Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Suppose that homemakers are included as employed in the labor force statistics, rather than being
counted as out of the labor force. This would
1)
A)
increase the measured unemployment rate.
B)
decrease the number of persons in the labor force.
C)
decrease the number of persons in the working–age population.
D)
increase the measured labor force participation rate.
Table 12–1
Total Population 20,000
Working–Age
Population 15,000
Employment 1,000
Unemployment 100
Consider the data above for a simple economy.
2)
Refer to Table 12–1. The labor force participation rate for this simple economy equals
2)
A)
(1,000/15,000) x 100.
B)
(1,100/15,000) x 100.
C)
(1,000/1,100) x 100.
D)
(1,100/20,000) x 100.
3)
To reduce the bias in the consumer price index the Bureau of Labor Statistics
3)
A)
incorporates substitutions by consumers when prices of specific products fall rapidly.
B)
updates the market basket every two years, rather than every 10 years.
C)
updates the market basket every 10 years rather than every two years.
D)
incorporates substitutions by consumers when prices of specific products rise rapidly.
4)
If cyclical unemployment is eliminated in the economy, then
4)
A)
the unemployment rate is above the natural rate of unemployment.
B)
the unemployment rate is below the natural rate of unemployment.
C)
the economy is at less than full employment.
D)
the economy is considered to be at full employment.
5)
A lumberjack loses his job because timber cutting restrictions are imposed by the Environmental
Protection Agency to protect a spotted owl habitat. This lumberjack would be
5)
A)
seasonally unemployed.
B)
frictionally unemployed.
C)
cyclically unemployed.
D)
structurally unemployed.
6)
Your grandfather tells you that he earned $5,000/year in his first job in 1947. You earn $35,000/year
in your first job in 2007. You know that average prices have risen steadily since 1947. You earn
6)
A)
less than 7 times as much as your grandfather in terms of nominal income.
B)
more than 7 times as much as your grandfather in terms of real income.
C)
7 times as much as your grandfather in terms of real income.
D)
less than 7 times as much as your grandfather in terms of real income.
7)
The labor force equals the number of people
7)
A)
in the working–age population.
B)
employed plus unemployed.
C)
employed.
D)
unemployed.
8)
The Bureau of Labor Statistics would categorize a retiree who is not working as ________.
8)
A)
a discouraged worker
B)
employed
C)
out of the labor force
D)
unemployed
9)
Which of the following policies would reduce frictional unemployment?
9)
A)
a job retraining program
B)
implementing an unemployment insurance policy
C)
building an on–line job database that helps workers find jobs
D)
a decrease in the minimum wage
10)
Which of the following would increase the unemployment rate?
10)
A)
a law making it illegal to work more than 35 hours per week
B)
a cut in unemployment compensation
C)
a decrease in the minimum wage
D)
an increase in unemployment insurance payments
D
11)
The labor force participation rate equals the
11)
A)
(labor force divided by the working–age population) x 100.
B)
(labor force divided by the total population) x 100.
C)
(labor force divided by the number of people not in the labor force) x 100.
D)
(number of employed divided by the labor force) x 100.
A
12)
The real wage equals the nominal wage ________ the CPI, times 100.
12)
A)
minus
B)
plus
C)
divided by
D)
times
C
C
Explanation:
Table 12–7
Year
Nominal Average
Hourly Earnings
(Dollars) CPI (1982–1984 = 100)
1965 $2.65 32
2005 $16.15 196
The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and
2005.
13)
Refer to Table 12–7. The real average hourly earnings for 1965 in 1982–1984 dollars equal
13)
A)
$1.35.
B)
$8.28.
C)
$84.80.
D)
$5.19.
14)
Suppose the working–age population of a fictional economy falls into the following categories: 90
are retired or homemakers; 60 have full–time employment; 20 have part–time employment; 20 do
not have employment, but are actively looking for employment; and 10 would like employment
but are not employed and are not actively looking for employment. The official unemployment
rate as calculated by the U.S. Bureau of Labor would equal
14)
A)
(20/100) x 100.
B)
(20/80) x 100.
C)
(30/80) x 100.
D)
(20/60) x 100.
15)
The “new product bias” in the consumer price index refers to the idea that
15)
A)
consumers switch to old goods when the prices of new goods increase, and the CPI
underestimates the cost to consumers.
B)
consumers prefer new goods, even if they are worse in quality than old goods, and this causes
the CPI to underestimate the cost to consumers.
