Page 1
1.
Employment is the total:
A)
labor force.
B)
population of working age.
C)
number of people actively working, either full-time or part-time.
D)
number of people not unemployed.
2.
The labor force is the total:
A)
number of people employed.
B)
population.
C)
number of people in the population of working age.
D)
number of people who are employed or unemployed.
3.
The unemployment rate is the:
A)
percent of the labor force that is unemployed.
B)
number of people unemployed.
C)
the labor force minus the number of people unemployed.
D)
average length of time someone is unemployed.
4.
To be counted as unemployed, one must:
A)
have had a job previously.
B)
be out of work and be actively looking for a job during the past four weeks.
C)
have had a job before and be actively looking for work.
D)
be actively looking for a job and have at least a high-school diploma or its
equivalent.
5.
The unemployment rate is the ratio of all of the people:
A)
out of work to the total population.
B)
out of work to those over age 16.
C)
unemployed to those looking for work.
D)
unemployed to those in the labor force.
6.
If a country has a working-age population of 200 million, 135 million people with jobs,
and 15 million people unemployed and seeking employment, then its unemployment
rate is:
A)
4%.
B)
7.5%.
C)
10%.
D)
67.5%.
Page 2
7.
If a country has a working-age population of 200 million, 120 million people with jobs,
and 30 million people unemployed and seeking employment, then its unemployment
rate is:
A)
5%.
B)
7.5%.
C)
15%.
D)
20%.
8.
If a country has a working-age population of 200 million, 135 million people with jobs,
and 15 million people unemployed and seeking employment, then its labor force is:
A)
335 million.
B)
200 million.
C)
155 million.
D)
150 million.
9.
The labor force is equal to the:
A)
sum of employment and unemployment.
B)
population minus the number of employed.
C)
sum of the employed and the underemployed.
D)
number of people working.
10.
To be classified as unemployed, a person must be:
A)
not working.
B)
not working and actively looking for a job in the past four weeks.
C)
not working or working part-time but wishing to be working full-time.
D)
not working and actively looking for a job in the past four weeks or discouraged
and not actually looking for a job.
11.
Which of the following statements is TRUE?
A)
The number of people not working but who have looked for work in the past year
are is equal to the number of unemployed people.
B)
The labor force is the total number of people working plus those who are
unemployed.
C)
The unemployment rate is the number of people unemployed expressed as a
percentage of the population.
D)
The labor force is the same as the population.
Page 3
12.
A person who is not working and is not looking for work is:
A)
included in the unemployment rate.
B)
underemployed.
C)
a member of the labor force who is not working.
D)
not counted in the unemployment statistics.
13.
The labor force is considered to be:
A)
everyone who is employed.
B)
everyone who is employed plus everyone who is unemployed.
C)
the population of the nation.
D)
those not frictionally unemployed plus all others employed.
14.
The statistics and data on unemployment are gathered and reported:
A)
daily.
B)
weekly.
C)
monthly.
D)
yearly.
15.
You are a college student and not working or looking for work. You are:
A)
unemployed.
B)
in the labor force but not employed.
C)
not part of the labor force.
D)
counted in the labor force as underemployed.
16.
The percentage of the labor force that is unemployed is the:
A)
labor force participation rate.
B)
employment ratio.
C)
unemployment rate.
D)
natural employment rate.
17.
A person without a job who is actively seeking and available for work is considered:
A)
employed.
B)
unemployed.
C)
underemployed.
D)
marginally attached.
Page 4
18.
A person who has no job but is looking for one is:
A)
unemployed.
B)
a discouraged worker.
C)
part of the labor force.
D)
unemployed and part of the labor force.
19.
To be officially unemployed, a person must:
A)
not have a job and must have looked for work in the past four weeks.
B)
under 55 years old.
C)
working less than 30 hours per week.
D)
working less than 20 hours per week.
20.
The rate of unemployment is found by dividing the:
A)
number of people looking for work by the population.
B)
number of people not working but looking for work by the number of people not
working but looking for work plus the number of people employed.
C)
labor force by the number of people looking for work.
D)
unemployed and discouraged workers by the labor force.
21.
A survey reveals that on a small island 40 people have jobs, 10 people are not working
but looking for jobs, and 30 people are neither working nor looking for work. The
unemployment rate on the island is:
A)
12.5%.
B)
20%.
C)
25%.
D)
50%.
22.
A survey reveals that on a small island initially 40 people have jobs, 10 people are not
working but looking for jobs, and 30 people are neither working nor looking for work.
Suppose that 10 of the 30 people who weren’t working or looking for work now begin
looking for work. There are now 20 people without jobs but looking for work and 40
people working. The unemployment rate:
A)
rises to 33.3%.
B)
rises to 50%.
C)
falls to 25%.
D)
Nothing happens to the unemployment rate, because these people weren’t working
before and they aren’t working now.
Page 5
23.
A survey reveals that on a small island 100 people have jobs, 25 people are not working
but are looking for jobs, and 45 people are neither working nor looking for work. The
unemployment rate on the island is:
A)
12.5%.
B)
20%.
C)
25%.
D)
50%.
24.
A survey reveals that on a small island initially 100 people have jobs, 25 people don’t
have jobs but are looking for jobs, and 45 people are neither working nor looking for
work. Suppose that 15 of the 45 people who weren’t looking for work now begin
looking for work. There are now 40 people looking for work and 100 people working.
The unemployment rate:
A)
falls to 20%.
B)
rises to 28.6%.
C)
rises to 50%.
D)
Nothing happens to the unemployment rate, because these people weren’t working
before and they aren’t working now.
25.
A survey reveals that on a small island 1,000 people have jobs, 250 people are
unemployed and looking for jobs, and 450 people are neither working nor looking for
work. The unemployment rate on the island is:
A)
20%.
B)
25%.
C)
45%.
D)
15.6%.
26.
A survey reveals that on a small island initially 1,000 people have jobs, 250 people are
not working but are looking for jobs, and 450 people are neither working nor looking for
work. Suppose that 150 of the 450 people who weren’t looking for work now begin
looking for work. There are now 400 people looking for work and 1,000 people
working. The unemployment rate:
A)
falls to 20%.
B)
rises to 28.6%.
C)
rises to 50%.
D)
Nothing happens to the unemployment rate, because these people weren’t working
before and they aren’t working now.
Page 6
27.
A survey reveals that on a small island 1,000 people have jobs, 200 people don’t have
jobs but are looking for jobs, and 200 people are neither working nor looking for work.
The unemployment rate on the island is:
A)
12.5%.
B)
16.7%.
C)
20%.
D)
30%.
28.
A survey reveals that on a small island initially 1,000 people have jobs, 200 people are
unemployed but are looking for jobs, and 200 people are neither working nor looking
for work. Suppose that 100 of the 200 people who weren’t looking for work now begin
looking for work and that half of the new entrants find a job. The unemployment rate:
A)
rises to 19.2%.
B)
rises to 21.4%.
