he/she stays at home.
Answer: A
Diff: 1
Topic: Unemployment
Skill: Conceptual
28) Mike has just graduated from college and is now looking for a job, but has not yet found one. This
causes the unemployment rate to ________ and the labor-force participation rate to ________.
A) increase; decrease
B) stay the same; stay the same
C) increase; increase
D) increase; stay the same
Answer: C
Diff: 2
Topic: Unemployment
Skill: Conceptual
8
29) Discouraged workers are
A) considered cyclically unemployed.
B) considered structurally unemployed.
C) considered frictionally unemployed.
D) not considered as part of the labor force.
Answer: D
Diff: 2
Topic: Unemployment
Skill: Conceptual
30) In June there are 30,000 people classified as unemployed and the size of the labor force is 600,000. The
only change between June and July is that 10,000 of the unemployed give up looking for work. Which of
the following is true?
A) In June the unemployment rate was 6% and in July the unemployment rate was 3.8%.
B) The unemployment rate in both June and July was 5%.
C) In June the unemployment rate was 5% and in July the unemployment rate was 3.39%.
D) In June the unemployment rate was 3.8% and in July the unemployment rate was 6%.
Answer: C
Diff: 3
Topic: Unemployment
Skill: Analytical
31) When 100 people who were previously looking for jobs stop looking for jobs, the
A) unemployment rate increases.
B) size of the labor force decreases.
C) labor-force participation rate does not change.
D) unemployment rate does not change.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Conceptual
32) Classifying discouraged workers as unemployed would

A) increase the unemployment rate.
B) decrease the unemployment rate.
C) not change the unemployment rate.
D) have an indeterminate impact on the unemployment rate.
Answer: A
Diff: 2
Topic: Unemployment
Skill: Conceptual
9
33) In normal times the number of discouraged workers is approximately ________ of the labor force.
A) 0.5%
B) 1%
C) 3%
D) 4%
Answer: B
Diff: 1
Topic: Unemployment
Skill: Fact
34) Which of the following groups over the age of 19 had the lowest unemployment rate in the United
States in 2015?
A) white males
B) African American males
C) white females
D) African American females
Answer: C
Diff: 1
Topic: Unemployment
Skill: Fact
35) Which of the following statements is true?

A) The unemployment rate does not tell us anything about the duration of unemployment.
B) The duration of unemployment decreases during recessions.
C) The duration of unemployment increases during economic expansions.
D) The median duration of unemployment is usually greater than the average duration.
Answer: A
Diff: 2
Topic: Unemployment
Skill: Analytical
36) The labor force participation rate is the

A) total number of people who are participating in the labor force.
B) ratio of the number of employed people to the number of unemployed people.
C) ratio of the labor force to the total population 16 years old or older.
D) the number of people in the labor force minus the number of people who are unemployed.
Answer: C
Diff: 1
Topic: Unemployment
Skill: Fact
10
37) During recessions, the number of discouraged workers ________ and this ________ the
unemployment rate.
A) falls; reduces
B) decreases; increases
C) increases; reduces
D) increases; increases
Answer: C
Diff: 2
Topic: Unemployment
Skill: Conceptual
38) The Humphrey-Hawkins Act formally established a specific unemployment target for the economy of
A) 2%.
B) 4%.
C) 6%.
D) 8%.
Answer: B
Diff: 1
Topic: Unemployment
Skill: Fact
39) When an economics professor quits his/her job at a university and starts looking for a better job in
another university, he/she is
A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) naturally unemployed.
Answer: A
Diff: 2
Topic: Unemployment
Skill: Conceptual
40) Increasing the efficiency of various employment agencies to find better matches for those looking for
jobs will
A) reduce the natural rate of unemployment.
B) reduce structural unemployment.
C) reduce cyclical unemployment.
D) not affect frictional unemployment.
Answer: A
Diff: 2
Topic: Unemployment
Skill: Conceptual
11
41) A man is fired from his job because he was late for work too many times. While he is searching for
another job he would be classified as
A) not in the labor force because his employer had a legitimate reason for firing him.
D) frictionally unemployed.
Answer: D
Diff: 2
Topic: Unemployment
Skill: Conceptual
42) When the Fed slows the rate of growth of the money supply to slow down the economy, the
unemployment type that will be directly affected is the
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) natural rate of unemployment.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Conceptual
43) When an individual is not working and is not looking for a job because he/she lacks any marketable
job skills, he/she is
A) structurally unemployed.
B) frictionally unemployed.
D) none of the above
Answer: D
Diff: 2
Topic: Unemployment
Skill: Conceptual
12
44) Structural unemployment is the
A) portion of unemployment that is due to changes in the structure of the economy that result in a
significant loss of jobs in certain industries.
B) unemployment that occurs during recessions and depressions.
C) portion of unemployment that is due to the normal working of the labor market.
D) unemployment that results when people become discouraged about their chances of finding a job so
they stop looking for work.
Answer: A
Diff: 1
Topic: Unemployment
Skill: Definition
45) An auto worker in Ohio who loses her job because the company relocated the plant to another
country represents an example of
D) seasonal unemployment.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Conceptual
46) A textile firm closes a plant in Massachusetts and transfers production to a plant in South Carolina,
where the firm can take advantage of cheaper labor. The plant supervisor at the Massachusetts plant is
given the opportunity to move to South Carolina to become the plant supervisor at that plant. He turns
down this opportunity because of family obligations. While he is searching for a new job he would be
classified as
B) cyclically unemployed.
C) frictionally unemployed.
D) not in the labor force because he turned down the opportunity to relocate.
Answer: A
Diff: 2
Topic: Unemployment
Skill: Conceptual
13
47) An individual who cannot find a job because his or her job skills have become obsolete is an example
of
Answer: B
Diff: 1
Topic: Unemployment
Skill: Conceptual
48) The natural rate of unemployment is generally thought of as the

A) ratio of the frictional unemployment rate to the cyclical unemployment rate.
B) sum of structural unemployment and cyclical unemployment.
C) sum of frictional unemployment and cyclical unemployment.
D) sum of frictional unemployment and structural unemployment.
Answer: D
Diff: 1
Topic: Unemployment
Skill: Definition
49) The sum of frictional and structural unemployment is thought of as the

A) natural rate of unemployment.
B) normal rate of unemployment.
C) cyclical rate of unemployment.
D) seasonal rate of unemployment.
Answer: A
Diff: 1
Topic: Unemployment
Skill: Definition
50) Estimates for the natural rate of unemployment in the United States range from
A) 4% to 6%.
B) 2% to 10%.
C) 1% to 5%.
D) 3% to 8%.
Answer: A
Diff: 1
Topic: Unemployment
Skill: Fact
14
51) If the labor market becomes more efficient so that the unemployed are more quickly matched with
jobs, then
A) the natural rate of unemployment will increase.
B) the natural rate of unemployment will decrease.
C) the natural rate of unemployment will not change.
D) the natural rate of unemployment could either increase or decrease.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Conceptual
52) During the early 1990s, companies started downsizing. One of the results of this downsizing was the
permanent reduction in the number of middle management positions. This change in the way businesses
operate would have
A) increased the natural rate of unemployment.
B) decreased the natural rate of unemployment.
C) not affected the natural rate of unemployment.
D) could have either increased or decreased the natural rate of unemployment.
Answer: A
Diff: 2
Topic: Unemployment
Skill: Conceptual
53) The increase in unemployment that occurs during recessions and depressions is called
D) normal unemployment.
Answer: C
Diff: 1
Topic: Unemployment
Skill: Definition
54) Cyclical unemployment is the