C)
new products’ prices often decrease after their initial introduction; the CPI is adjusted
infrequently and overestimates the cost to consumers.
D)
consumers switch to new goods when the prices of old goods increase, and the CPI
overestimates the cost to consumers.
16)
Which of the following labor market statistics best indicates the amount of labor that is available to
the economy from a given working–age population?
16)
A)
the discouraged–worker ratio
B)
the labor force participation rate
C)
the ratio of minimum wage to inflation
D)
the unemployment rate
Table 12–6
Year CPI
1996 157
1997 161
1998 163
17)
Refer to Table 12–6. The inflation rate for 1997 equals
17)
A)
2.5 percent.
B)
2.0 percent.
C)
4.0 percent.
D)
1.2 percent.
A
18)
Structural unemployment is the result of
18)
A)
a persistent mismatch between the skills and characteristics of workers and the requirements
of the jobs.
B)
inflation.
C)
a slowdown in the economy.
D)
the search process of matching workers with jobs.
A
19)
Which of the following is not an example of inflation causing a redistribution of income because the
inflation was unanticipated?
19)
A)
A bank collects a lower amount of interest from a loan because inflation was underestimated.
B)
A worker receives a raise in salary that is less than the rate of inflation, because management
underestimated future inflation.
C)
Firms have to hire an extra worker to change prices in its store because of inflation.
D)
A bond–holder pays a higher tax and has less after–tax real income because of inflation.
C
B
Explanation:
Table 12–7
Year
Nominal Average
Hourly Earnings
(Dollars) CPI (1982–1984 = 100)
1965 $2.65 32
2005 $16.15 196
The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and
2005.
20)
Refer to Table 12–7. The real average hourly earnings for 1965 in 2005 dollars equal
20)
A)
$16.23.
B)
$8.28.
C)
$2.65.
D)
$5.19.
Table 12–3
Base Year (2000) 2006
Product Quantity Price Price
Cokes 100 $0.50 $0.75
Hamburgers 200 $2.00 $2.50
CDs 10 $20.00 $21.00
21)
Refer to Table 12–3. Assume that the market basket for the consumer price index has three
products Cokes, hamburgers, and CDs. The Consumer Price Index for 2006 equals
21)
A)
75.
B)
121.
C)
93.
D)
108.
22)
The nominal interest rate equals the real interest rate ________ the inflation rate.
22)
A)
minus
B)
times
C)
divided by
D)
plus
23)
A measure of the average prices of goods and services in the economy is also known as
23)
A)
the price level.
B)
the inflation rate.
C)
the cost of living.
D)
the market basket.
24)
The consumer price index implicitly assumes that the demand curve for each good and service in
the representative market basket is
24)
A)
vertical.
B)
negatively sloped.
C)
positively sloped.
D)
horizontal.
25)
Suppose your grandfather earned a salary of $12,000 in 1961. If the CPI is 30 in 1961 and 196 in
2005, then the value of your grandfather’s salary in 2005 dollars equals
25)
A)
$78,400.
B)
$23,520.
C)
$62,500.
D)
$40,000.
26)
Full employment is not considered to be zero unemployment, because
26)
A)
some people do not want a job.
B)
there are not enough jobs for everyone who wants one.
C)
some cyclical unemployment always exists.
D)
people do not find jobs instantaneously.
Table 12–10
Principle
Real Interest
Rate Inflation Rate
Nominal
Inflation Rate
$1,000 5% 7% 12%
27)
Refer to Table 12–10. What is the real after–tax interest payment if the tax rate is 10%?
27)
A)
$120
B)
$50
C)
$38
D)
$108
28)
Suppose that at the beginning of a loan contract the real interest rate is 4% and expected inflation is
6%. If actual inflation turns out to be 7% over the loan contract period, then
28)
A)
lenders gain 3%.
B)
borrowers gain 1%.
C)
lenders gain 1%.
D)
borrowers lose 3%.
29)
Which of the following demographic groups tend to have an above–average unemployment rate?
29)
A)
white teenagers and Hispanics adults
B)
black adults and Hispanics adults
C)
black adults and teenagers
D)
white adults and teenagers
30)
During the Great Depression cyclical unemployment increased as the Depression continued. This
increase in cyclical unemployment
30)
A)
increased the natural rate of unemployment.
B)
could have increased or decreased the natural rate of unemployment.
C)
had no effect on the natural rate of unemployment.
D)
decreased the natural rate of unemployment.
31)
Which of the following price indexes comes closest to measuring the cost of living of the typical
household?