C)
rises to 28.6%.
D)
Nothing happens to the unemployment rate.
29.
Suppose there are 70 million people in the labor force, of whom 60 million are
employed. The unemployment rate is:
A)
7%.
B)
10%.
C)
14.28%.
D)
4.2%.
30.
The unemployment rate equals the number _____ divided by the number _____ times
100.
A)
unemployed; employed
B)
unemployed; population
C)
employed; labor force
D)
unemployed; labor force
31.
In 2011, 10 million people did not have a job but were actively looking for employment,
and 85 million people had either a full-time or a part-time job. The unemployment rate
in 2011 was:
A)
10%.
B)
9.5%.
C)
10.5%.
D)
8.5%.
Page 7
32.
The Republic of Livonia has an adult population of 100 million; 60% of Livonia’s
population is employed, and 10% of the people are unemployed. The labor force
participation rate in Livonia is:
A)
70%.
B)
60%.
C)
7%.
D)
10%.
33.
If the labor force totals 100 million workers and 90 million are working, then the
unemployment rate is:
A)
1%.
B)
5%.
C)
10%.
D)
90%.
34.
If the labor force includes 100 million workers and 5 million people are unemployed but
actively seeking work, then the unemployment rate is:
A)
1%.
B)
5%.
C)
10%.
D)
95%.
35.
If 99 million people are working and 1 million are unemployed but actively seeking
work, then the unemployment rate is:
A)
1%.
B)
5%.
C)
10%.
D)
100%.
36.
If the population of the United States is 260 million, the labor force is 130 million, and
120 million workers are employed, the rate of unemployment is:
A)
7.7%.
B)
8.3%.
C)
50%.
D)
92%.
Page 8
37.
If the rate of unemployment is 10% and the labor force is 130 million, the number of
unemployed workers is:
A)
1.3 million.
B)
13 million.
C)
10 million.
D)
8 million.
38.
If there are 100 million people in the total population, a labor force of 50 million, and 47
million employed workers, the unemployment rate is:
A)
3%.
B)
6%.
C)
8%.
D)
10%.
39.
Which of the following most accurately describes how to calculate the unemployment
rate?
A)
(Unemployed / population) × 100
B)
(Unemployed / employed) × 100
C)
(Unemployed / labor force) × 100
D)
[(Unemployed – employed) / labor force] × 100
Use the following to answer questions 40-42:
40.
(Table: Labor Force Data) Look at the table Labor Force Data. Suppose the labor force
participation rate is 70%. The labor force is equal to:
A)
1,200 million.
B)
50 million.
C)
105 million.
D)
400 million.
Page 9
41.
(Table: Labor Force Data) Look at the table Labor Force Data. Suppose the labor force
participation rate is 70%. The number of unemployed adults is:
A)
8 million.
B)
53 million.
C)
103 million.
D)
50 million.
42.
(Table: Labor Force Data) Look at the table Labor Force Data. If the labor force
participation rate is 70%, the unemployment rate is:
A)
7.6%.
B)
5%.
C)
4%.
D)
3%.
Use the following to answer questions 43-44:
43.
(Table: Labor Force Distribution) Look at the table Labor Force Distribution. The total
population is:
A)
486 million.
B)
253 million.
C)
278 million.
D)
283 million.
44.
(Table: Labor Force Distribution) Look at the table Labor Force Distribution. The
unemployment rate is:
A)
3.85%.
B)
10%.
C)
4.55%.
D)
6.75%.
Page 10
45.
If a country has a working-age population of 200 million, 135 million people with jobs,
10 million people who were looking for a job but have given up, and 5 million people
unemployed and seeking employment, then its labor force is:
A)
150 million.
B)
145 million.
C)
140 million.
D)
135 million.
46.
If a country has a working-age population of 200 million, 135 million people with jobs,
10 million people who were looking for a job but have given up, and 5 million people
unemployed and seeking employment, then the number of discouraged workers is:
A)
25 million.
B)
15 million.
C)
10 million.
D)
5 million.
47.
The Bureau of Labor Statistics calls a person who is out of work, would like to work,
but has given up looking for work:
A)
unemployed.
B)
employed.
C)
a discouraged worker.
D)
lazy.
48.
Suppose that roughly 8 million people in the United States were actively seeking jobs
but had not found them this month, the same number as last month. Suppose that 2
million of the people who were unemployed last month gave up their search this month
and stopped looking for work. What will happen to the official unemployment rate this
month, all other things unchanged?
A)
It will rise, because 2 million people are not in the labor force this month and are
not counted as unemployed.
B)
It will fall, because 2 million people are not in the labor force this month and are
not counted as unemployed.
C)
It will be unaffected, because the same number of people is unemployed.
D)
The unemployment rate will decrease by 25%.
49.
The Bureau of Labor Services calculates U-6. This measures the:
A)
underuse of labor that includes discouraged workers, marginally attached workers,
and underemployed workers.
B)
use of labor based on various demographics.
C)
labor force participation rate in a comprehensive way.
D)
rate of overuse of labor when workers hold multiple jobs.
Page 11
50.
The official unemployment rate reported by the government may tend to understate the
amount of unemployment because it:
A)
includes discouraged workers.
B)
excludes discouraged workers.
C)
includes people over 65 who aren’t retired.
D)
excludes teenagers.
51.
Discouraged workers:
A)
are getting paid too little.
B)
do not like their job.
C)
are working part-time but are looking for a full-time job.
D)
have given up looking for a job.
52.
According to official statistics, discouraged workers are:
A)
included in the employment statistics.
B)
included in the labor force.
C)
not included in the labor force.
D)
treated just like the underemployed.
53.
The official unemployment rate ignores:
A)
people with professional jobs.
B)
people who work on commission.
C)
discouraged workers.
D)
people with professional jobs, people who work on commission, and discouraged
workers.
54.
Which of the following situations is likely to lead to an increase in discouraged
workers?
A)
The economy is expanding.
B)
The availability of jobs falls.
C)
The economy is undergoing inflation.
D)
The economy is undergoing deflation.
55.
An increase in the number of discouraged workers in the economy tends to:
A)
raise the official unemployment rate.
B)
lower the official unemployment rate.
C)
lower the number of people who are frictionally unemployed.
D)
increase the number of people who are structurally unemployed.
Page 12
56.
Donna was laid off at the beginning of 2011. She looked for a job for three months but
could not find anything suitable. She then decided to volunteer for a soup kitchen and
stopped looking for a job. Donna is considered to be:
A)
unemployed.
B)
underemployed.
C)
a discouraged worker.
D)
a part-time worker.
57.
Economists claim that the unemployment rate can understate the true level of
unemployment because none of the following groups is included EXCEPT:
A)
discouraged workers.
B)
marginally attached workers.
C)
underemployed workers.
D)
workers without jobs who have looked for work in the past four weeks.
58.
Jim has a part-time job and would prefer to have a full-time job but has been unable to
find one. Jim is classified as:
A)
a discouraged worker.