A) portion of unemployment that is due to changes in the structure of the economy that result in a
significant loss of jobs in certain industries.
B) unemployment that occurs during recessions and depressions.
C) portion of unemployment that is due to the normal working of the labor market.
D) unemployment that results when people become discouraged about their chances of finding a job so
they stop looking for work.
Answer: B
Diff: 1
Topic: Unemployment
Skill: Definition
15
55) The demand for refrigerators falls when the economy enters a downturn. If a refrigerator
manufacturer lays off workers during an economic downturn, this would be an example of
B) natural unemployment.
C) structural unemployment.
D) cyclical unemployment.
Answer: D
Diff: 2
Topic: Unemployment
Skill: Conceptual
56) The economy is in a recession and the housing market is in a slump. As a result of this, a real estate
firm lays off half of its real estate agents. This is an example of
D) natural unemployment.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Conceptual
57) During the severe recession of the early 1980s, cyclical unemployment increased as the recession
continued. This increase in cyclical unemployment would have
C) had no effect on the natural rate of unemployment.
D) caused structural unemployment to decrease.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Conceptual
58) During the Great Depression, the unemployment rate rose to about
A) 15%.
B) 25%.
C) 40%.
D) 50%.
Answer: B
Diff: 1
Topic: Unemployment
Skill: Fact
16
59) Related to the Economics in Practice on p. 125: Survey data suggests that during the recession of 2008-
2009, the hours that those who were unemployed lost to the formal market were primarily spent on
A) job search.
B) increased education.
C) leisure activities.
D) non-market work.
Answer: C
Diff: 1
Topic: Unemployment: Economics in Practice
Skill: Fact
60) Related to the Economics in Practice on p. 127: In the U.S. from 1955 to 1996, the labor force
participation rate ________ for men and ________ for women.
A) increased; increased
B) increased; decreased
C) decreased; increased
D) decreased; decreased
Answer: C
Diff: 1
Skill: Fact
61) Related to the Economics in Practice on p. 127: If more women enter the labor force and the number of
available jobs remains unchanged, the unemployment rate will, ceteris paribus,
A) increase.
B) decrease.
C) remain unchanged.
D) equal the natural rate of unemployment.
Answer: A
Diff: 2
Skill: Conceptual
62) Related to the Economics in Practice on p. 128: Compared to students who graduate college and obtain
employment during an economic expansion, students who graduate during a recession often find that
starting wages are ________ and wage growth is ________.
A) lower; slower
B) lower; faster
C) higher; slower
D) higher; faster
Answer: A
Diff: 2
Skill: Conceptual
17
63) Bob is not considered unemployed if he
A) is temporarily laid off.
B) is not looking for a job.
C) is not working but has looked for a job for the past two months.
D) all of the above
Answer: B
Diff: 1
Topic: Unemployment
Skill: Conceptual
64) For Joanna to be considered out of the labor force, she can be
A) a full-time student.
B) temporarily laid off.
C) working only 10 hours per week.
D) self-employed.
Answer: A
Diff: 1
Topic: Unemployment
Skill: Conceptual
65) Matt graduated from college six months ago and is currently without work. He accepted a job that
will start in three months. Today, Matt is
A) in the labor force.
B) employed.
C) a discouraged worker.
Answer: D
Diff: 2
Topic: Unemployment
Skill: Conceptual
66) The number of people employed equals

A) the number of people unemployed minus the labor force.
B) the labor force plus the number of people unemployed.
C) the labor force minus the number of people unemployed.
D) the number of people unemployed divided by the labor force.
Answer: C
Diff: 1
Topic: Unemployment
Skill: Conceptual
18
67) Annabel retired from the fire department. She started volunteering two hours a day at an unpaid job
in the local hospital. Annabel is
A) employed.
B) a discouraged worker.
C) unemployed.
Answer: D
Diff: 2
Topic: Unemployment
Skill: Conceptual
68) Wayne did not look for another job after he lost his current job. As a result the
A) labor force immediately decreased.
B) labor force increased.
C) unemployment rate eventually decreased.
D) unemployment rate remains constant for as long as he does not look for another job.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Conceptual
Table 7.3
69) Refer to Table 7.3. The labor force equals

A) 95,000 people.
B) 100,000 people.
C) 175,000 people.
D) 180,000 people.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Analytical
19
70) Refer to Table 7.3. The unemployment rate is
A) 2.8%.
B) 5%.
C) 5.3%.
D) 7.2%.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Analytical
71) Refer to Table 7.3. The labor-force participation rate is approximately

A) 12%.
B) 56%.
C) 80%.
D) 95%.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Analytical
72) Refer to Table 7.3. The employment rate is

A) 52.8%.
B) 62.5%.
C) 95.0%.
D) 97.2%.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Analytical
20
Table 7.4
73) Refer to Table 7.4. The labor force

A) equals 200 million.
B) equals 130 million.
C) equals 120 million
D) equals 110 million.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Analytical
74) Refer to Table 7.4. The total number of people unemployed is

A) 10 million.
B) 8 million.
C) 6 million.
D) 3 million.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Analytical
75) Refer to Table 7.4. The total number of people employed is

A) 190 million.
B) 120 million.
C) 114 million.
D) 57 million.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Analytical
21
76) The employment rate is calculated as
A) (employed - labor force)/employed × 100.
B) (employed - unemployed)/labor force × 100.
C) unemployed/population × 100.
D) (labor force - unemployed)/labor force × 100.
Answer: D
Diff: 2
Topic: Unemployment
Skill: Conceptual
77) The number of people classified as employed is 390,000 and the number of people classified as
unemployed is 70,000. The size of the labor force
A) equals 320,000.
B) equals 390,000.
C) equals 460,000.
D) equals 480,000.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Analytical
78) The number of people classified as employed is 500,000 and the number of people in the labor force is
550,000. The total number of people classified as unemployed is
A) 11,000.
B) 50,000.
C) 500,000.
D) 550,000.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Analytical
A) 3.2%
B) 3.0%
C) 2.4%
D) 1.5%
Answer: A
Diff: 2
Topic: Unemployment
Skill: Analytical
22
A) 4.5%
B) 5.0%
C) 9.5%
D) 10%
Answer: D
Diff: 2
Topic: Unemployment
Skill: Analytical
81) If the number of people employed is 240,000 and the labor force is 250,000, the unemployment rate is
A) 2.4%.
B) 2.9%.
C) 4.0%.
D) 4.7%.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Analytical
82) If the unemployment rate is 7% and the number of people employed is 300,000, total number of
people unemployed is approximately
A) 21,000 people.
B) 22,580 people.
C) 23,330 people.
D) 42,050 people.
Answer: B
Diff: 3
Topic: Unemployment
Skill: Analytical
83) If the unemployment rate is 6.1% and the number of people employed is 400,000, the labor force is
approximately
A) 402,500 people.
B) 426,000 people.
C) 431,000 people.
D) 464,500 people.
Answer: B
Diff: 3
Topic: Unemployment
Skill: Analytical
23
84) If the labor force is 575,000 and the total population 16 years of age or older is 650,000, the labor-force
participation rate is
A) 65.0%.
B) 75.0%.
C) 88.5%.
D) 92.5%.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Analytical
85) If the labor-force participation rate is 90% and the total population 16 years of age or older is 3 million
people, the labor force is
A) 2,450,000 people.
B) 2,700,000 people.
C) 3,300,000 people.
D) 3,900,000 people.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Analytical
86) If the number of unemployed equals 10,000, the number of employed equals 70,000, and the number
not in the labor force is 20,000, the labor-force participation rate is
A) 60%.
B) 70%.
C) 80%.
D) 90%.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Analytical
87) If the number of unemployed equals 125,000 and the number of employed equals 275,000, the labor-
force participation rate
A) is 31.2%.
B) is 68.8%.
C) is 75%.
Answer: D
Diff: 2
Topic: Unemployment
Skill: Analytical
24
88) In the United States in 2015, the highest employment rate was for ________ and the lowest was for
________.
A) white men; white women
B) white men; African-American women
C) white women; African-American teenagers
D) African-American women; white men
Answer: C
Diff: 1
Topic: Unemployment
Skill: Fact
89) When an individual quits his job and decides to look for a new job immediately, the labor-force
participation rate
A) decreases.
B) increases.
C) stays the same.
D) may increase or decrease, depending on the length of time he/she stays at home.
Answer: C
Diff: 1
Topic: Unemployment
Skill: Conceptual
90) Tony has just graduated from college and has now applied for a full time position where he is
currently working part-time. This causes the unemployment rate to ________ and the labor-force
participation rate to ________.
A) increase; decrease
B) stay the same; stay the same
C) increase; increase
D) increase; stay the same
Answer: B
Diff: 2
Topic: Unemployment
Skill: Conceptual
91) If Lola is classified as a discouraged worker, she is

