test 3

Question 1

A decrease in gross domestic product (GDP) necessarily means that consumer welfare has decreased.​

Answer 1

False

Feedback
GDP shows the total expenditure in an economy but it does not reflect how people spend their money. See 6-3: Limitations of National Income Accounting

Question 2

A farmer grows wheat and sells it to a bakery for $5. The bakery uses the wheat to bake bread and sells it to a distributor for $20. The distributor sells the bread to a supermarket for $30, which then sells the bread to customers for $50. Which of the following is true?

Answer 2

The value added by the supermarket is more than that added by the bakery.

Feedback
Correct. To avoid double counting, we include only the value added at each stage of production as the difference between the purchase price and the selling price at that stage. See 6-1: The Product of a Nation

Question 3

A shortcoming of national income accounting is that it ignores:​

Answer 3

the depletion of natural resources.

Feedback
Correct. Gross domestic product (GDP) does not reflect the impact of production on negative externalities and depletion of natural resources. See 6-3: Limitations of National Income Accounting

Question 4

Depreciation refers to a decrease in the value of a durable good caused by:​

Answer 4

Wear and tear over time.

Feedback
Correct. Depreciation refers to the decrease value of capital stock that is used up or becomes obsolete in the production process. See 6-3: Limitations of National Income Accounting

Question 5

From 2009 to 2013, the price level in the U.S. increased by 8.3 percent. With 2009 as the base year, this implies that the price index in 2013 was:

Answer 5

108.3

Feedback
Correct. The price index in 2013 = the price index in the base year + 8.3 percent. See 6-4: Accounting for Price Changes

Question 6

Gross domestic product (GDP) decreases if the quantity of illegal drugs sold decreases.​

Answer 6

False

Feedback
GDP does not include the value of off-the-books production. See 6-3: Limitations of National Income Accounting

Question 7

Gross domestic product (GDP) figures tend to understate the quantity of goods and services available because:​

Answer 7

GDP excludes the value of goods produced at home.

Feedback
Correct. GDP excludes the market value of activities that an individual does for himself. See 6-3: Limitations of National Income Accounting

Question 8

Gross domestic product ( GDP) is a good measure of social welfare since it includes the value of leisure time.​

Answer 8

False

Feedback
GDP does not include the value of leisure, as it cannot be directly bought or sold in the market. See 6-3: Limitations of National Income Accounting

Question 9

If the consumer price index (CPI) is 220 one year and 210 the next, the annual rate of inflation as measured by the CPI is approximately _____.​

Answer 9

-4.6%

Feedback
Correct. A change in the price level between two years is measured by dividing one year’s price level by another year’s price level and multiplying by 100. See 6-4: Accounting for Price Changes

Question 10

If the consumer price index (CPI) this year is 162 and last year it was 170, the inflation rate:​

Answer 10

is negative

Feedback
Correct. A change in the price level between two years is measured by dividing one year’s price level by another year’s price level and multiplying by 100. See 6-4: Accounting for Price Changes

Question 11

A recent college graduate who is looking for her first job would be considered _____.​

Answer 11

unemployment

Feedback
Correct. The number of unemployed workers is the number of workers in the labor force who are not working but looking for work. See 7-1: Unemployment: Its Measure and Sources

Question 12

An increase in unemployment benefits is likely to:​

Answer 12

reduce a person’s incentive to look for work.

Feedback
Correct. Although unemployment insurance provides a safety net, it may reduce the urgency of finding work. See 7-2: Other Unemployment Issues

Question 13

Consider an economy made up of 100 people who are sixteen years of age and older, 60 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The number of people in the labor force is _____.

Answer 13

70

Feedback
Correct. The labor force consists of the people in the adult population who are either working or looking for work. See 7-1: Unemployment: Its Measure and Sources

Question 14

Consider an economy made up of 100 people, 60 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The number of unemployed persons is _____.​

Answer 14

10

Feedback
Correct. Unemployment occurs when a person who is actively searching for employment is unable to find work. See 7-1: Unemployment: Its Measure and Sources

Question 15

Discouraged workers are included in labor force figures, but not in unemployment figures.​

Answer 15

False

Feedback
Discouraged workers have dropped themselves out of the labor force. Thus, they are not counted as unemployed. See 7-1: Unemployment: Its Measure and Sources

Question 16

Frictional unemployment refers to unemployment that is a result of:

Answer 16

job search

Feedback
Correct. The time required to bring together employers and job seekers is the source of frictional unemployment. See 7-1: Unemployment: Its Measure and Sources

Question 17

Full employment is considered a major economic goal because:

Answer 17

the opportunity cost of unemployment is lost production.

Feedback
Correct. Unemployment imposes a cost on the economy as a whole because fewer goods and services are produced. See 7-2: Other Unemployment Issues

Question 18

If the official unemployment rate increases from December to January because the Christmas season is over, we can conclude that _____ is responsible for the increase.​

Answer 18

seasonal unemployment

Feedback
Correct. Unemployment caused by seasonal changes in labor demand during the year is called seasonal unemployment. See 7-1: Unemployment: Its Measure and Sources

Question 19

If the official unemployment rate increases from February to March because of sluggish sales in the automobile industry, then the increase can be blamed on:​

Answer 19

cyclical unemployment

Feedback
Correct. Cyclical unemployment occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work. See 7-1: Unemployment: Its Measure and Sources

Question 20

In 2004, Jamal lost his job as a shipbuilder. His shipyard never reopened, and his very specialized skills as a shipbuilder were no longer in demand. Jamal’s unemployment is best classified as _____.