B)
underemployed.
C)
unemployed.
D)
out of the labor force.
59.
Which federal agency calculates and reports the official unemployment rate?
A)
Federal Reserve Bank
B)
Treasury Department
C)
Department of Health and Human Services
D)
Bureau of Labor Statistics
60.
Suppose that Allison has an accounting degree, but she lost her job two months ago
when her company merged with another firm. Allison hasn’t been able to find another
accounting job, so she has taken a part-time job as a sales clerk at a clothing store. The
Bureau of Labor Statistics classifies Allison as:
A)
a marginally attached worker.
B)
a discouraged worker.
C)
underemployed.
D)
unemployed.
Page 13
61.
Suppose that Allison has an accounting degree, but she lost her job two months ago
when her company merged with another firm. Allison hasn’t been able to find another
accounting job, so she has taken a part-time job as a sales clerk at a clothing store. As a
result the official unemployment rate will:
A)
not change.
B)
increase.
C)
decrease.
D)
increase temporarily, then fall back to its original level.
62.
Unemployment rates are usually highest for:
A)
white teenagers.
B)
African American teenagers.
C)
male workers aged 25 to 54.
D)
female workers aged 25 to 54.
63.
Which of the following statements is FALSE?
A)
Unemployment always rises during recessions.
B)
Unemployment always falls during expansions.
C)
There is a strong negative relation between growth in real GDP and changes in
unemployment.
D)
In general, there is a trade-off between inflation and unemployment in the short
run.
64.
If the growth rate of GDP is above its historical average, then there is a tendency for the
unemployment rate to:
A)
fall to zero.
B)
rise.
C)
fall.
D)
stabilize.
65.
During a recession:
A)
unemployment and the growth rate of real GDP both decrease.
B)
unemployment decreases and the growth rate of real GDP increases.
C)
unemployment increases and the growth rate of real GDP decreases.
D)
there is no relation between unemployment and the growth rate of real GDP.
Page 14
66.
In general, for the U.S. economy, the relation between unemployment and economic
growth is:
A)
positive.
B)
direct.
C)
neutral.
D)
negative.
67.
According to historical economic data for the United States from 1949 to 2014, the
unemployment rate is most likely to rise:
A)
whenever the economy grows at a rate below 3.25%.
B)
only when there is no economic growth.
C)
only when there is positive economic growth.
D)
whenever the economy grows at a rate between 4% and 4.8%.
68.
For most of U.S. modern economic history, when the unemployment rate is _____, real
GDP is _____.
A)
falling; rising
B)
falling; falling
C)
rising; unchanged
D)
rising; rising
69.
In general, expansions are characterized by:
A)
increasing unemployment.
B)
falling unemployment.
C)
decreasing employment.
D)
constant employment.
70.
Periods of recession are likely to be marked by:
A)
rising unemployment.
B)
constant unemployment.
C)
increasing employment.
D)
constant employment.
71.
People who are counted as unemployed by the Bureau of Labor Statistics are:
A)
people without a job who are actively seeking a job.
B)
discouraged workers.
C)
workers who are underemployed.
D)
people without a job who are actively seeking a job, discouraged workers, and
workers who are underemployed.
Page 15
Use the following to answer questions 72-75:
Table: Unemployment and Employment Data
72.
(Table: Unemployment and Employment Data) Look at the table Unemployment and
Employment Data. The unemployment rate for this economy is:
A)
2.9%.
B)
4.8%.
C)
5%.
D)
5.3%.
73.
(Table: Unemployment and Employment Data) Look at the table Unemployment and
Employment Data. The labor force in this economy is:
A)
170 million.
B)
140 million.
C)
100 million.
D)
98 million.
74.
(Table: Unemployment and Employment Data) Look at the table Unemployment and
Employment Data. If marginally attached workers are included, the labor force in this
economy is:
A)
170 million.
B)
103 million.
C)
100 million.
D)
98 million.
75.
(Table: Unemployment and Employment Data) Look at the table Unemployment and
Employment Data. If marginally attached workers are included in the labor force and in
the unemployment rate, the unemployment rate in this economy is:
A)
8.4%.
B)
7.8%
C)
5%.
D)
3%.
Page 16
Use the following to answer questions 76-79:
76.
(Table: Employment Data) Look at the table Employment Data. The unemployment rate
is:
A)
6.25%.
B)
6.45%.
C)
9.09%.
D)
9.37%.
77.
(Table: Employment Data) Look at the table Employment Data. The labor force is:
A)
33 million.
B)
32 million.
C)
31 million.
D)
22 million.
78.
(Table: Employment Data) Look at the table Employment Data. If marginally attached
workers are included in the labor force, the labor force is:
A)
1 million.
B)
11 million
C)
32 million.
D)
33 million.
79.
(Table: Employment Data) Look at the table Employment Data. If marginally attached
workers are included in the labor force and in the unemployment rate, the
unemployment rate is:
A)
39.4%.
B)
30.3%.
C)
9.1%.
D)
6.25%.
Page 17
Use the following to answer questions 80-84:
80.
(Table: Population Data for Estill County) Look at the table Population Data for Estill
County. How many people are in the labor force?
A)
6,000
B)
9,400
C)
7,400
D)
6,500
81.
(Table: Population Data for Estill County) Look at the table Population Data for Estill
County. What is the labor force participation rate?
A)
64%
B)
81%
C)
17%
D)
79%
82.
(Table: Population Data for Estill County) Look at the table Population Data for Estill
County. What is the unemployment rate?
A)
64%
B)
48%
C)
17%
D)
6%
83.
(Table: Population Data for Estill County) Look at the table Population Data for Estill
County. If marginally attached workers are included, the labor force in Estill County is:
A)
7,400.
B)
6,500.
C)
6,000.
D)
5,500.
Page 18
84.
(Table: Population Data for Estill County) Look at the table Population Data for Estill
County. If marginally attached workers are included in the labor force and in the
unemployment rate, the unemployment rate in this economy is:
A)
10.6%.
B)
15.4%.
C)
23.1%.
D)
33.2%.
85.
Anna recently moved to Boston, as her husband, Joe, has a new job as an economics
professor at Harvard. Anna is an experienced surgeon who is interviewing with several
hospitals in Boston. Anna is:
A)
frictionally unemployed.
B)
structurally unemployed.
C)
cyclically unemployed.
D)
counted as employed, since she is likely to receive a job offer soon.
86.
All of the following are examples of job search EXCEPT:
A)
attending class at a community college to learn database management.
B)
reading the employment section of the local newspaper while sitting at a coffee
shop.
C)
calling a former college roommate to see if there are any job openings in her
company.
D)
visiting a former college professor to learn about work as a research assistant.
87.
Unemployment that is due to the time workers spend in job search is _____
unemployment.
A)
frictional
B)
structural
C)
cyclical
D)
natural
88.
Last week Stephanie quit her job as a copywriter at an advertising agency. She has spent
the past few days browsing the help wanted ads but hasn’t found anything that matches
her skills. Stephanie is best classified as:
A)
structurally unemployed.