31)
A)
the producer price index
B)
the household price index
C)
the consumer price index
D)
the GDP deflator
32)
The advice to “keep searching, there are plenty of jobs around here for which you are qualified”,
would be most appropriate for which of the following types of unemployment?
32)
A)
structural unemployment
B)
core unemployment
C)
cyclical unemployment
D)
frictional unemployment
D
33)
Since 1948 the labor force participation rate for adult men has ________ and for adult women has
________.
33)
A)
increased; decreased
B)
decreased; decreased
C)
decreased; increased
D)
increased; increased
C
Table 12–5
Year CPI
2002 180
2003 184
34)
Refer to Table 12–5. The inflation rate for 2003 equals
34)
A)
18.4 percent.
B)
184 percent.
C)
4.0 percent.
D)
2.2 percent.
D
C
35)
Suppose that the labor movement has a revival in the U.S. and a majority of workers join labor
unions. As a result we would expect
35)
A)
the labor force participation rate to fall.
B)
no change in the unemployment rate or labor force participation rate.
C)
the unemployment rate to rise.
D)
the unemployment rate to fall.
36)
Which of the following would decrease the unemployment rate?
36)
A)
an increase in labor union membership
B)
an increase in the efficiency wage
C)
government aid to retrain unemployed workers
D)
an increase in the minimum wage
C
37)
Assume that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus
$600 of interest. If the inflation rate was 4%, what was the real interest rate you paid?
37)
A)
8 percent
B)
6 percent
C)
16 percent
D)
12 percent
A
38)
Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus
$100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?
38)
A)
17 percent
B)
7 percent
C)
10 percent
D)
3 percent
D
39)
If inflation increases
39)
A)
real after–tax bond income does not change.
B)
real after–tax bond income decreases.
C)
nominal after–tax bond income decreases.
D)
real after–tax bond income increases.
B
C
40)
An increase in unemployment insurance payments would, in effect, ________ the amount of time
spent searching for a job, which would increase ________ unemployment.
40)
A)
increase; cyclical
B)
decrease; frictional
C)
increase; frictional
D)
decrease; cyclical
41)
Which of the following explains the changes in the U.S. adult male labor force participation rate
over the period 1948–2006?
41)
A)
Fewer men consider themselves discouraged workers as compared to the .
B)
Younger men are remaining in school longer as compared to the past.
C)
More men are joining the military as compared to the past.
D)
More men are retiring later in life as compared to the past.
B
42)
Refer to Table 12–2. Assume that the market basket for the consumer price index has two products
bread and milk. The Consumer Price Index for 2006 equals
42)
A)
116.
B)
118.
C)
85.
D)
86.
A
43)
If we want to use a measure of inflation that foreshadows price changes before they affect prices at
the retail level, we would base our measure of inflation on
43)
A)
the producer price index.
B)
the household price index.
C)
the consumer price index.
D)
the GDP deflator.
A
C
44)
Costco pays higher wages than Wal–Mart
44)
A)
to raise the productivity of Costco workers.
B)
because Costco requires higher skilled workers to sell higher–end products.
C)
because Costco is unionized and Wal–Mart is not.
D)
A and B
45)
In the modern U.S. economy the typical unemployed person stays unemployed for
45)
A)
an amount of time that is hard to quantify.
B)
for a long time during expansions and a short time during recessions.
C)
a relatively long time, over a year.
D)
a relatively short time, less than six months.
46)
An advantage of the household survey over the establishment survey of the labor market is that the
household survey
46)
A)
is based on actual payrolls, rather than on unverified answers.
B)
omits persons employed at newly opened firms.
C)
includes the number of discouraged workers.
D)
includes the number of self–employed persons.
47)
The unemployment rate equals the number of unemployed divided by the ________, all times 100.
47)
A)
working–age population
B)
number of employed
C)
total population
D)
labor force
48)
Suppose that in 2008 all prices in the economy double and that all wages and salaries also double.
At the end of 2008 you
48)
A)
cannot determine whether you are better off or worse off than you were in 2007, because the
purchasing power of your salary cannot be determined.
B)
are no better off or worse off than you were in 2007 as the purchasing power of your salary
has remained the same.
C)
are worse off than you were in 2007 as you can no longer afford to buy as many goods and
services.
D)
are better off than you were in 2007 as your salary is higher than it was in 2007 and you can
now buy more goods and services.