A) part of the labor force.
C) frictionally unemployed.
D) not part of the labor force.
Answer: D
Diff: 2
Topic: Unemployment
Skill: Conceptual
25
92) In September there are 10,000 people classified as unemployed and the size of the labor force is
400,000. The only change between September and October is that 4,000 of the unemployed give up
looking for work. Which of the following is true?
A) In September the unemployment rate was 1.75% and in October the unemployment rate was 0.75%.
B) In September the unemployment rate was 2.5% and in October the unemployment rate was 1.5%.
C) In September the unemployment rate was 4% and in October the unemployment rate was 1%.
D) In September the unemployment rate was 5% and in October the unemployment rate was 4%.
Answer: B
Diff: 3
Topic: Unemployment
Skill: Analytical
93) When 100 people who had previously stopped looking for jobs now decide to look for jobs, the
A) unemployment rate decreases.
B) size of the labor force increases.
C) labor-force participation rate does not change.
D) unemployment rate does not change.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Conceptual
94) By classifying discouraged workers as out of the labor force, the unemployment rate is ________ if
they were considered as employed.
A) higher than
B) lower than
C) the same as
D) any of the above can be correct
Answer: B
Diff: 2
Topic: Unemployment
Skill: Conceptual
95) The labor force participation rate is the

A) total number of people who are participating in the labor force.
B) ratio of the number of employed people to the number of unemployed people.
C) ratio of the labor force to the total population 16 years old or older.
D) the number of people in the labor force minus the number of people who are unemployed.
Answer: C
Diff: 1
Topic: Unemployment
Skill: Definition
26
96) Which of the following groups over 19 years of age had the highest unemployment rate in the United
States in 2015?
A) white men
B) African American men
C) white women
D) African American women
Answer: B
Diff: 1
Topic: Unemployment
Skill: Fact
97) Which of the following statements is not true?

A) The unemployment rate does not tell us anything about the duration of unemployment.
B) The duration of unemployment increases during recessions.
C) The duration of unemployment increases during economic expansions.
D) The unemployment rate plus the employment rate equals 100% of the labor force.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Conceptual
98) Of the following years, in which was the U.S. unemployment rate the highest?
A) 1960
B) 1982
C) 1990
D) 2015
Answer: B
Diff: 1
Topic: Unemployment
Skill: Fact
99) The Full Employment and balanced Growth Act of 1978 formally established a specific
unemployment target for the economy of
A) 2%.
B) 4%.
C) 6%.
D) 8%.
Answer: B
Diff: 1
Topic: Unemployment
Skill: Fact
27
100) When a radiologist quits her job at a public hospital and starts looking for a better radiology job in a
private practice, she is
A) cyclically unemployed.
C) structurally unemployed.
D) seasonally unemployed.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Conceptual
101) Unemployment that occurs during the normal workings of an economy as people change jobs and
move across the country is called
A) structural unemployment.
B) frictional unemployment.
C) natural unemployment.
D) cyclical unemployment.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Conceptual
102) If Samantha quits her job voluntarily and actively searches for other work, then she is considered
D) not to be unemployed.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Conceptual
103) When the Fed increases the rate of growth of the money supply to jump start the economy, the
unemployment type that will be directly affected is the
A) cyclical unemployment.
C) frictional unemployment.
D) natural rate of unemployment.
Answer: A
Diff: 2
Topic: Unemployment
Skill: Conceptual
28
104) Telephone operators who have lost their jobs as a result of computerized switchboards are an
example of
A) structural unemployment.
B) frictional unemployment.
D) voluntary unemployment.
Answer: A
Diff: 2
Topic: Unemployment
Skill: Conceptual
105) The portion of unemployment that is due to changes in the structure of the economy that result in a
significant loss of jobs in certain industries is ________ unemployment.
A) cyclical
B) structural
C) frictional
D) seasonal
Answer: B
Diff: 1
Topic: Unemployment
Skill: Definition
106) A customer service representative in Nebraska who loses his job because the company relocated the
customer service department to India represents an example of
Answer: B
Diff: 2
Topic: Unemployment
Skill: Conceptual
29
107) A software firm moves its headquarters from California to Ireland. The CFO of the software firm is
given the opportunity to move to Ireland. He turns down this opportunity because he does not want to
move out of the country. While he is searching for a new job within the United States he would be
classified as
A) frictionally unemployed.
B) cyclically unemployed.
C) structurally unemployed.
D) not in the labor force because he turned down the opportunity to relocate.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Conceptual
108) A structurally unemployed person is

A) an individual who cannot find a job because his or her job skills have become obsolete.
B) not counted as part of the labor force.
C) an individual who cannot find a job because of a recession.
D) an individual who is switching jobs within the same industry.
Answer: A
Diff: 1
Topic: Unemployment
Skill: Conceptual
109) The unemployment rate that occurs in a normal functioning economy is often referred to as
B) the natural rate of unemployment.
C) seasonal unemployment.
D) labor force unemployment.
Answer: B
Diff: 1
Topic: Unemployment
Skill: Definition
110) Any unemployment that does not occur as a part of a normal functioning economy is most likely
________ unemployment.
A) cyclical
B) structural
C) natural
D) frictional
Answer: A
Diff: 1
Topic: Unemployment
Skill: Conceptual
30
111) Estimates for the ________ rate of unemployment that routinely occurs in the United States range
from 4 to 6 percent.
A) frictional
B) structural
C) natural
D) cyclical
Answer: C
Diff: 1
Topic: Unemployment
Skill: Fact
112) If the labor market becomes less efficient so that the unemployed are more slowly matched with jobs,
then
A) the natural rate of unemployment will increase.
B) the natural rate of unemployment will decrease.
C) the natural rate of unemployment will not change.
D) the natural rate of unemployment could either increase or decrease.
Answer: A
Diff: 2
Topic: Unemployment
Skill: Conceptual
113) During the early 1980s, companies started expanding. One of the results of this expansion was the
long-term increase in the number of middle management positions. This change in the way businesses
operate would have
C) not affected the natural rate of unemployment.
D) either increased or decreased the natural rate of unemployment.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Conceptual
114) The ________ in unemployment that occurs during recessions and depressions is called ________
unemployment.
A) increase; cyclical
B) increase; frictional
C) increase; natural
D) decrease; structural
Answer: A
Diff: 1
Topic: Unemployment
Skill: Definition
31
115) The unemployment that occurs during recessions and depressions is
A) the natural rate of unemployment.
B) cyclical unemployment.
C) frictional unemployment.
D) structural unemployment.
Answer: B
Diff: 1
Topic: Unemployment
Skill: Definition
116) The demand for automobiles rises when the economy experiences an expansion. If an automobile
manufacturer hires additional workers during an expansion, this would be best described as an example
of a reduction in
B) natural unemployment.
C) structural unemployment.
D) frictional unemployment.
Answer: A
Diff: 2
Topic: Unemployment
Skill: Conceptual
117) The economy is in an expansion and the housing market is growing. As a result of this, a home
builder doubles his sales force. This would be best described as an example of a reduction in
D) natural unemployment.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Conceptual
118) During the recession of 2008-2009, cyclical unemployment increased as the recession continued. This
increase in cyclical unemployment would have
A) decreased the natural rate of unemployment.
B) increased the natural rate of unemployment.
C) had no effect on the natural rate of unemployment.
D) either increased or decreased the natural rate of unemployment.
Answer: C
Diff: 2
Topic: Unemployment
Skill: Conceptual
32
119) During a recession
A) consumption tends to rise.
B) investment tends to fall.
C) exports tend to fall.
D) imports tend to rise.
Answer: B
Diff: 2
Topic: Unemployment
Skill: Conceptual
120) Which of the following is a cost associated with recessions and unemployment?
A) increased real output
B) the psychological harm done to the unemployed
C) increased output in the future
D) worsening of the nation's balance of payments
Answer: B
Diff: 2
Topic: Unemployment
Skill: Conceptual
121) Related to the Economics in Practice on p. 127: In the U.S. from 1955 to 1996, the labor force
participation rate increased for ________ and decreased for ________.
A) men; women
B) women; men
C) white men; African American men
D) African American women; white women
Answer: B
Diff: 1
Skill: Fact
122) Related to the Economics in Practice on p. 127: If the number of women entering the labor force is
equal to the number of men leaving the labor force, the labor force participation rate will, ceteris paribus,
A) increase.
B) decrease.
C) not change.
D) drop to zero.
Answer: C
Diff: 2
Skill: Conceptual
33
123) Related to the Economics in Practice on p. 128: Compared to students who graduate college and obtain
employment during a recession, students who graduate during an economic expansion often find that
starting wages are ________ and wage growth is ________.
A) lower; slower
B) lower; faster
C) higher; slower
D) higher; faster
Answer: D
Diff: 2
Skill: Conceptual
124) When more people who are not working start looking for jobs, the labor-force participation rate
increases.
Answer: TRUE
Diff: 2
Topic: Unemployment
Skill: Conceptual
125) An increase in search costs will decrease structural unemployment.

