21) In periods when GDP fails to grow at its normal rate, the actual unemployment rate will be
________ than the natural rate of unemployment.
A) lower
B) higher
C) the same
D) falling faster
22) Actual unemployment can exceed the natural rate of unemployment due to
A) structural unemployment.
B) cyclical unemployment.
C) frictional unemployment.
D) all of the above
23) In periods when GDP grows very rapidly for a long period, the actual unemployment rate
will be ________ than the natural rate of unemployment.
A) lower
B) higher
C) the same
D) more variable
24) Actual unemployment can fall below the natural rate of unemployment due to
A) structural unemployment.
B) negative cyclical unemployment.
C) frictional unemployment.
D) all of the above
25) The typical relationship between inflation and unemployment is
A) as unemployment falls, inflation falls.
B) as unemployment falls, inflation increases.
C) as unemployment falls, nothing happens to inflation.
D) unemployment changes do not directly lead to changes in inflation, but inflation changes may
cause changes in unemployment.
26) Economic expansions might lead to inflation because an expansion leads to
A) a decrease in the unemployment rate, which increases wages.
B) an increase in the unemployment rate, which increases wages.
C) a decrease in the unemployment rate, which decreases wages.
D) an increase in the unemployment rate, which decreases wages.
27) Which one of the following statements is NOT correct?
A) The natural rate of unemployment is estimated to be between 5% and 6.5% in the U.S.
B) The term “full employment” means that 100% of the labor force is employed.
C) The line between frictional and structural unemployment is sometimes hard to draw.
D) Unemployment can occur even when an economy is growing.
28) Economists consider an economy to be at “full employment” when
A) the unemployment rate equals the natural rate of unemployment.
B) there is only a small amount of cyclical unemployment.
C) there is no frictional unemployment.
D) there is no structural unemployment.
29) To operate efficiently, an economy generally “needs” ________ unemployment.
A) cyclical
B) frictional
C) structural
D) seasonal
30) Unemployment occurs even during periods when the economy is growing.
31) Cyclical unemployment increases during recessions.
32) Frictional unemployment is unemployment reflecting a mismatch of skills and jobs.
33) Structural unemployment exists because workers and employers try to find the right
employment matches.
34) Economists consider the economy to be at “full employment” when there is no cyclical
unemployment.
35) The actual unemployment rate can be greater than or less than the natural rate of
unemployment.
36) Name the three types of unemployment.
37) What is cyclical unemployment?
38) What is frictional unemployment?
39) What is structural unemployment?
40) Could the advent of the Internet completely eliminate frictional unemployment?
41) Why is the line between frictional and structural unemployment sometimes hard to draw?
42) In what sense is frictional unemployment “good” for the economy?
43) What is meant by the term “the natural rate of unemployment”?
44) Why does unemployment not go to zero during booms?
12.3 The Costs of Unemployment
Recall the Application about the study done about the perceptions and behavior of the
unemployed in Great Britain to answer the following question(s).
1) Recall the application. Becoming unemployed caused ________ in perceived well-being for
men if those in their peer group were also unemployed.
A) a larger decrease
B) a smaller decrease
C) no change
D) an large increase
2) Recall the application. The more unhappy unemployed individuals were,
A) the more likely they were to remain unemployed.
B) the more aggressive they would be to try to find a job.
C) the more they congregated around others who were unemployed.
D) the longer they collected unemployment benefits.
3) Recall the application. If you are unemployed and if your peer group is also unemployed,
A) you have a better chance of finding employment.
B) you may not be as aggressive in searching for work.
C) you will want to find a job quickly to encourage your peer group about employment
prospects.
D) you have little chance of finding a job.
4) Unemployment insurance typically replaces a worker’s full earnings.
5) Unemployment insurance tends to lead to the unemployed worker spending less time
unemployed.
12.4 The Consumer Price Index and the Cost of Living
1) The value of a dollar
A) is its purchasing power.
B) remains constant over time.
C) is its face value.
D) is set by the government.
2) The real-nominal principle can be stated as
A) production generates income.
B) only final goods and services should be counted in GDP.
C) what matters to people is the purchasing power of money or income.
D) only the manufacture of real goods is production.
3) The index most widely used by the government and the private sector to measure changes in
the cost of living is the
A) Producer Price Index.