B)
frictionally unemployed.
C)
a discouraged worker.
D)
out of the labor force.
Page 19
89.
Unemployment that occurs because it takes workers and employees time to find each
other is _____ unemployment.
A)
cyclical
B)
structural
C)
frictional
D)
discouraged
90.
People who are changing jobs are counted in _____ unemployment.
A)
frictional
B)
involuntary
C)
structural
D)
cyclical
91.
A recent college graduate with a major in economics attends a job fair but has not yet
found a job. This graduate is counted as a _____ unemployed worker.
A)
structurally
B)
seasonally
C)
cyclically
D)
frictionally
92.
When the unemployment rate is very low, most of it tends to be:
A)
cyclical.
B)
frictional.
C)
seasonal.
D)
structural.
93.
A person who spends time looking for work is:
A)
engaged in job search.
B)
usually counted as a marginally attached worker.
C)
counted as out of the labor force.
D)
usually counted as a discouraged worker.
94.
Frictional unemployment exists because of all of the following reasons EXCEPT:
A)
that new jobs are continually being created.
B)
that some old jobs are always being destroyed.
C)
that new workers are always entering the labor market.
D)
for the minimum wage.
Page 20
95.
Frictional unemployment is considered to be:
A)
bad, because people are not getting a paycheck.
B)
good, because people learn how other folks live.
C)
good, since that means people may be seeking jobs that match their job skills.
D)
bad, because people are out of work.
96.
An example of the frictionally unemployed is a(n):
A)
autoworker who is temporarily laid off because of a decline in sales.
B)
geologist who is permanently laid off from an oil company because of a
technological advance.
C)
worker at a fast-food restaurant who quits work and attends college.
D)
real estate agent who leaves a job in Texas and searches for a similar higher-paying
job in California.
97.
A worker classified as frictionally unemployed is one who is:
A)
laid off during a recession.
B)
discouraged and has dropped out of the labor force.
C)
unemployed while looking for a job that demands his or her skills.
D)
working part-time but would prefer to work full-time.
98.
Ron quit his job in retail management and moved to Florida with his wife, a physician
who opened a new practice there. He was not successful in his job search for the next
four months. Ron’s unemployment is:
A)
structural.
B)
cyclical.
C)
frictional.
D)
seasonal.
99.
Internet employment agencies have simplified the job search for the applicants. They
have also led to a(n) _____ unemployment.
A)
increase in frictional
B)
increase in cyclical
C)
decrease in frictional
D)
decrease in structural
100.
Economists generally agree that sufficiently high minimum wage laws:
A)
cause unemployment.
B)
help lower the structural unemployment rate.
C)
decrease the labor force participation rate.
D)
make an opportunity for discouraged workers.
Page 21
101.
Structural unemployment:
A)
results when there are more job hunters than jobs.
B)
affects those entering the labor force for the first time.
C)
is zero when the economy is in full employment.
D)
is caused by short-run economic fluctuations.
102.
Structural unemployment consists of people who are unemployed because of:
A)
temporary changes in jobs.
B)
more labor demanded than labor supplied.
C)
the time it takes for employers and workers to find each other.
D)
more job hunters than jobs.
103.
An example of structural unemployment is a(n):
A)
autoworker who is temporarily laid off because of a decline in sales.
B)
geologist who is permanently laid off because of an increase in wages won by labor
unions.
C)
worker at a fast-food restaurant who quits work and attends college.
D)
real estate agent who leaves a job in Texas and searches for a similar,
higher-paying job in California.
104.
Sam, who is 55 years old and has been a steelworker for 30 years, is unemployed
because the steel plant in his town closed and moved to Mexico. Sam is _____
unemployed.
A)
cyclically
B)
permanently
C)
frictionally
D)
structurally
105.
The labor demand curve is negatively sloped because:
A)
more people are willing to work at low wages than at high wages.
B)
more people are willing to work at high wages than at low wages.
C)
employers are willing to hire more people at low wages.
D)
employers are willing to hire more people at high wages.
106.
The labor supply curve is positively sloped because:
A)
more people are willing to work at low wages than at high wages.
B)
more people are willing to work at high wages than at low wages.
C)
employers are willing to hire more people at low wages.
D)
employers are willing to hire more people at high wages.
Page 22
107.
Unemployment that results when more people are seeking jobs than there are jobs
available is _____ unemployment.
A)
frictional
B)
structural
C)
cyclical
D)
natural
108.
Structural unemployment can be caused by all of the following EXCEPT:
A)
minimum wages.
B)
labor unions.
C)
efficiency wages.
D)
fluctuations in the business cycle.
109.
All of the following cause structural unemployment EXCEPT:
A)
a government-mandated floor on the price of labor set above the equilibrium wage.
B)
collective bargaining efforts that secure higher wages for unionized workers than
for nonunionized workers.
C)
offering high wages to attract high-quality workers.
D)
granting Social Security benefits to laid-off workers.
110.
Structural unemployment means there are:
A)
more people seeking work than there are jobs.
B)
more jobs than workers.
C)
wages that are too low.
D)
people just entering the labor force.
111.
Last month Brent lost his job at the auto parts factory because the factory relocated to
Asia. Brent has been looking for similar jobs in his town but has found no openings.
Brent is best classified as:
A)
structurally unemployed.
B)
frictionally unemployed.
C)
a discouraged worker.
D)
out of the labor force.
Page 23
112.
Last month Brent lost his job at the auto parts factory because the factory relocated to
Asia. Brent and his former coworkers have been looking for similar jobs, but they have
found no openings. In Brent’s town the _____ labor has _____.
A)
supply of; fallen
B)
supply of; risen
C)
demand for; risen
D)
demand for; fallen
113.
If a worker becomes unemployed because of an increase in the minimum wage, that
worker is:
A)
frictionally unemployed.
B)
structurally unemployed.
C)
cyclically unemployed.
D)
engaged in job search.
114.
A binding minimum wage in a labor market is set _____ the equilibrium wage and
causes a _____ of labor.
A)
below; surplus
B)
below; shortage
C)
above; surplus
D)
above; shortage
Use the following to answer questions 115-120:
Figure: The Minimum Wage
Page 24
115.
(Figure: The Minimum Wage) Look at the figure The Minimum Wage. Which of the
following is a binding minimum wage?
A)
P1.
B)
P2.
C)
P3.
D)
zero.
116.
(Figure: The Minimum Wage) Look at the figure The Minimum Wage. What is the
quantity of labor demanded at a binding minimum wage of P3?
A)
Q1
B)
Q2
C)
Q3
D)
Q4
117.
(Figure: The Minimum Wage) Look at the figure The Minimum Wage. What is the
quantity of labor supplied at a binding minimum wage of P3?
A)
Q1
B)
Q2
C)
Q3
D)
Q4
118.
(Figure: The Minimum Wage) Look at the accompanying figure on the labor market.