Answer: FALSE
Diff: 2
Topic: Unemployment
Skill: Conceptual
126) The natural rate of unemployment is the unemployment rate during a period of full employment.
Answer: TRUE
Diff: 1
Topic: Unemployment
Skill: Definition
127) Anyone 16 years of age or older who is not classified as employed is classified as unemployed.
Answer: FALSE
Diff: 2
Topic: Unemployment
Skill: Conceptual
34
128) If discouraged workers were counted as unemployed, the measured unemployment rate would
increase.
Answer: TRUE
Diff: 2
Topic: Unemployment
Skill: Conceptual
129) An unemployment rate of 10% means that the average worker has been unemployed for 10% of the
year.
Answer: FALSE
Diff: 1
Topic: Unemployment
Skill: Conceptual
130) If labor markets were perfectly efficient, the unemployment rate would fall to zero.
Answer: FALSE
Diff: 2
Topic: Unemployment
Skill: Conceptual
131) The natural rate of unemployment in the economy is determined by the Congress and the president
of the country.
Answer: FALSE
Diff: 1
Topic: Unemployment
Skill: Fact
132) The type of unemployment most closely related to recessions is cyclical unemployment.
Answer: TRUE
Diff: 1
Topic: Unemployment
Skill: Conceptual
133) A decrease in search costs will decrease cyclical unemployment.

Answer: FALSE
Diff: 2
Topic: Unemployment
Skill: Conceptual
35
134) The natural rate of unemployment is cyclical plus frictional unemployment.
Answer: FALSE
Diff: 1
Topic: Unemployment
Skill: Definition
135) Anyone 16 years of age or older who is not classified as employed is still a member of the labor force.
Answer: FALSE
Diff: 2
Topic: Unemployment
Skill: Conceptual
136) Any unemployment that is above frictional plus structural is called cyclical unemployment.
Answer: TRUE
Diff: 1
Topic: Unemployment
Skill: Conceptual
137) An unemployment rate of 10% means that the employment rate is 90%.
Answer: TRUE
Diff: 1
Topic: Unemployment
Skill: Conceptual
138) If labor markets were perfectly efficient, the employment rate would rise to 100%.
Answer: FALSE
Diff: 2
Topic: Unemployment
Skill: Conceptual
139) The natural rate of unemployment varies based on inflation rates.

Answer: FALSE
Diff: 2
Topic: Unemployment
Skill: Conceptual
36
7.2 Inflation and Deflation
1) In which of the following conditions is the inflation rate likely to fall and the unemployment rate likely
to rise?
A) hyperinflation
B) recession
C) boom
D) stagflation
Answer: B
Diff: 2
Topic: Inflation and Deflation
Skill: Conceptual
2) The floods of 1993 caused the price of corn to increase. This is an example of
A) inflation.
B) deflation.
C) a sustained inflation.
D) the operations of supply and demand.
Answer: D
Diff: 2
Skill: Conceptual
3) The decrease in the demand for mainframe computers caused manufacturers of mainframe computers
to reduce prices by 20%. This is an example of
A) inflation.
B) deflation.
Answer: D
Diff: 2
Skill: Conceptual
4) Inflation is an increase in
A) the price of one item.
B) the overall price level.
C) the average income level.
D) real gross national product.
Answer: B
Diff: 1
Skill: Definition
37
5) An increase in the overall price level is
A) inflation.
B) deflation.
C) a price index.
D) a recession.
Answer: A
Diff: 1
Skill: Definition
6) Deflation is a decrease in
Answer: B
Diff: 1
Skill: Definition
7) An increase in the overall price level that continues over a significant period of time is
A) high inflation.
B) sustained recovery.
C) sustained inflation.
D) super inflation.
Answer: C
Diff: 1
Skill: Definition
8) A price index is
A) a measurement showing how the average price of a bundle of goods changes over time.
B) a measurement showing the cost of a bundle of goods at a point in time.
C) a sustained increase in the overall price level.
D) a decrease in the overall price level.
Answer: A
Diff: 1
Skill: Definition
38
Table 7.5
9) Refer to Table 7.5. Suppose 2014 is the base year. The price index in 2014 is
A) 1,000.
B) 100.
C) 10.
D) 1.
Answer: B
Diff: 2
Skill: Analytical
10) Refer to Table 7.5. If 2014 is the base year, the price index in 2013 is
A) 89.3.
B) 96.0.
C) 104.0.
D) 111.9.
Answer: A
Diff: 2
Skill: Analytical
A) 93.9.
B) 94.2.
C) 105.8.
D) 106.1.
Answer: D
Diff: 2
Skill: Analytical
39
12) Refer to Table 7.5 If 2014 is the base year, the price index in 2016 is
A) 81.2.
B) 86.8.
C) 118.8.
D) 123.2.
Answer: D
Diff: 2
Skill: Analytical
13) Refer to Table 7.5. If 2014 is the base year, the inflation rate between 2014 and 2015 is
A) 3.9%.
B) 6.1%.
C) 7.4%.
D) 10.2%.
Answer: B
Diff: 3
Skill: Analytical
14) Refer to Table 7.5. If 2014 is the base year, the inflation rate between 2014 and 2015 is ________%, and
the inflation rate between 2015 and 2016 is ________%.
A) 7.4; 13.9
B) 6.1; 16.1
C) 3.9; 17.1
D) 10.2; 10.4
Answer: B
Diff: 3
Skill: Analytical
15) Refer to Table 7.5. The lowest inflation rate is between the years
A) 2015 and 2016.
B) 2014 and 2015.
C) 2013 and 2014.
D) cannot be determined from the given information
Answer: B
Diff: 3
Skill: Analytical
40
16) Refer to Table 7.5. Suppose 2015 is the base year. The price index in 2014 is
A) 94.2.
B) 97.4.
C) 106.1.
D) 123.0.
Answer: A
Diff: 2
Skill: Analytical
A) 75.4.
B) 84.2.
C) 118.8.
D) 133.5.
Answer: B
Diff: 2
Skill: Analytical
A) 1000.
B) 100.
C) 10.
D) 1.
Answer: B
Diff: 2
Skill: Analytical
19) Refer to Table 7.5 If 2015 is the base year, the price index in 2016 is
A) 86.1.
B) 93.6.
C) 106.4.
D) 116.1.
Answer: D
Diff: 2
Skill: Analytical
41
A) 4.0%.
B) 5.8%.
C) 6.2%.
D) 9.4%.
Answer: C
Diff: 3
Skill: Analytical
21) Refer to Table 7.5. If 2015 is the base year, the inflation rate between 2014 and 2015 is ________%, and
the inflation rate between 2015 and 2016 is ________%.
A) 9.4; 11.2
B) 4.0; 4.9
C) 6.2; 16.1
D) 5.8; 5.8
Answer: C
Diff: 3
Skill: Analytical
22) Refer to Table 7.5. The highest inflation rate is between the years
A) 2015 and 2016.
B) 2014 and 2015.
C) 2013 and 2014.
D) cannot be determined from the given information
Answer: A
Diff: 3
Skill: Analytical
42
Table 7.6
23) Refer to Table 7.6. The bundle price for the goods in period 2014 is
A) $41.00.
B) $50.50.
C) $57.50.
D) $100.00.
Answer: A
Diff: 2
Skill: Analytical
24) Refer to Table 7.6. If 2014 is the base period, the price index in 2014 is
A) 1000.
B) 100.
C) 10.
D) 1.
Answer: B
Diff: 2
Skill: Analytical
A) 76.8.
B) 81.9.
C) 119.1.
D) 123.2.
Answer: D
Diff: 2
Skill: Analytical
43
A) 59.8.
B) 71.3.
C) 128.7.
D) 140.2.
Answer: D
Diff: 2
Skill: Analytical
A) 12.4%.
B) 17.6%.
C) 19.1%.
D) 23.2%.
Answer: D
Diff: 3
Skill: Analytical
A) 40.2%.
B) 28.7%.
C) 25.1%.
D) 17.4%.
Answer: A
Diff: 3
Skill: Analytical
A) 13.8%.
B) 12.2%.
C) 9.4%.
D) 7.0%.
Answer: A
Diff: 3
Skill: Analytical
44
30) Refer to Table 7.6. The bundle price for the goods in period 2015 is
A) $100.
B) $57.50.
C) $50.50.
D) $41.00.
Answer: C
Diff: 2
Skill: Analytical
31) Refer to Table 7.6. If 2015 is the base period, the price index in 2014 is
A) 81.2.
B) 86.8.
C) 118.8.
D) 123.2.
Answer: A
Diff: 2
Skill: Analytical
A) 1000.
B) 100.
C) 10.
D) 1.
Answer: B
Diff: 2
Skill: Analytical
A) 86.1.
B) 87.8.
C) 112.2.
D) 113.9.
Answer: D
Diff: 2
Skill: Analytical
45
A) 23.2%.
B) 20.4%.
C) 18.8%.
D) 14.1%.
Answer: A
Diff: 3
Skill: Analytical
35) If period 1 is the base year, the bundle price of goods in period 1 is $300, and the bundle price of
goods in period 2 is $320, the period 2 price index is
A) 93.3.
B) 93.8.
C) 106.2.
D) 106.7.
Answer: D
Diff: 2
Skill: Analytical
36) If 2015 is the base year, the bundle price of goods in 2015 is $500, and the bundle price of goods in
2016 is $700, the 2016 price index is
A) 140.0.
B) 128.6.
C) 71.4.
D) 60.0.
Answer: A
Diff: 2
Skill: Analytical
37) If the price index in period 2 is 109 and the price index in period 3 is 125, the rate of inflation between
period 2 and period 3 is
A) 16.0%.
B) 14.7%.
C) 9.0%.
D) 8.7%.
Answer: B
Diff: 2
Skill: Analytical
46
38) If 2015 is the base year and the inflation rate between 2015 and 2016 is 6.4%, the price index in 2016 is
A) 106.4.
B) 64.0.
C) 16.4.
D) cannot be determined from this information because the index in the base year is not given
Answer: A
Diff: 3
Skill: Analytical
39) If 2015 is the base year and the inflation rate between 2015 and 2016 is -4.5, the price index in 2016 is
A) 104.5.
B) 95.5.
C) -145.0.
D) cannot be determined from this information because the base year is not known
Answer: B
Diff: 3
Skill: Analytical
40) If the price index in 2015 is 115 and the price index in 2016 is 102, the rate of inflation between 2015
and 2016 is
A) 13.0%.
B) 12.7%.
C) -11.3%.
D) -13.0%.
Answer: C
Diff: 2
Skill: Analytical
41) The index used most often to measure inflation is the