B) Consumer Price Index.
C) the GDP deflator.
D) the chain-weighted price index.
4) The Consumer Price Index (CPI) relies on the calculation of
A) prices of a fixed basket of goods that does not change often.
B) prices of a variable basket of goods that changes frequently.
C) the components of GDP that change annually.
D) the components of GDP that do not change frequently.
5) Which one of the following statements is true of the Consumer Price Index?
A) It does not take account of the price of imported goods and services.
B) It measures changes in prices of a fixed basket of goods.
C) It does not take into account the price of used goods.
D) It understates the true rate of inflation.
The following table lists the basket of goods in the
Consumer Price Index for the nation of Astro (Assume 2010 is the base year.)
2010
Quantity
2010
Price
2011
Quantity
2011
Price
2012
Quantity
2012
Price
Sunglasses
8
$9.00
10
$11.00
7
$10.00
Toothpaste
15
3.00
18
4.00
15
4.00
Ferrets
6
12.00
4
15.00
9
18.00
Table 12.2
6) Using the information in Table 12.2, the Astro Consumer Price Index for 2010 is
A) 24.
B) 100.
C) 124.
D) 189.
7) Using the information in Table 12.2, the Astro Consumer Price Index for 2011 is
A) 87.
B) 99.
C) 126.
D) 238.
8) Using the information in Table 12.2, the Astro Consumer Price Index for 2012 is
A) 87.
B) 104.
C) 131.
D) 298.
9) Using the information in Table 12.2, the inflation rate from 2010 to 2011 is about
A) 26%.
B) 38%.
C) 42%.
D) 49%.
10) Using the information in Table 12.2, the inflation rate from 2011 to 2012 is about
A) 4%.
B) 5%.
C) 17%.
D) 31%.
11) Using the information in Table 12.2, the% increase in prices over the two year period from
2010 to 2012 is approximately
A) 26%.
B) 31%.
C) 38%.
D) 98%.
12) What does the Consumer Price Index (CPI) measure?
A) prices of durable goods
B) prices of non durable goods
C) the cost of living over time
D) the cost of replacing lost items
13) The Consumer Price Index (CPI) differs from a chain-weighted price index in that the CPI
A) requires calculation of GDP, while the chain-weighted index does not.
B) measures the costs of a typical fixed basket of goods over time, while the chain-weighted
index does not.
C) allows for the goods consumed in an economy to change over time, while the chain-weighted
index does not.
D) compares the prices of all goods in one year to the prices of all goods in other years.
14) The chain-weighted index for GDP and the CPI differ in that the CPI
A) excludes price changes from used and imported goods while the chain-weighted index
includes these price changes.
B) asks how much a fixed basket of goods costs in the current year as compared to the cost of
those same goods in a base year while the chain-weighted index takes an average of price
changes using base years from neighboring years.
C) is calculated by the Commerce Department while the chain-weighted index is calculated by
local newspapers.
D) is calculated in nominal terms and the chain-weighted index is calculated in real terms.
15) Chain-weighted price indices are constructed such that
A) prices in different economies can be directly compared with one another.
B) prices in different years can be directly compared with one another.
C) all years’ levels of GDP are directly related to a base year level of GDP.
D) prices of one good can be directly compared with prices of other goods.
16) Most economists believe that price indices
A) overstate inflation and understate growth in nominal GDP.
B) overstate inflation and understate growth in real GDP.
C) understate inflation and understate growth in nominal GDP.
D) understate inflation and understate growth in real GDP.
17) The principal reason why the chain-weighted index for GDP and the CPI both overstate
actual changes in prices is that
A) it is hard to measure quality changes.
B) the basket of goods purchased by consumers never changes.
C) price data is often inaccurate.
D) all of the above
18) Economists believe that the CPI overstates actual price changes by as much as ________ to
________% each year.
A) 1; 2
B) 2; 3
C) 0.5; 1
D) 0.5; 1.5
19) Cost-of-living adjustments are
A) automatic wage changes based on the CPI which are included in some union contracts.
B) changes in the basket of goods used in calculating the CPI.
C) averages of neighboring years’ base prices used in constructing the CPI.
D) quality measurements included in the calculation of the CPI.