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1

George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve.

What type of unemployment is this?

Cyclical

2

Employees at the university have negotiated a 5% increase in wages for the next year, based on their inflation expectations. If inflation is actually 6% over the next year, which of the following will occur?

A. Unemployment of university employees will rise

B. Real wages for university employees will fall

C. Inflation will be 5% the following year

D. The increase in inflation is expected

E. None of the above

B

3

The labor force equals the number of people who

A. are 16-65 years old and can work

B. have jobs

C. have jobs and are looking for another job

D. have jobs or do not have jobs but are seeking for jobs

E. do not have jobs and are not interested in having jobs

D

4

If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is

 

5%

5

What are the three main kinds of unemployment?

Structural, frictional, cyclical

6

Suppose that price level increased by 1.2% last year while nominal GDP grew by 3.2% and unemployment was at 1.5%, then real GDP grew by

 

2%

7

GDP deflator includes ___, CPI includes ___, and PPI includes ___.

A. prices of all domestically produced goods and services; price of all domestic and foreign goods and services; prices of intermediate goods and services

B. prices of all domestically produced goods and services; price of some domestic and foreign goods and services; prices of intermediate goods and services

C. prices of some domestically produced goods and services; price of some domestic but not foreign goods and services; prices of intermediate goods and services

D. prices of some domestically produced goods and services; price of some domestic and foreign goods and services; prices of intermediate goods and services

E. There is no difference between 3 measures of inflation

B

8

If wages are not as flexible as prices in the AD-AS model, an increase in money growth will lead to:

A. An increase in inflation and a rise in real long-run GDP growth

B. An increase in inflation, but no rise in real short-run GDP growth

C. An increase in inflation and in the profits of firms
D. No change in inflation, but a fall in the profits of firms

E. None of the above

C

9

In the basic model with AD and LRAS curves only, if spending growth is 10% and the Solow growth rate falls from 5% to 3%, then inflation will:

 

increase from 5% to 7%

10

As a result of a positive shock to C:

A. Inflation and output growth increase in the short run, but in the long run they return to the rates before the shock

B. Inflation and output growth decrease in the short run, but in the long run they return to the rates before the shock.

C. Inflation increases and output growth decreases in the short run, but in the long run they return to the rates before the shock

D. Inflation and output growth increase in both the short run and the long run

E. None of the above

A

11

Changes in v tend to be ___, and changes in M tend to be ___.

temporary; permanent

12

A bank lends money for a year at an interest rate of 7%, and the inflation rate for that year turns out to be 5%. What is the bank's real rate of return for that year?

2%

13

When economists state that "money is neutral," they mean that the:

A. Overall price level has no effect on consumers; only relative prices do

B. Overall price level has no effect on people's inflation expectations

C. Money supply does not affect inflation or nominal GDP

D. Money supply does not affect real GDP or unemployment.

E. Both a and c

D

14

In a small economy, the rate of money growth for the current year is 2%. Velocity of money circulation is stable. Inflation is expected to be about 1.5% over the current year. What is the short-run economic growth rate?

0.5%

15

Money illusion occurs when people:

A. Become irrational about money use

B. Become rationally ignorant about money

C. Mistake changes in price for changes in quality

D. Mistake changes in nominal prices for changes in real prices

E. None of the above

D

16

Which of the following is a problem with deflation?

A. It raises the real cost of debt payment

B. Stopping it will cause a recession

C. It causes people to pay more taxes

D. There is no problem with deflation; falling prices are good for the economy

A

17

The AD-AS model consists of the:

A. aggregate demand (AD) curve only

B. short-run aggregate supply (SRAS) curve only

C. long-run aggregate supply (LRAS) curve only

D. AD, SRAS, and LRAS curves

E. AD and SRAS

D

18

What agency is in charge of calculating/reporting the US GDP?

Bureau of Economic Analysis

19

What is the difference between nominal and real GDP?

Nominal GDP is affected by price changes while real GDP is not

20

If the general price level of new goods and services increases from year 1 to year 2 while the quantity of goods and services produced remains the same, what happens to nominal and real GDP?

nominal will rise; real will remain the same

21

Mr. Smith buys a new American-made widget for his house. How does this transaction affect U.S. GDP?

A. Through the consumption component

B. Through the investment component

C. Through the government component

D. Through the net exports component

E. This transaction would not affect US GDP

A

22

Mr. Smith buys a new American-made widget for his business. How does this transaction affect U.S. GDP?

A. Through the consumption component

B. Through the investment component

C. Through the government component

D. Through the net exports component

E. This transaction would not affect US GDP

B

23

Which government organization is in charge of calculating and reporting the consumer price index?

Bureau of Labor Statistics

24

Hooray! You just landed a job earning $30,000. You spend all your money on comic books, which cost $5 each. What is your money (nominal) wage? What is your real wage?

 

Money wage is $30,000; real wage is $6,000

25

Suppose that the inflation rate, as calculated by the CPI, is reported to be 5% from year 1 to year 2. In theory, what does this information mean?

A. The price of all goods produced domestically increased by 5%

B. The price of all goods purchased by consumers has increased by 5%

C. The price of used goods and imports has increased by 5%

D. The purchasing power of the dollar has fallen by 5%

E. Real GDP rose by 5%

D

26

It is generally agreed that because of the way that the CPI is constructed, it may "overstate" the true effects of inflation. What does this mean?

A. In acuality, the purchasing power of the dollar probably fell by slightly less than x%

B. In actuality, the purchasing power of the dollar probably fell by slightly more than x%

C. In actuality, the price of all goods purchased by consumers has risen by slightly more than x%

D. In actuality, the price of all goods produced domestically has risen by slightly more than x%

E. In actuality, real GDP rose by slightly less than x%

A

27

When policy-makers and the news reports that "the economy contracted," this means that during the last period ___

A. real GDP increased slower than the potential rate or decreased

B. real GDP decreased

C. nominal GDP decreased

D. nominal GDP per person decreased

E. inflation decreased

B

28

What are the stages of the business cycle in the correct order?

 

peak, contraction, trough, expansion

29

What category are children under 16 placed in by the BLS when calculating the unemployment figures?

A. employed, as long as they are working somewhere part-time

B. unemployed

C. not in the labor force

D. they aren't counted at all

E. underemployed

D

30

When someone is unemployed because they haven't found the job that best matches their skills, then we say in general that the person is ___

frictionally unemployed