A) producer price index.
B) consumer price index.
C) wholesale price index.
D) GDP deflator.
Answer: B
Diff: 1
Skill: Fact
47
42) If the CPI in 2015 was 114.7 and the CPI in 2016 was 124.5, then the rate of inflation between 2015 and
2016 was
A) 7.9%.
B) 8.5%.
C) 9.8%.
D) 14.7%.
Answer: B
Diff: 2
Skill: Analytical
43) If the CPI in 2015 was 104 and the CPI in 2016 was 106, then the rate of inflation between 2015 and
2016 was
A) 1.89%.
B) 1.92%.
C) 2.0%.
D) 2.2%.
Answer: B
Diff: 2
Skill: Analytical
44) If the CPI in period 1 is 180 and the CPI in period 2 is 240, then the rate of inflation between period 1
and period 2 is
A) 25.0%.
B) 33.3%.
C) 50.0%.
D) 66.7%.
Answer: B
Diff: 2
Skill: Analytical
45) The CPI in period 1 is 300 and the CPI in period 2 is 150. The rate of inflation between period 1 and
period 2 is
A) -100%.
B) -60%.
C) -50%.
D) 33.33%.
Answer: C
Diff: 2
Skill: Analytical
48
46) Which of the following statements is false?
A) One problem with any fixed-bundle index as a measure of the cost of living is that it does not account
for substitutions that consumers might make in response to price changes.
B) The producer price index is considered to be a leading indicator of future inflation rates.
C) The best overall indicator of inflationary pressures in the economy is the GDP deflator.
D) The consumer price index somewhat understates changes in the cost of living.
Answer: D
Diff: 2
Skill: Fact
47) A price index that tends to be a leading indicator of future inflation rates is the
A) consumer price index.
B) producer price index.
C) GDP price index.
D) retail price index.
Answer: B
Diff: 2
Skill: Fact
48) The broadest-based price index available is the

A) GDP deflator.
B) producer price index.
C) consumer price index.
D) wholesale price index.
Answer: A
Diff: 2
Skill: Fact
49) Most economists consider the ________ as the best overall indicator of inflationary pressures in the
economy.
A) producer price index
B) GDP deflator
C) wholesale price index
D) consumer price index
Answer: B
Diff: 1
Skill: Fact
49
A) An individual living on a fixed income is always made worse off as a result of inflation.
B) Those individuals receiving welfare benefits have been harmed by inflation because increases in
welfare payments have not kept pace with inflation.
C) Inflation will have no effect on an individual whose income is indexed to the inflation rate.
D) Some people in society benefit from inflation.
Answer: C
Diff: 2
Skill: Conceptual
51) The difference between the interest rate on a loan and the inflation rate is the
A) nominal interest rate.
B) inflation premium.
C) real interest rate.
D) expected interest rate.
Answer: C
Diff: 2
Skill: Conceptual
52) Which of the following increases the real interest rate?

A) a decrease in the nominal interest rate, holding the inflation rate constant
B) an increase in both the nominal interest rate and the inflation rate by the same percentage points
C) a decrease in the inflation rate, holding the nominal interest rate constant
D) a decrease in both the nominal interest rate and the inflation rate by the same percentage points
Answer: C
Diff: 2
Skill: Analytical
53) If Mr. Garrison is paid an interest rate of 4% on his savings, but the inflation rate is 7%, the real
interest rate Mr. Garrison earns is
A) 28%.
B) 4%.
C) -3%.
D) -7%.
Answer: C
Diff: 2
Skill: Analytical
50
54) You want to make a 10% real return on a loan that you are planning to make, and the expected
inflation rate during the period of the loan is 4%. You should charge a nominal interest rate of
A) -6%.
B) 6%.
C) 10%.
D) 14%.
Answer: D
Diff: 2
Skill: Analytical
55) Lola wants to make an 6% real return on a loan that she is planning to make, and the expected
inflation rate during the period of the loan is 5%. She should charge an interest rate of
A) 1%.
B) 6%.
C) 11%.
D) 16%.
Answer: C
Diff: 2
Skill: Analytical
56) If the inflation rate is smaller than the nominal interest rate, the real interest rate is
A) positive.
B) negative.
C) zero.
D) either positive or zero.
Answer: A
Diff: 2
Skill: Analytical
57) Eliza wants to borrow $100 from Sandy. Sandy wants to make 4% real return on his money, so they
both agree on a 4% interest rate paid next year. Eliza and Sandy did not anticipate any inflation, yet the
actual inflation turned out to be -5% next year. In this case,
A) Eliza will pay an 9% real interest rate.
B) Sandy is better off.
C) Eliza will pay a 4% nominal interest rate.
D) all of the above
Answer: D
Diff: 2
Skill: Analytical
51
58) Dean borrows $400 from Tim. Tim wants to make a 10% real return on his money, so they both agree
on a 10% interest rate paid next year. Dean and Tim did not anticipate any inflation, yet the actual
inflation turned out to be 4% next year. In this case,
A) Tim is better off.
B) Dean will pay $56 a year from now on.
C) Dean is better off.
D) Tim will receive more than 10% of real rate of return a year from now.
Answer: C
Diff: 2
Skill: Analytical
59) Which of the following is a cost of anticipated inflation?