The binding minimum wage of P3 leads to unemployment of:
A)
Q3 – Q1.
B)
Q3 – Q2.
C)
Q4 – Q1.
D)
Q4 – Q2.
119.
(Figure: The Minimum Wage) Look at the figure The Minimum Wage. By how much
does the quantity of labor supplied rise when the government imposes a binding
minimum wage of P3?
A)
Q4 – Q1
B)
Q3 – Q2
C)
Q2 – Q1
D)
Q4 – Q2
Page 25
120.
(Figure: The Minimum Wage) Look at the figure The Minimum Wage. By how much
does the quantity of labor demanded fall when the government imposes a binding
minimum wage of P3?
A)
Q4 – Q1
B)
Q3 – Q2
C)
Q2 – Q1
D)
Q4 – Q2
121.
It is generally accepted that a binding minimum wage does all of the following
EXCEPT:
A)
decrease the quantity of labor demanded.
B)
increase unemployment.
C)
increase the amount of labor supplied.
D)
decrease the amount of labor supplied.
Use the following to answer questions 122-124:
Figure: The Effect of a Minimum Wage
122.
(Figure: The Effect of a Minimum Wage) Look at the figure The Effect of a Minimum
Wage. Suppose the labor market is in equilibrium at E when the government imposes a
minimum wage of WF. The quantity of labor supplied may_____, resulting in structural
unemployment.
A)
decrease to QD
B)
stay at QE
C)
increase to QS
D)
stay at WE
Page 26
123.
(Figure: The Effect of a Minimum Wage) Look at the figure The Effect of a Minimum
Wage. Suppose the labor market is in equilibrium at E when the government imposes a
minimum wage of WF. Structural unemployment will equal:
A)
QS – QD.
B)
QE – QD.
C)
QS – QE.
D)
zero.
124.
(Figure: The Effect of a Minimum Wage) Look at the figure The Effect of a Minimum
Wage. Suppose that after some time with a minimum wage of WF, the government
abolishes the minimum wage. Employment will:
A)
decrease to QE.
B)
increase to QE.
C)
stay at QE.
D)
be impossible to determine.
125.
A minimum wage of $7.25 per hour can cause structural unemployment if the
equilibrium wage is:
A)
$7.25.
B)
$8.00.
C)
$6.85.
D)
$7.30.
126.
In the absence of minimum wages, efficiency wages, or labor unions, a decline in the
demand for labor will likely result in _____ if wages are flexible.
A)
higher levels of employment
B)
no changes in employment
C)
a lower level of employment but likely no change in the unemployment rate
D)
a lower level of employment and a higher unemployment rate
127.
When the demand for labor is falling and employers have committed to high wages,
_____ unemployment will result.
A)
frictional
B)
cyclical
C)
permanent
D)
structural
Page 27
128.
Firms pay an efficiency wage because:
A)
it reduces the risk of losing the best workers.
B)
it is required by law.
C)
they don’t have to offer health insurance if they pay efficiency wages.
D)
it reduces the employee’s income tax liability.
129.
Efficiency wages are usually set by employers to:
A)
reduce unemployment.
B)
increase employment.
C)
provide an incentive for better performance.
D)
increase employment and provide better incentives for performance.
130.
Efficiency wages are:
A)
above equilibrium to encourage better performance.
B)
below equilibrium to encourage better performance to get a raise.
C)
responsible for all structural unemployment.
D)
above equilibrium to encourage better performance and are responsible for all
structural unemployment.
131.
Efficiency wages encourage:
A)
workers to look for a better job.
B)
potential workers to remain out of the labor force.
C)
workers to stay in their current job.
D)
workers to get more job training.
132.
Efficiency wages are:
A)
market equilibrium wages.
B)
set above equilibrium wages to act as an incentive for better performance.
C)
set below the equilibrium wage to increase profits.
D)
allowed to be below minimum wage.
133.
If the actual unemployment rate is 7% and the cyclical unemployment rate is 2%, then
the natural rate of unemployment is:
A)
2%.
B)
5%.
C)
7%.
D)
9%.
Page 28
134.
If the actual unemployment rate is 7% and the natural rate is 5%, then the cyclical rate
is:
A)
2%.
B)
5%.
C)
7%.
D)
9%.
135.
If actual unemployment is 6.2% and the natural rate is 4%, cyclical unemployment is:
A)
6.2%.
B)
10.2%.
C)
4%.
D)
2.2%.
136.
The natural rate of employment is achieved when:
A)
the actual rate of unemployment is zero.
B)
it is above the actual rate of unemployment.
C)
the quantity of labor supplied is equal to the quantity of labor demanded.
D)
there is no cyclical unemployment.
137.
The natural rate of unemployment is:
A)
the rate during recessions.
B)
equal to the sum of frictional and cyclical unemployment.
C)
equal to the sum of frictional and structural unemployment.
D)
cyclical unemployment less frictional unemployment.
138.
The rate of unemployment when the economy is at full employment is:
A)
zero.
B)
the natural rate.
C)
the structural rate.
D)
less than the full employment rate of unemployment.
139.
The deviations from the natural rate of unemployment in the actual rate of
unemployment are:
A)
seasonal.
B)
frictional.
C)
cyclical.
D)
structural.
Page 29
140.
Cyclical unemployment:
A)
occurs when people are between jobs.
B)
is a lack of good matches between available jobs and skills.
C)
is the normal unemployment around which the actual unemployment rate
fluctuates.
D)
is the deviation from the natural rate in the actual rate of unemployment.
141.
Deviations from the natural rate of unemployment are _____ unemployment.
A)
frictional
B)
structural
C)
random
D)
cyclical
142.
Natural unemployment equals _____ unemployment plus _____ unemployment.
A)
frictional; structural
B)
cyclical; structural
C)
frictional; cyclical
D)
frictional; structural unemployment plus cyclical
143.
Which of the following is an example of cyclical unemployment?
A)
An autoworker is laid off because a recession has caused a decline in sales.
B)
A geologist is permanently laid off from an oil company because of a technological
advance.
C)
A worker at a fast-food restaurant quits work and attends college.
D)
A real estate agent leaves a job in Texas and searches for a similar higher-paying
job in California.
144.
Unemployment is at its natural level if there is no:
A)
unemployment.
B)
frictional unemployment.
C)
structural employment.
D)
cyclical unemployment.
145.
The sum of the frictional and structural rates of unemployment is the:
A)
cyclical rate of unemployment.
B)
cyclical rate of employment.
C)
natural rate of unemployment.
D)
natural rate of employment.
Page 30
146.
Cyclical unemployment:
A)
rises during a recession.
B)
falls during a recession.
C)
rises during an expansion.
D)
is a part of natural unemployment.
147.
The natural rate of unemployment:
A)
is composed of frictional, structural, and cyclical unemployment.
B)
is equal to zero.
C)
is always greater than the actual unemployment rate.
D)
is composed of structural and frictional unemployment.
148.
The natural level of unemployment contains no_____ unemployment.