49)
Alcatel–Lucent faced fierce competition in the global wireless market and its sales and profits
declined. In response it ________ the number of persons it employed and this ________ the total
number of persons unemployed in the economy.
49)
A)
increased; decreased
B)
increased; increased
C)
decreased; increased
D)
decreased; decreased
50)
A consumer price index of 160 in 1996 with a base year of 1982–1984 would mean that the cost of
the market basket
50)
A)
equaled $160 in 1983.
B)
equaled $160 in 1996.
C)
rose 60% from the cost of the market basket in the base year.
D)
rose 160% from the cost of the market basket in the base year.
51)
Suppose the government launches a successful advertising campaign that convinces workers with
high school degrees to quit their jobs and become full time college students. This would cause
51)
A)
the number of discouraged workers to increase.
B)
no change in the unemployment rate.
C)
the labor force participation rate to decrease.
D)
the unemployment rate to increase.
52)
Which of the following describes a situation in which the person is hurt by inflation?
52)
A)
a person paid a fixed income during an inflationary period
B)
a person who borrows money during a period when inflation is underestimated
C)
a person who lends money during a period when inflation is greater than anticipated
D)
a retiree whose pension is adjusted for inflation
53)
Most of the unemployment that occurred during the Great Depression was
53)
A)
core unemployment.
B)
cyclical unemployment.
C)
structural unemployment.
D)
frictional unemployment.
B
54)
Which of the following causes the unemployment rate as measured by the Bureau of Labor
Statistics to overstate the true extent of joblessness?
54)
A)
inflation
B)
counting people as employed who are working part–time, although they would prefer to be
working full–time
C)
discouraged workers
D)
unemployed persons who falsely report themselves to be actively looking for a job
D
55)
The Bureau of Labor Statistics has taken several steps to reduce the bias in the consumer price
index. Which of the following is not one of the steps taken to reduce the bias?
55)
A)
using statistical methods to reduce the size of the quality bias
B)
conducting a point–of–purchase survey to track where consumers actually make their
purchases
C)
updating the market basket every two years, rather than every 10 years
D)
incorporating substitutions by consumers when prices of specific products rise rapidly
D
A
56)
The unemployment rate is an important economic statistic that can tell us about the health of the
economy. If the unemployment rate turns out to be high or higher than anticipated, we would
expect
56)
A)
that jobs are less difficult to find.
B)
it is more likely that an incumbent president will be re–elected.
C)
that stock prices are more likely to fall.
D)
that investors will be more optimistic about the economy.
57)
If the Bureau of Labor Statistics counted persons that are on active military service in the totals for
employment, the labor force, or the working–age population this would
57)
A)
decrease the measured unemployment rate.
B)
decrease the number of persons in the working–age population.
C)
decrease the measured labor force participation rate.
D)
decrease the number of persons in the labor force.
58)
The Bureau of Labor Statistics would categorize a person as ________ if he were temporarily away
from his job because of illness.
58)
A)
a discouraged worker
B)
unemployed
C)
out of the labor force
D)
employed
59)
For bondholders, the government taxes the ________ interest payments received.
59)
A)
nominal
B)
real
C)
inflation
D)
real minus the inflation
60)
If firms pay what are called “efficiency wages” they pay wages that
60)
A)
are lower than average to ensure maximum profit.
B)
lower the cost of production to the firm.
C)
motivate workers to increase their productivity.
D)
will eventually lower the unemployment rate.
61)
Suppose you borrow $1,000 at an interest rate of 12 percent. If the expected real interest rate is 5
percent, then the rate of inflation over the upcoming year that would be most beneficial to you
would be a rate of inflation
61)
A)
less than 7 percent.
B)
greater than 7 percent.
C)
equal to 7 percent.
D)
equal to 0 percent.
62)
Which of the following accurately describes the labor market experience for men aged 25–54?
62)
A)
Most nonworking men in this age group are caring for children.
B)
Most nonworking men in this group do not work in the marketplace or in the household.
C)
In this group, high school drop–outs are more likely than average to have a job or are looking
for a job.
D)
The labor force participation rate for this group has steadily increased since 1967.
63)
Which of the following statements about the U.S. economy is true?
63)
A)
Each year, many new jobs are created, but few existing jobs are destroyed and the
unemployed find jobs quickly.
B)
Each year, many new jobs are created and many existing jobs are destroyed.
C)
Each year, few new jobs are created but few existing jobs are destroyed, keeping
unemployment low.
D)
Each year few jobs are created; therefore, it takes the unemployed a long time to find a new
job.