A) Debtors are made worse off.
B) If people are not fully informed about the price level changes, resources will be misallocated.
C) The degree of risk associated with investments in the economy increases.
D) Creditors are made worse off.
Answer: B
Diff: 2
Skill: Conceptual
60) Stopping inflation

A) can only benefit the economy, because the price level will be reduced.
B) may be costly, if the inflation is stopped by inducing a recession.
C) may be costly, but the benefits of stopping inflation will always outweigh the costs of such actions.
D) will have no benefits or costs associated with it.
Answer: B
Diff: 2
Skill: Conceptual
52
A) Whether you gain or lose during a period of inflation depends on whether your income rises faster or
slower than the prices of the things you buy.
B) Inflation that is higher than expected benefits debtors, and inflation that is lower than expected
benefits creditors.
C) There are no costs or losses associated with anticipated inflation.
D) When unanticipated inflation occurs regularly, the degree of risk associated with investments in the
economy increases.
Answer: C
Diff: 3
Skill: Analytical
62) When unanticipated inflation occurs regularly, the degree of risk associated with investments in the
economy
A) increases.
B) decreases.
C) remains stable.
D) falls to zero.
Answer: A
Diff: 2
Skill: Conceptual
63) Which of the following is true?

A) A recession will lead to reduced output in the future, but inflation has no effect on future output.
B) Both recessions and inflations may reduce output in the future.
C) A recession will lead to reduced output in the future, but inflation will lead to increased output in the
future.
D) A recession will lead to increased output in the future, but inflation will lead to decreased output in
the future.
Answer: B
Diff: 2
Skill: Conceptual
53
64) Related to the Economics in Practice on p. 133: The Consumer Price Index in the United States was 207.3
in 2007, 215.3 in 2008 and 214.5 in 2009. If a retiree's pension is tied to the CPI, her monthly pension check
would have ________ from 2007 to 2008, and ________ from 2008 to 2009.
A) increased; increased
B) increased; decreased
C) decreased; increased
D) decreased; decreased
Answer: B
Diff: 2
Topic: Inflation: Economics in Practice
Skill: Conceptual
65) Related to the Economics in Practice on p. 133: The Consumer Price Index in the United States was 215.3
in 2008 and 214.5 in 2009. If a retiree received a monthly pension check of $3,200.00 in 2008 and his
pension is tied to the CPI, how much would his monthly pension check be in 2009?
A) $3174.40
B) $3,188.11
C) $3,200.00
D) $3,214.50
Answer: B
Diff: 3
Skill: Analytical
66) Related to the Economics in Practice on p. 133: If a retiree's pension is tied to the CPI, her monthly
pension check would tend to grow ________ if the pension is tied to the ________ CPI.
A) slower; fixed-weight
B) slower; chain-linked
C) faster; chain-linked
D) The check would grow at the same rate regardless of the type of CPI to which it is tied.
Answer: B
Diff: 2
Skill: Conceptual
54
67) In which of the following conditions is the inflation rate likely to rise and the unemployment rate
likely to fall?
A) hyperinflation
B) recession
C) boom
D) stagflation
Answer: C
Diff: 2
Skill: Conceptual
68) Hurricane Katrina caused the price of oil to increase. This is an example of
A) inflation.
B) deflation.
Answer: D
Diff: 2
Skill: Conceptual
69) The increase in the demand for hybrid vehicles caused manufacturers of hybrid vehicles to increase
prices by 20%. This is an example of
A) inflation.
B) deflation.
Answer: D
Diff: 2
Skill: Conceptual
70) Deflation is an decrease in

Answer: B
Diff: 1
Skill: Definition
55
71) A decrease in the overall price level is
A) inflation.
B) deflation.
C) a price index.
D) a recession.
Answer: B
Diff: 1
Skill: Definition
72) In the CPI market basket, the category which has the largest weight is
A) housing.
B) food and beverages.
C) transportation.
D) medical care.
Answer: A
Diff: 1
Skill: Fact
73) Sustained inflation is

A) the same as hyperinflation.
B) also called stagflation.
C) a constant increase in the price of one product or service in the economy.
D) an increase in the overall price level that continues over a significant period of time.
Answer: D
Diff: 1
Skill: Definition
74) A measurement showing how the average price of a bundle of goods changes over time is a
A) nominal price.
B) price index.
C) real price.
D) sticky price.
Answer: B
Diff: 1
Skill: Definition
56
75) If period 1 is the base year, the bundle price of goods in period 1 is $200, and the bundle price of
goods in period 2 is $240, the period 2 price index is
A) 80.0.
B) 83.3.
C) 116.7.
D) 120.0.
Answer: D
Diff: 2
Skill: Analytical
76) If 2015 is the base year, the bundle price of goods in 2015 is $750, and the bundle price of goods in
2016 is $1,000, the 2016 price index is
A) 75.
B) 125.
C) 133.3.
D) 166.7.
Answer: C
Diff: 2
Skill: Analytical
77) If the price index in period 2 is 105 and the price index in period 3 is 122, the rate of inflation between
period 2 and period 3 is
A) 11.6%.
B) 12.9%.
C) 16.2%.
D) 17.0%.
Answer: C
Diff: 2
Skill: Analytical
78) If 2015 is the base year and the inflation rate between 2015 and 2016 is 5.2%, the price index in 2016 is
A) 52.0.
B) 100.52.
C) 102.50.
D) 105.20.
Answer: D
Diff: 2
Skill: Analytical
57
79) If 2015 is the base year and the inflation rate between 2015 and 2016 is 7.1, the price index in 2016 is
A) 171.
B) 107.1.
C) 92.9.
D) 1.09.
Answer: C
Diff: 2
Skill: Analytical
80) If the price index in 2015 is 132 and the price index in 2016 is 114, the rate of inflation between 2015
and 2016 is
A) -13.6%.
B) -5.8%.
C) 6.4%.
D) 15.8%.
Answer: A
Diff: 2
Skill: Analytical
81) The consumer price index is the index most often used to measure
A) unemployment.
B) per capita income.
C) inflation.
D) the labor force.
Answer: C
Diff: 1
Skill: Fact
82) If the CPI in 2015 was 104.5 and the CPI in 2016 was 110.5, then the rate of inflation between 2015 and
2016 was
A) 5.4%.
B) 5.7%.
C) 6.5%.
D) 7.0%.
Answer: B
Diff: 2
Skill: Analytical
58
83) If the CPI in 2015 was 112 and the CPI in 2016 was 116, then the rate of inflation between 2015 and
2016 was
A) 4.00%.
B) 3.64%.
C) 3.57%.
D) 3.45%.
Answer: C
Diff: 2
Skill: Analytical
84) If the CPI in period 1 is 125 and the CPI in period 2 is 150, then the rate of inflation between period 1
and period 2 is
A) 20%.
B) 25%.
C) 30%.
D) 50%.
Answer: A
Diff: 2
Skill: Analytical
85) The CPI in period 1 is 200 and the CPI in period 2 is 150. The rate of inflation between period 1 and
period 2 is
A) 75%.
B) -25%.
C) -50%.
D) -75%.
Answer: B
Diff: 2
Skill: Analytical

A) One benefit with any fixed-bundle index as a measure of the cost of living is that it does not account
for substitutions that consumers might make in response to price changes.
B) The producer price index is considered to be a leading indicator of future inflation rates.
C) The best overall indicator of inflationary pressures in the economy is the CPI.
D) The consumer price index somewhat understates changes in the cost of living.
Answer: B
Diff: 2
Skill: Fact
59
87) The PPI is a price index that tends to be a leading indicator of
A) past economic performance.
B) unemployment trends.
C) future inflation rates.
D) nominal GDP.
Answer: C
Diff: 2
Skill: Fact
88) The GDP deflator is the

A) broadest-based price index available.
B) price index used for the wholesale market.
C) difference between GDP and national income.
D) index used to measure deflation but not inflation.
Answer: A
Diff: 2
Skill: Fact
89) Most economists consider the GDP deflator as ________ of inflationary pressures in the economy.
A) the least accurate measure
B) an overvalued measure
C) only valid as a wholesale price measure
D) the best overall indicator
Answer: D
Diff: 1
Skill: Fact

A) An individual living on a fixed income is always made better off as a result of deflation.
B) Those individuals receiving welfare benefits have been harmed by inflation because increases in
welfare payments have not kept pace with inflation.
C) Inflation will have no effect on an individual whose income is indexed to the inflation rate.
D) Everyone in society benefits from inflation.
Answer: B
Diff: 2
Skill: Fact
60
91) The real interest rate is the difference between ________ and ________.
A) the interest rate on a loan; the inflation rate
B) nominal interest rate; depreciation
C) inflation rate; GDP deflator
D) frictional inflation rate; structural inflation rate
Answer: A
Diff: 2
Skill: Definition
92) Which of the following decreases the real interest rate?