A)
minority
B)
structural
C)
frictional
D)
cyclical
149.
Cyclical unemployment is the result of:
A)
normal job turnover (job searches).
B)
discrimination.
C)
the business cycle.
D)
the minimum wage.
150.
When the economy is at full employment, _____ is zero.
A)
unemployment
B)
cyclical unemployment
C)
frictional unemployment
D)
the natural rate of unemployment
151.
In February 2012, the Bureau of Labor Statistics calculated the unemployment rate to be
8.3%. If frictional unemployment was 2% and structural unemployment was 3.2%, then
cyclical unemployment was:
A)
2.5%.
B)
3.1%.
C)
12.5%.
D)
5.5%.
Page 31
152.
In February 2012, the Bureau of Labor Statistics calculated the unemployment rate to be
8.3%. If frictional unemployment was 3.1% and structural unemployment was 3.2%,
then the natural rate of unemployment was:
A)
4.5%.
B)
2.0%.
C)
1%.
D)
5.5%.
153.
The National Bureau of Economic Research announced that the U.S. economic
recession that began in December of 2007 hit a trough in June of 2009. During that
period, which type of unemployment increased for sure?
A)
frictional
B)
natural
C)
cyclical
D)
structural
154.
According to the Bureau of Labor Statistics, the actual unemployment rate was 8.3% in
February 2012 and the natural rate of unemployment was 5.2%. The _____
unemployment rate was _____.
A)
frictional; 4%
B)
cyclical; 3.1%
C)
structural; 4%
D)
cyclical; 14%
155.
As the average age of the labor force increased from the end of the 1970s to the end of
the 1990s, the natural rate of unemployment:
A)
increased.
B)
decreased.
C)
was unaffected.
D)
was unpredictable.
156.
Generous unemployment benefits are likely to cause:
A)
an increase in the employment level.
B)
a reduction in job search time.
C)
a decrease in the unemployment rate.
D)
an increase in the unemployment rate.
Page 32
157.
Which of the following situations is likely to increase the natural rate of unemployment?
A)
the entrance of many new people into the labor force
B)
a decrease in unemployment compensation benefits
C)
a decrease in job search time due to information advances like the Internet
D)
the elimination of the minimum wage
158.
Since the 1950s, the natural unemployment rate in the United States has:
A)
remained relatively constant.
B)
increased steadily.
C)
decreased steadily.
D)
risen and fallen.
159.
Suppose that immigration laws are relaxed and many workers from other nations enter
the U.S. labor force. The _____ for labor will _____.
A)
demand; increase
B)
demand; decrease
C)
supply; decrease
D)
supply; increase
160.
Increases in unemployment compensation:
A)
reduce unemployment.
B)
increase unemployment.
C)
increase the number of jobs available.
D)
decrease the number of jobs available.
161.
When the unemployment rate is high, there is political demand to increase the benefit
period for unemployment compensation. In a standard analysis, this will lead to:
A)
reductions in unemployment.
B)
increases in the unemployment rate.
C)
more job creation.
D)
more job destruction.
162.
According to the Congressional Budget Office, the natural rate of unemployment:
A)
has continually declined since 1950.
B)
was at its lowest by the end of the 1970s.
C)
has continually risen since 1950.
D)
rose until the end of the 1970s and has declined since then.
Page 33
163.
One factor that raises the natural rate of unemployment is:
A)
a population boom that increases the number of young workers joining the labor
force.
B)
the loss of labor union membership across industries.
C)
the loss of retirement funds, so that more people in the baby boom generation
continue to work past the typical retirement age.
D)
the use of new technology in the workplace that increases labor productivity.
164.
The natural rate of unemployment:
A)
would increase if a larger percentage of the labor force were over 25 years old.
B)
would increase if union membership fell.
C)
would increase if unemployment benefits were increased.
D)
will always remain fixed.
165.
If more women enter or reenter the labor force, the natural rate of unemployment is
likely to:
A)
decrease.
B)
remain unchanged.
C)
increase.
D)
decrease if they are well educated.
166.
Recent declines in union membership are likely _____ the natural rate of
unemployment.
A)
to increase
B)
to decrease
C)
not to affect
D)
to alter unpredictably
167.
Which pair of policies is likely to reduce the natural rate of unemployment?
A)
job training and employment subsidies
B)
high minimum wages and generous unemployment benefits
C)
job training and higher minimum wages
D)
employment subsidies and policies designed to strengthen labor unions
168.
One factor that reduces the natural rate of unemployment is:
A)
a binding minimum wage.
B)
the recent proliferation of temporary employment agencies.
C)
a slowdown in productivity growth.
D)
government policies such as those that produced Eurosclerosis.
Page 34
169.
The natural rate of unemployment will rise for all of the following reasons EXCEPT:
A)
more generous terms for unemployment compensation.
B)
an increase in union membership.
C)
an increase in labor productivity that translates into greater demand for labor.
D)
a surge in the number of young and inexperienced workers.
170.
Increases in unemployment benefits:
A)
increase the natural rate of unemployment.
B)
decrease the natural rate of unemployment.
C)
affect everyone the same by increasing the natural rate of unemployment.
D)
affect everyone the same by decreasing the natural rate of unemployment.
171.
Unemployment rates are usually higher in Europe than in the United States because:
A)
the minimum wage is higher in the United States than in Europe.
B)
U.S. economic policy is much more effective than European economic policy.
C)
there are more unskilled, uneducated workers in Europe than in the United States.
D)
unemployment benefits are more generous in Europe than in the United States.
172.
Which of the following statements is FALSE?
A)
Both frictional and structural unemployment can occur even if unemployment is at
its natural level.
B)
Cyclical unemployment is unemployment in excess of the natural rate.
C)
A new college graduate looking for that first professional job may be frictionally
unemployed.
D)
Efficiency wages may cause frictional unemployment.
173.
Deflation is:
A)
a decrease in unemployment.
B)
a decreasing aggregate price level.
C)
a decline in wages.
D)
a recession.
174.
If deflation occurs and your income is fixed, your real income:
A)
will fall.
B)
will go up.
C)
will still be equal to your nominal income.
D)
is constant.
Page 35
175.
Over the past year, Eli has been working very hard. His employer has taken notice and
is giving Eli a 6% raise in salary. During this past year, overall prices in the economy
have increased by 4%. Given this information, Eli’s real wage has:
A)
stayed constant.
B)
increased by 6%.
C)
increased by 2%.
D)
decreased by 4%.
176.
If money income remains the same while the average price level doubles:
A)
nominal income will fall.
B)
real income will fall.
C)
interest rates will fall.
D)
purchasing power will increase.
177.
In 2002, France replaced its national currency, the franc, with the:
A)
euro.
B)
U.S. dollar.
C)
British pound.
D)
Chinese yuan.
178.
If the U.S. dollar were replaced with a “new dollar” at an exchange rate of 1 new dollar
for 5 old dollars, then a loan of $10,000 would become a debt of _____ new dollars.
