Question 1

An increase in stock prices can be considered as an increase in:

Accepted Answer

A)   a leading indicator.
B)   a coincident indicator.
C)   the consumer index.
D)   the consumer leverage ratio.
E)   a lagging indicator.

Question 2

Assume that the U.S. labor force consists of 185 million workers and that 17.5 million are officially unemployed. What is the unemployment rate if 68.5 million are under age 16 and 6 million are institutionalized?

Accepted Answer

A)   11.4 percent
B)   10.0 percent
C)   9.5 percent
D)   7.5 percent
E)   10.8 percent

Question 3

A variable-rate mortgage:

Accepted Answer

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

Question 4

The Great Depression was the most severe recession experienced by the U.S. economy, during which national output had declined by 25 percent.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

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

Question 6

In the official labor statistics, discouraged workers are:

Accepted Answer

A)   counted as employed.
B)   counted as unemployed.
C)   included in the labor force.
D)   not included in the labor force.
E)   considered to be seasonally unemployed.

Question 7

In the 1990s, the Danish government passed laws tightening eligibility requirements for receiving unemployment benefits. What happened to Danish unemployment rates as a result of this policy change?

Accepted Answer

A)   The size of the labor force declined
B)   The unemployment rate decreased
C)   More teenagers entered the labor force
D)   The wage rate increased
E)   The natural rate of unemployment increased

Question 8

In the business cycle, a trough marks the end of a(n)  _____ and the beginning of a new _____.

Accepted Answer

A)   contraction; expansion
B)   peak; expansion
C)   expansion; contraction
D)   peak; contraction
E)   expansion; peak

Question 9

Which of the following is the closest example of structural unemployment?

Accepted Answer

A)   An accountant quits her job to become an investment banker.
B)   An auto worker is fired for poor job performance.
C)   Workers in a firms manufacturing films for roll film cameras lost jobs once digital cameras became common.
D)   A consultant is laid off because poor economic conditions have depressed the market for consultants.
E)   A college graduate seeking his/her first job in the IT industry.

Question 10

Assume that for a given year, the nominal interest rate is 9 percent while inflation rises to 11 percent indicating a 4 percent higher rate than anticipated. Which group of people is made better off by the inflation?

Accepted Answer

A)   Those who lend at fixed interest rates
B)   Those who borrow at fixed interest rates
C)   Those who borrow at variable interest rates
D)   Those who receive fixed incomes
E)   Those who save at variable interest rates

Question 11

The GDP gap tends to increase when the economy shifts into recession.

Accepted Answer

A) True 
 B)False

Question 12

Including discouraged workers in the labor market statistics would raise the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Which of the following refers to business cycles?

Accepted Answer

A)   Variations in the economy that are all equal in intensity
B)   Seasonal variations in the economy that occur every year
C)   Fluctuations in economic output that show a declining growth pattern over time
D)   Periodic but irregular variations in economic activity
E)   Period movements from one economic peak to another

Question 15

Which of the following would be considered a leading indicator?

Accepted Answer

A)   Prime interest rate
B)   Personal income
C)   Money supply
D)   Inventories to sales ratio
E)   Unemployment duration

Question 16

Other things equal, as the number of discouraged workers rises in an economy, the gap between potential and actual real GDP will widen.

Accepted Answer

A) True 
 B)False

Question 17

Why do the European countries like France, Germany, Italy and Spain have higher unemployment rates than other industrialized nations?

Accepted Answer

A)   Low interest rate and low capital formation
B)   Minimum wages are lower in these European countries compared to the other industrialized nations
C)   Trade unions are not so prominent in these European countries
D)   Stringent policies adopted by the governments of these nations against termination of workers by firms
E)   Nominal wages are more flexible in these nations compared to the other industrialized nations

Question 18

When the U.S. economy is at its full-employment level, the unemployment rate is not equal to zero because:

Accepted Answer

A)   cyclical unemployment is always present in a modern economy.
B)   of the statistical discrepancy.
C)   voluntary unemployment is always positive.
D)   frictional and structural unemployment are always present in a modern economy.
E)   there are always people who are too lazy to work.

Question 19

At potential real GDP:

Accepted Answer

A)   there is zero unemployment.
B)   there is no seasonal unemployment.
C)   there is no frictional unemployment.
D)   unemployment is at its natural rate.
E)   cyclical unemployment equals approximately 5 percent.

Question 20

Suppose statistical surveys indicate that new orders for manufactured goods and new building permits for single-family homes are declining and that business inventories are rising. This implies economic activity is slowing down and the economy is potentially entering a recessionary period.

Accepted Answer

A) True 
 B)False

Exam 7: Unemployment and Inflation

Which of the following is the closest example of structural unemployment?

Correct AnswerverifiedShow Answer

The Great Depression was the most severe recession experienced by the U.S. economy, during which national output had declined by 25 percent.

Correct AnswerverifiedShow Answer

Assume that for a given year, the nominal interest rate is 9 percent while inflation rises to 11 percent indicating a 4 percent higher rate than anticipated. Which group of people is made better off by the inflation?

Correct AnswerverifiedShow Answer

In the business cycle, a trough marks the end of a(n) _____ and the beginning of a new _____.

Correct AnswerverifiedShow Answer

A variable-rate mortgage:

Correct AnswerverifiedShow Answer

When the U.S. economy is at its full-employment level, the unemployment rate is not equal to zero because:

Correct AnswerverifiedShow Answer

Which of the following would be considered a leading indicator?

Correct AnswerverifiedShow Answer

At potential real GDP:

Correct AnswerverifiedShow Answer

Which of the following refers to business cycles?

Correct AnswerverifiedShow Answer

Assume that the U.S. labor force consists of 185 million workers and that 17.5 million are officially unemployed. What is the unemployment rate if 68.5 million are under age 16 and 6 million are institutionalized?

Correct AnswerverifiedShow Answer

Including discouraged workers in the labor market statistics would raise the unemployment rate.

Correct AnswerverifiedShow Answer

Suppose statistical surveys indicate that new orders for manufactured goods and new building permits for single-family homes are declining and that business inventories are rising. This implies economic activity is slowing down and the economy is potentially entering a recessionary period.

Correct AnswerverifiedShow Answer

The GDP gap tends to increase when the economy shifts into recession.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An increase in stock prices can be considered as an increase in:

Correct AnswerverifiedShow Answer

In the 1990s, the Danish government passed laws tightening eligibility requirements for receiving unemployment benefits. What happened to Danish unemployment rates as a result of this policy change?

Correct AnswerverifiedShow Answer

Why do the European countries like France, Germany, Italy and Spain have higher unemployment rates than other industrialized nations?

Correct AnswerverifiedShow Answer

Other things equal, as the number of discouraged workers rises in an economy, the gap between potential and actual real GDP will widen.

Correct AnswerverifiedShow Answer

In the official labor statistics, discouraged workers are:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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In the business cycle, a trough marks the end of a(n) _ and the beginning of a new _.

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