A) an increase in the nominal interest rate, holding the inflation rate constant
B) an increase in both the nominal interest rate and the inflation rate by the same percentage points
C) an increase in the inflation rate, holding the nominal interest rate constant
D) a decrease in both the nominal interest rate and the inflation rate by the same percentage points
Answer: C
Diff: 2
Skill: Analytical
93) If Homer is paid an interest rate of 2% on his savings, but the inflation rate is 12%, the real interest
rate Homer earns is
A) -12%.
B) -10%.
C) 2%.
D) 14%.
Answer: B
Diff: 2
Skill: Analytical
94) You want to make a 10% real return on a loan that you are planning to make, and the expected
inflation rate during the period of the loan is 10%. You should charge a nominal interest rate of
A) 0%.
B) 5%.
C) 10%.
D) 20%.
Answer: D
Diff: 2
Skill: Analytical
61
95) Celia wants to make an 8% real return on a loan that she is planning to make, and the expected
inflation rate during the period of the loan is 5%. She should charge an interest rate of
A) 3%.
B) 5%.
C) 8%.
D) 13%.
Answer: D
Diff: 2
Skill: Analytical
96) If the inflation rate is larger than the nominal interest rate, the real interest rate is
A) positive.
B) negative.
C) zero.
D) either positive or zero.
Answer: B
Diff: 2
Skill: Conceptual
97) Drew wants to borrow $500 from Bob. Bob wants to make 4% real return on his money, so they both
agree on an 4% interest rate paid next year. Both don't anticipate the -5% inflation next year. In this case
A) Drew will pay an 4% real interest rate.
B) Bob is better off.
C) Drew will pay an 13% nominal interest rate.
D) all of the above
Answer: B
Diff: 2
Skill: Analytical
98) Julio borrows $250 from Ricky. Ricky wants to make a 5% real return on his money, so they both
agree on a 5% interest rate paid next year. Both don't anticipate the 5% inflation next year. In this case
A) Ricky is better off.
B) Julio will pay $15 a year from now on.
C) Julio is better off.
D) Ricky will receive more than 5% of real rate of return a year from now.
Answer: C
Diff: 2
Skill: Analytical
62
99) Which of the following is a cost of unanticipated inflation?
A) Debtors are made worse off.
B) Both debtors and creditors are made worse off.
C) The degree of risk associated with investments in the economy decreases.
D) Creditors are made worse off.
Answer: D
Diff: 2
Skill: Conceptual
100) Stopping inflation by inducing a recession

A) can only benefit the economy, because the price level will be reduced.
B) generates costs to society due to the recession.
C) will always outweigh the costs of the recession.
D) both A and C
Answer: B
Diff: 2
Skill: Conceptual

A) Whether you gain or lose during a period of inflation depends on whether your income rises faster or
slower than the prices of the things you buy.
B) Inflation that is higher than expected benefits creditors, and inflation that is lower than expected
benefits debtors.
C) There are no costs or losses associated with anticipated inflation.
D) When unanticipated inflation occurs regularly, the degree of risk associated with investments in the
economy decreases.
Answer: A
Diff: 3
Skill: Analytical
102) When anticipated inflation occurs regularly, the degree of risk associated with investments in the
economy
A) increases.
B) decreases.
C) remains stable.
D) falls to zero.
Answer: C
Diff: 2
Skill: Conceptual
63
103) A recession ________ output in the future and inflation ________ output in the future.
A) will reduce; will not affect
B) may reduce; may reduce
C) may reduce; will increase
D) will reduce; will reduce
Answer: B
Diff: 2
Skill: Conceptual
104) Related to the Economics in Practice on p. 133: The Consumer Price Index in the United States was
207.3 in 2007, 215.3 in 2008 and 214.5 in 2009. If a retiree's pension is tied to the CPI, his monthly pension
check would have increased from ________, and decreased from ________.
A) 2007 to 2008; 2008 to 2009
B) 2008 to 2009; 2007 to 2008
C) 2007 to 2008; 2007 to 2009
D) 2007 to 2009; 2007 to 2008
Answer: A
Diff: 2
Skill: Conceptual
105) Related to the Economics in Practice on p. 133: The Consumer Price Index in the United States was
215.3 in 2008 and 214.5 in 2009. If a retiree received a monthly pension check of $4,500.00 in 2008 and her
pension is tied to the CPI, how much would her monthly pension check be in 2009?
A) $4,464.00
B) $4,483.28
C) $4,500.00
D) $4,714.50
Answer: B
Diff: 3
Skill: Analytical
64
106) Related to the Economics in Practice on p. 133: If a retiree's pension is tied to the CPI, her monthly
pension check would tend to grow ________ if the pension is tied to the ________ CPI.
A) slower; fixed-weight
B) faster; chain-linked
C) faster; fixed-weight
D) The check would grow at the same rate regardless of the type of CPI to which it is tied.
Answer: C
Diff: 2
Skill: Conceptual
107) The CPI somewhat overstates changes in the cost of living because it does not allow for substitutions
that consumers might make in response to price changes.
Answer: TRUE
Diff: 2
Skill: Conceptual
108) A 100% increase in the price of salt changes the CPI more than a 10% increase in rent.
Answer: FALSE
Diff: 2
Skill: Fact
109) An inflation rate that is lower than expected benefits creditors.

Answer: TRUE
Diff: 2
Skill: Conceptual
110) There are no costs associated with inflation if the inflation rate is perfectly anticipated.
Answer: FALSE
Diff: 2
Skill: Conceptual
111) The actual real rate of interest is the nominal rate less the actual inflation rate.
Answer: TRUE
Diff: 1
Skill: Definition
65
112) If your income is fixed and the economy experiences inflation, your ability to purchase goods and
services rises.
Answer: FALSE
Diff: 2
Skill: Conceptual
113) The United States has not experienced high inflation since the 1970s.
Answer: TRUE
Diff: 2
Skill: Fact
114) An inflation rate that is higher than expected benefits debtors.

Answer: TRUE
Diff: 2
Skill: Conceptual
115) There are no costs associated with inflation if the inflation rate is unanticipated.
Answer: TRUE
Diff: 2
Skill: Conceptual
116) The Consumer Price Index is a fixed-weight index.

Answer: TRUE
Diff: 1
Skill: Fact
66
7.3 Long-Run Growth
1) We can safely say that total output can increase if there is a(n)
A) increase in the size of the labor force and a decrease in the productivity of workers.
B) decrease in the size of capital and an increase in the productivity of machines.
C) increase in the number of machines per worker.
D) decrease in the number of workers per machine.
Answer: C
Diff: 2
Topic: Long-Run Growth
Skill: Conceptual
2) The productivity of workers is defined as the

A) total output produced by the labor force.
B) output produced by a worker per hour.
C) number of hours a worker spends at work.
D) number of workers needed to produce one day's volume of output.
Answer: B
Diff: 1
Skill: Definition
3) The capital per worker ratio is a measure of

A) how many tools or machines each worker has to work with.
B) how productive workers are.
C) how much GDP is growing.
D) how much borrowed money is needed per worker.
Answer: A
Diff: 1
Skill: Definition
4) Productivity is the ratio of

A) total output to the total number of worker hours.
B) total output to the total population.
C) total output to the total number of unemployed.
D) total capital to the total number of workers.
Answer: A
Diff: 1
Skill: Definition
67
5) For the 1952-2014 period in the United States, output per worker hour
A) increased at a constant rate.
B) decreased during the 1960s.
C) fluctuated around an upward trend.
D) showed the largest increase during the 1980s.
Answer: C
Diff: 1
Skill: Fact
6) All of the following explain the growth in output per worker hour during the 20th century except
A) the quality of labor improved during that period.
B) the quantity of labor increased during that period.
C) the quality of capital improved during that period.
D) the worker-capital ratio decreased during that period.
Answer: D
Diff: 2
Skill: Conceptual
7) Which of the following is not a desirable feature in an economy?

A) rapid increase in output per worker
B) rapid increase in the general price level
C) low unemployment
D) low inflation
Answer: B
Diff: 1
Skill: Conceptual
8) Which of the following is a desirable characteristic in an economy?