A)
50,000
B)
10,000
C)
9,995
D)
2,000
179.
If the U.S. dollar were replaced with a “new dollar” at an exchange rate of 1 new dollar
for 8 old dollars, then a mortgage of $100,000 would become a debt of _____ new
dollars.
A)
12,500
B)
99,992
C)
100,000
D)
800,000
Page 36
180.
If the U.S. dollar were replaced with a “new dollar” at an exchange rate of 1 new dollar
for 4 old dollars, then an hourly wage of $10 would become an hourly wage of _____
new dollars.
A)
2.50
B)
6
C)
10
D)
60
181.
The real wage is the wage rate _____ the price level.
A)
plus
B)
minus
C)
divided by
D)
multiplied by
182.
Income divided by the price level is _____ income.
A)
personal
B)
real
C)
disposable
D)
national
183.
If the wage rate is $9 per hour and the price level is 2, then the real wage is:
A)
$18.
B)
$11.
C)
$7.
D)
$4.50.
184.
If Jim’s income is $80,000 and the price level is 4, then Jim’s real income is:
A)
$20,000.
B)
$320,000.
C)
$84,000.
D)
$80,000.
185.
If the price level increases, real wages will:
A)
increase.
B)
decrease.
C)
remain constant.
D)
fluctuate randomly.
Page 37
186.
If the price level decreases, real income will:
A)
increase.
B)
decrease.
C)
remain constant.
D)
fluctuate randomly.
187.
Increases in the average level of prices are called:
A)
depreciation.
B)
deflation.
C)
inflation.
D)
expectations.
Use the following to answer questions 188-189:
188.
(Table: The Consumer Price Index (CPI)) Look at the table The Consumer Price Index
(CPI). The inflation rate between 2011 and 2012 was:
A)
10%.
B)
3%.
C)
1.4%.
D)
24.6%.
189.
(Table: The Consumer Price Index (CPI)) Look at the table The Consumer Price Index
(CPI). The consumer price index in 2009 was 212.2. In 2010, it was 216.7. What was
the rate of inflation from 2009 to 2010?
A)
12.2%
B)
4.5%
C)
2.1%
D)
16.7%
Page 38
190.
The consumer price index in 1979 was 72.6. In 1980 it was 82.4. What was the rate of
inflation from 1979 to 1980?
A)
13.5%
B)
11.89%
C)
17.6%
D)
9.8%
191.
Shoe-leather costs are the:
A)
effect of inflation on the prices of food, clothes, and other necessities.
B)
increased cost of transactions due to inflation.
C)
high price of leather goods.
D)
effect of inflation on transportation costs.
192.
Which of the following is a LIKELY response to inflation?
A)
People choose to carry higher money balances.
B)
People tend to make fewer transactions.
C)
People tend to make more transactions.
D)
People tend to hold on to fewer interest-bearing assets.
193.
When hyperinflation forces Emily to visit her bank very frequently to keep her cash
holdings to a minimum, economists say that Emily has a:
A)
shoe-leather cost.
B)
menu cost.
C)
unit-of-account cost.
D)
Fisher effect.
194.
The introduction of ATMs reduced the:
A)
menu costs of inflation.
B)
shoe-leather costs of inflation.
C)
unit-of-account costs of inflation.
D)
seignorage.
195.
Shoe-leather costs are the costs of:
A)
the raw material used in production.
B)
the increased number of transactions as inflation increases.
C)
living adjustments as inflation increases.
D)
the raw material used in production, the increased number of transactions as
inflation increases, and living adjustments as inflation increases.
Page 39
196.
The costs that arise from the way inflation makes money a less reliable unit of
measurement are:
A)
shoe-leather costs.
B)
menu costs.
C)
unit-of-account costs.
D)
medium of exchange costs.
197.
When hyperinflation forces Pedro to change the price stickers on the books in his
bookstore very frequently to keep up with the aggregate price level, economists say that
Pedro has a:
A)
shoe-leather cost.
B)
menu cost.
C)
unit-of-account cost.
D)
debt deflation.
198.
Suppose that a country has a progressive income tax code, and taxable income is
calculated in nominal terms but the schedule of income tax rates is NOT indexed to
inflation. An individual whose income keeps up with inflation over time will pay:
A)
the alternative minimum tax.
B)
a lower percentage of income in taxes over time.
C)
the same percentage of income in taxes over time.
D)
a higher percentage of income in taxes over time.
199.
The inflation rate is the:
A)
price level in the current year minus the price level in the previous year.
B)
price level in the current year plus the price level in the previous year.
C)
percentage change in the price level from one year to the next.
D)
price level in the current year multiplied by the price level in the previous year.
200.
Since 1960 in the United States, the price level has:
A)
fluctuated randomly by large amounts.
B)
remained the same.
C)
decreased.
D)
increased.
201.
Since 1960 in the United States, the rate of inflation has:
A)
fluctuated.
B)
remained the same.
C)
decreased.
D)
increased.
Page 40
202.
Since the 1960s, the U.S. price level has _____ and the inflation rate has _____.
A)
remained constant; increased
B)
increased; fluctuated
C)
decreased; decreased
D)
fluctuated; remained constant
Use the following to answer questions 203-205:
Table: Price Levels
2011
221.3
2012
227.7
2013
232.2
2014
234.8
203.
(Table: Price Levels) Look at the table Price Levels. What is the rate of inflation from
2011 to 2012?
A)
0%
B)
2.9%
C)
4.5%
D)
6.4%
204.
(Table: Price Levels) Look at the table Price Levels. What is the rate of inflation from
2012 to 2013?
A)
6.4%
B)
4.5%
C)
2.9%
D)
2.0%
205.
(Table: Price Levels) Look at the table Price Levels. What is the rate of inflation from
2013 to 2014?
A)
1.1%
B)
2.6%
C)
2.9%
D)
2.0%
Page 41
206.
Unit-of-account costs of inflation are the:
A)
costs associated with money not being a reliable unit of measurement.
B)
costs of transactions associated with avoiding the inflation tax.
C)
costs associated with businesses changing prices.
D)
transfers the government gets from printing money.
207.
Menu costs of inflation are the:
A)
costs associated with money not being a reliable unit of measurement.
B)
costs of transactions associated with avoiding the inflation tax.
C)
costs associated with businesses changing prices.
D)
revenue the government gets from printing money.
208.
All of the following are costs of inflation EXCEPT _____ costs.
A)
menu
B)
shoe-leather
C)
unit-of-account
D)
efficiency wage
209.
Menu costs refer to the increased cost of:
A)
food in a time of inflation.
B)
eating out when inflation increases.
C)
changing listed prices.
D)
the minimum wage.
210.
Unit-of-account costs refer to the:
A)
increase in prices during inflation.
B)
decrease in the value of money during inflation.
C)
loss of the reliability of money as a relative unit of measurement.
D)
increased costs of servicing bank accounts during inflation.
211.
Menu costs are the:
A)
costs of money becoming less reliable.