Answer 20

structural

Feedback
Correct. Structural unemployment occurs because changes in tastes, technology, taxes, and competition reduce the demand for certain skills and increase the demand for other skills. See 7-1: Unemployment: Its Measure and Sources

Question 21

In April 2010, the U.S. economy added 290,000 jobs but the unemployment rate still increased from 9.7 percent to 9.9 percent. Which of the following best explains this situation?​

Answer 21

The number of unemployed workers also increased, but by an even greater percentage.

Feedback
Correct. The unemployment rate equals the number unemployed—that is, people without jobs who are looking for work—divided by the number in the labor force. See 7-1: Unemployment: Its Measure and Sources

Question 22

The best example of a frictionally unemployed worker is one who:​

Answer 22

is in the process of voluntarily switching jobs.​

Feedback
Correct. Most frictional unemployment is short term and voluntary. See 7-1: Unemployment: Its Measure and Sources

Question 23

The unemployment rate measures the:

Answer 23

percentage of people in the labor force who are unemployed.​

Feedback
Correct. The unemployment rate measures the percentage of those in the labor force who are unemployed. See 7-1: Unemployment: Its Measure and Sources

Question 24

The unemployment rate will decrease whenever there is a(n) _____.

Answer 24

decrease in the number of unemployed persons relative to the size of the labor force

Feedback
Correct. The unemployment rate measures the percentage of those in the labor force who are unemployed but looking for work. See 7-1: Unemployment: Its Measure and Sources

Question 25

Unemployment arising from a mismatch of skills is called:

Answer 25

structural unemployment.​ Feedback Correct. Structural unemployment occurs when there is a serious mismatch between what companies need and what workers can offer. See 7-1: Unemployment: Its Measure and Sources

Question 26

Which of the following factors makes the official unemployment rate an overstatement of the actual level of unemployment in an economy?

Answer 26

Inclusion of those who pretend to look for work in order to qualify for welfare programs Feedback Correct. Because unemployment insurance benefits and most welfare programs require recipients to seek work, some people may go through the motions of looking for a job just to qualify for these benefits. See 7-2: Other Unemployment Issues

Question 27

Which of the following types of unemployment is the hardest to reduce?

Answer 27

Structural unemployment Feedback Correct. Policy makers and economists are most concerned about structural unemployment. See 7-1: Unemployment: Its Measure and Sources

Question 28

Which of the following will most likely qualify for unemployment compensation benefits?​

Answer 28

A spot welder who has just gotten his first "pink slip" in the mail after ten years of continuous employment Feedback Correct. Unemployment compensation benefits go primarily to people who have involuntarily lost jobs. See 7-2: Other Unemployment Issues

Question 29

Who among the following would not be considered officially unemployed?

Answer 29

Annie, who dropped out of the labor force after a year of job search Feedback Correct. The people who want a job but cannot find one are considered unemployed. See 7-1: Unemployment: Its Measure and Sources

Question 30

“Discouraged workers” comprise the percentage of those in the:​

Answer 30

adult population who want to be employed but have given up the search for a job. Feedback Correct. Discouraged workers are those who have dropped out of labor force as they could not find a job. See 7-1: Unemployment: Its Measure and Sources

Question 31

If inflation is much higher than originally anticipated, _____ are better off and _____ are worse off.​

Answer 31

people who borrowed at fixed interest rates; banks that extended loans at fixed interest rates Feedback Correct. If inflation is much higher than originally anticipated, people who had borrowed at fixed interest rates are better off and banks that had extended loans at fixed interest rates are worse off. See 7-4: Effects of Inflation

Question 32

If the CPI in the United States was 150 in 2003 and 160 in 2004, the inflation rate over the year was _____.

Answer 32

7% Feedback Correct. The annual rate of inflation is the annual rate of change in the CPI. See 7-3: Inflation: Its Measure and Sources

Question 33

In periods of high inflation, _____.

Answer 33

the purchasing power of money decreases Feedback Correct. Higher inflation causes the purchasing power of money to erode. See 7-4: Effects of Inflation

Question 34

Inflation is defined as a sustained increase in an economy’s price level.

Answer 34

True Feedback The annual inflation rate is the percentage increase in the average price level from one year to the next. See 7-3: Inflation: Its Measure and Sources

Question 35

Inflation is the hardest on those living on fixed incomes.

Answer 35

True Feedback Although inflation affects everyone to some extent, it hits hardest those whose incomes are fixed in nominal terms. See 7-4: Effects of Inflation

Question 36

The inflation experienced in the United States during the 1970s as a result of OPEC oil price increases is an example of:

Answer 36

cost-push inflation Feedback Correct. Inflation stemming from increases in the cost of production that push up the price level is called cost-push inflation. See 7-3: Inflation: Its Measure and Sources

Question 37

The inflation experienced in the United States during the late 1960s as a result of the spending on the Vietnam War is an example of:

Answer 37

demand-pull inflation. Feedback Correct. The U.S. inflation during the late 1960s was a result of an increase in federal spending for the Vietnam War that boosted aggregate demand in the economy. See 7-3: Inflation: Its Measure and Sources

Question 38

Which of the following people is least likely to be hurt by inflation?

Answer 38

A salesperson who works on commission Feedback Correct. Inflation hits hardest those whose incomes are fixed in nominal terms. See 7-4: Effects of Inflation