A) high inflation
C) low unemployment
D) low employment
Answer: C
Diff: 1
Skill: Conceptual
68
A) growing per-capita output
C) population growing the same rate as output
D) population growing faster than output
Answer: A
Diff: 1
Skill: Conceptual

B) high inflation
C) cyclical unemployment
D) sustained deflation
Answer: A
Diff: 1
Skill: Conceptual
11) Output in an economy can be increased by

A) adding more workers.
B) limiting the work week.
C) using fewer machines.
D) decreasing inflation.
Answer: A
Diff: 1
Skill: Conceptual
12) Human capital is

A) the machines people own.
B) the money people have.
C) the mental or physical skills people have.
D) the property people own.
Answer: C
Diff: 1
Skill: Definition
69
13) The average growth rate of output in the U.S. economy since 1900 has been
A) 2.4%.
B) 3.3%.
C) 6.3%.
D) 10.5%.
Answer: B
Diff: 1
Skill: Fact
14) A prolonged and deep recession is a

A) hyperinflation.
B) slowdown.
C) contraction.
D) depression.
Answer: D
Diff: 1
Skill: Definition
15) Which of the following is not considered capital?

A) a factory a company builds to produce other output
B) a tractor produced by John Deere
C) the knowledge an individual acquires through education
D) 10,000 U.S. dollars
Answer: D
Diff: 2
Skill: Conceptual
16) We can safely say that total output can decrease if there is a(n)
A) increase in the size of the labor force and an increase in the productivity of workers.
B) increase in the size of capital and an increase in the productivity of machines.
C) increase in the number of machines per worker.
D) decrease in the number of workers per machine.
Answer: D
Diff: 2
Skill: Conceptual
70
17) The per-hour output produced by a worker describes the
A) labor force participation rate.
B) capital per worker ratio.
C) nominal worker growth standard.
D) productivity of workers.
Answer: D
Diff: 1
Skill: Definition
18) The number of tools or machines each worker has to work with measures the
A) average wage rate of workers.
B) labor force participation rate.
C) capital per worker ratio.
D) productivity of workers.
Answer: C
Diff: 1
Skill: Definition
19) The ratio of total output to the total number of worker hours measures
A) productivity.
B) capital per worker.
C) the ratio of labor cost to total cost.
D) labor force participation.
Answer: A
Diff: 1
Skill: Definition
20) For the 1952-2014 period in the United States, productivity

A) decreased during the 1960s.
B) increased at a constant rate.
C) showed the largest increase during the 1980s.
D) fluctuated in the short run around an upward trend.
Answer: D
Diff: 1
Skill: Fact
71
21) Which of the following best explains the growth in output per worker hour during the 20th century?
A) the quality of labor declined during that period
B) the quantity of labor increased during that period
C) the quality of capital improved during that period
D) the worker-capital ratio increased during that period
Answer: C
Diff: 2
Skill: Conceptual
22) Which of the following is a desirable feature in an economy?

A) rapid increase in output per worker
B) low inflation
C) low unemployment
D) all of the above
Answer: D
Diff: 1
Skill: Conceptual

A) low inflation
C) high unemployment
D) low employment
Answer: A
Diff: 1
Skill: Conceptual
24) Which of the following is not a desirable characteristic in an economy?

C) low unemployment
D) population growing slower than output
Answer: B
Diff: 1
Skill: Conceptual
72
25) Which of the following is not a desirable characteristic in an economy?
B) low inflation
C) low unemployment
D) population increasing faster than output
Answer: D
Diff: 1
Skill: Conceptual
26) Output in an economy can be decreased by

A) adding more workers.
B) limiting the work week.
C) using more machines.
D) all of the above
Answer: B
Diff: 2
Skill: Conceptual
27) In economics, the mental or physical skills people have is called

A) personal investment.
B) human capital.
C) external education.
D) intuition.
Answer: B
Diff: 1
Skill: Definition
28) U.S. productivity grew the fastest in which of the following decades?
A) 1960s
B) 1970s
C) 1980s
D) 1990s
Answer: A
Diff: 1
Skill: Fact
73
29) A depression is
A) deflation with economic growth.
B) a general increase in the price level.
C) a prolonged and deep recession.
D) most common in an expansionary economy.
Answer: C
Diff: 1
Skill: Definition
30) Which of the following is considered economic capital?

A) a U.S. Treasury bond
B) 500 shares of Google stock
C) the knowledge an individual acquires through education
D) 20,000 Swiss francs
Answer: C
Diff: 2
Skill: Conceptual
31) The only source of economic growth is growth in the number of workers in the economy.
Answer: FALSE
Diff: 1
Skill: Conceptual
32) Labor productivity is total output divided by the total number of worker hours.
Answer: TRUE
Diff: 1
Skill: Definition
33) Workers who take a job related training course are enhancing their human capital.
Answer: TRUE
Diff: 2
Skill: Conceptual
74
34) If the population is growing as fast the economy, then per-capita output is growing.
Answer: FALSE
Diff: 2
Skill: Conceptual
35) If more workers have more capital to work with, then production will increase.
Answer: TRUE
Diff: 2
Skill: Conceptual
36) Productivity is output per worker hour.

Answer: TRUE
Diff: 1
Skill: Definition
37) The only source of economic growth is technological advancement.

Answer: FALSE
Diff: 1
Skill: Conceptual
38) Per capita means per person.

Answer: TRUE
Diff: 1
Skill: Definition
39) Output can increase if the workweek is extended.

Answer: TRUE
Diff: 1
Skill: Conceptual
75
40) If the population is growing faster the economy, then per-capita output is falling.
Answer: TRUE
Diff: 2
Skill: Conceptual
41) If more workers have less capital to work with, then production will decrease.
Answer: TRUE
Diff: 2
Skill: Conceptual
42) Per capita output is a measure of economic welfare of a country.

Answer: TRUE
Diff: 1
Skill: Conceptual
76

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Principles of Macroeconomics, 12e (Case)

Chapter 7 Unemployment, Inflation, and Long-Run Growth

2) For you to be considered out of the labor force, you can be

7) Refer to Table 7.1. The labor force equals

8) Refer to Table 7.1. The unemployment rate is

9) Refer to Table 7.1. The labor-force participation rate is

11) Refer to Table 7.2. The labor force

12) Refer to Table 7.2. The total number of people unemployed is

14) The unemployment rate is

32) Classifying discouraged workers as unemployed would

35) Which of the following statements is true?

36) The labor force participation rate is the

48) The natural rate of unemployment is generally thought of as the

49) The sum of frictional and structural unemployment is thought of as the

54) Cyclical unemployment is the

66) The number of people employed equals

69) Refer to Table 7.3. The labor force equals

71) Refer to Table 7.3. The labor-force participation rate is approximately

72) Refer to Table 7.3. The employment rate is

73) Refer to Table 7.4. The labor force

74) Refer to Table 7.4. The total number of people unemployed is

75) Refer to Table 7.4. The total number of people employed is

91) If Lola is classified as a discouraged worker, she is

95) The labor force participation rate is the

97) Which of the following statements is not true?

108) A structurally unemployed person is

125) An increase in search costs will decrease structural unemployment.

133) A decrease in search costs will decrease cyclical unemployment.

139) The natural rate of unemployment varies based on inflation rates.

41) The index used most often to measure inflation is the

48) The broadest-based price index available is the

52) Which of the following increases the real interest rate?

59) Which of the following is a cost of anticipated inflation?

60) Stopping inflation

63) Which of the following is true?

70) Deflation is an decrease in

73) Sustained inflation is

86) Which of the following statements is true?

88) The GDP deflator is the

90) Which of the following statements is true?

92) Which of the following decreases the real interest rate?

100) Stopping inflation by inducing a recession

101) Which of the following statements is true?

109) An inflation rate that is lower than expected benefits creditors.

114) An inflation rate that is higher than expected benefits debtors.

116) The Consumer Price Index is a fixed-weight index.

2) The productivity of workers is defined as the

3) The capital per worker ratio is a measure of

4) Productivity is the ratio of

7) Which of the following is not a desirable feature in an economy?

8) Which of the following is a desirable characteristic in an economy?

10) Which of the following is a desirable characteristic in an economy?

11) Output in an economy can be increased by

12) Human capital is

14) A prolonged and deep recession is a

15) Which of the following is not considered capital?

20) For the 1952-2014 period in the United States, productivity

22) Which of the following is a desirable feature in an economy?

23) Which of the following is a desirable characteristic in an economy?

24) Which of the following is not a desirable characteristic in an economy?

26) Output in an economy can be decreased by

27) In economics, the mental or physical skills people have is called

30) Which of the following is considered economic capital?