B)
real costs of changing listed prices.
C)
increase in the transaction costs caused by inflation.
D)
adjustments to the cost of living.
Page 42
212.
During rapid price inflation, firms must frequently change prices. The cost of changing
listed prices is known as the _____ cost.
A)
menu
B)
real interest rate
C)
shoe-leather
D)
unit-of-account
213.
Deflation is a(n):
A)
decrease in the purchasing power of a unit of money.
B)
appreciation of the nation’s currency.
C)
decrease in the average level of prices.
D)
increase in the average level of prices.
214.
An increase in the price level that is extremely rapid (say 400% per year) is called:
A)
hyperinflation.
B)
inflation.
C)
deflation.
D)
hyperdeflation.
215.
Which annual rate of inflation is hyperinflation?
A)
5%
B)
13%
C)
25%
D)
2,000%
216.
During deflation the:
A)
general price level falls.
B)
general price level increases.
C)
interest rate rises.
D)
general price level becomes negative.
217.
Unanticipated inflation:
A)
reduces the value of money.
B)
increases the value of future obligations.
C)
increases certainty about the future.
D)
helps lenders.
Page 43
218.
The use of online banking would _____ the _____ cost of a high inflation rate.
A)
increase; menu
B)
decrease; shoe-leather
C)
increase; unit-of-account
D)
decrease; unit-of-account
219.
Annie’s credit union charges a fee for transferring funds from her money market account
to her checking account. The rate of inflation has been 12% lately, so Annie has
transferred funds from her money market account to her checking account more often
than usual. This cost is an example of the _____ cost of high inflation.
A)
unit-of-account
B)
menu
C)
shoe-leather
D)
redistributive
220.
Between 1921 and 1923 Germany underwent:
A)
deflation.
B)
disinflation.
C)
an increase in the purchasing power of its currency.
D)
hyperinflation.
221.
During Brazil’s hyperinflation of the 1990s the economy lost real resources when the
_____ sector grew very large to cope with the consequences of the high rate of inflation.
A)
banking
B)
transportation
C)
government
D)
manufacturing
222.
During periods of high inflation, stores that publish catalogs find it necessary to revise
prices and publish new catalogs more frequently than before. This is an example of
_____ costs.
A)
unit-of-account
B)
menu
C)
shoe-leather
D)
redistributive
Page 44
223.
When inflation rises quickly, borrowers will _____ and lenders will _____.
A)
be hurt; benefit
B)
benefit; be hurt
C)
be hurt; be hurt
D)
benefit; benefit
224.
Unexpected inflation _____ lenders and _____ borrowers.
A)
benefits; hurts
B)
hurts; benefits
C)
does not affect; benefits
D)
benefits; does not affect
225.
Unanticipated inflation:
A)
increases the value of money.
B)
decreases uncertainty about the future.
C)
reduces the real value of debt.
D)
helps lenders.
226.
Unanticipated inflation does all of the following EXCEPT:
A)
reduce the value of money.
B)
reduce the value of debt.
C)
cause uncertainty about the future.
D)
cause disinflation.
227.
Unanticipated inflation:
A)
helps those on fixed incomes.
B)
hurts borrowers and helps lenders.
C)
helps borrowers and hurts lenders.
D)
causes interest rates to decrease.
228.
Suppose that the nominal rate of interest is 7% and the inflation rate is 3%. The real rate
of interest is:
A)
3%.
B)
4%.
C)
10%.
D)
7%.
Page 45
229.
If the actual inflation rate is less than the expected inflation rate:
A)
lenders gain and borrowers lose.
B)
borrowers gain and lenders lose.
C)
everyone benefits.
D)
everyone is worse off.
230.
Suppose the real interest rate is 2.1% and the nominal interest rate is 5.4%. The inflation
rate is:
A)
7.5%.
B)
3.3%.
C)
–3.3%.
D)
2.1%.
231.
Suppose banks are issuing personal loans at 9%. If expected inflation is 3%, then the
nominal interest rate is _____ and the real interest rate is _____.
A)
6%; 9%
B)
9%; 6%
C)
9%; 3%
D)
6%; 12%
232.
Suppose that a bank wishes to make a 5% rate of return on a one-year loan but expects
inflation over the course of the loan to be roughly 3%. Which of the following is
TRUE?
A)
As long as the bank charges a nominal interest rate of at least 5%, it will earn its
expected return.
B)
If the bank charges an interest rate of 8% or higher, it will earn the expected return.
C)
If the bank charges 8% and the inflation rate is less than 3%, then the bank will
have earned a higher rate of return than expected.
D)
If the bank charges 8% and the inflation rate is more than 3%, then the bank will
have earned a higher rate of return than expected.
233.
The _____ interest rate _____.
A)
nominal; can be negative
B)
real; cannot be negative
C)
real; can only be positive
D)
real; can be zero, positive, or negative
Page 46
234.
A fixed interest rate of _____ with _____ inflation will yield the highest rate of return
for a lender.
A)
8%; 1%
B)
11%; 5%
C)
12%; 7%
D)
19%; 15%
235.
The nominal interest rate equals the real interest rate:
A)
times the rate of inflation.
B)
minus the rate of inflation.
C)
plus the rate of inflation.
D)
when inflation is correctly anticipated.
236.
The threat of future inflation:
A)
makes people reluctant to lend money for long periods.
B)
makes people eager to lend money for long periods.
C)
has no effect on lending money.
D)
increases the value of money paid back in the future.
237.
A bank makes a loan for one year. The nominal annual interest rate is 7.5%. The real
rate is 4%. Over the course of the year, overall prices increase by 4%. This rate of
inflation hurt the _____ because the actual rate of inflation was _____ than the
anticipated rate.
A)
borrower; lower
B)
borrower; higher
C)
lender; higher
D)
lender; lower
238.
A drop in the inflation rate is called:
A)
disinflation.
B)
deflation.
C)
stagflation.
D)
hyperinflation.
Page 47
Use the following to answer questions 239-245:
Figure: The Labor Market
239.
(Figure: The Labor Market) Look at the figure The Labor Market. The equilibrium wage
rate is:
A)
$16.
B)
$15.
C)
$14.
D)
$17.
240.
(Figure: The Labor Market) Look at the figure The Labor Market. The level of
employment at the equilibrium wage rate is:
A)
80,000.
B)
110,000
C)
100,000.
D)
90,000.
241.
(Figure: The Labor Market) Look at the figure The Labor Market. The size of the labor
force at the equilibrium wage rate is:
A)
80,000.
B)
110,000.
C)
100,000.
D)
200,000.
Page 48
242.
(Figure: The Labor Market) Look at the figure The Labor Market. The unemployment
rate at the equilibrium wage rate is:
A)
0%.
B)
50%.
C)
80%.
D)
15%.
243.
(Figure: The Labor Market) Look at the figure The Labor Market. What will be the level
of employment if firms decide to pay an efficiency wage of $16?
A)
80,000
B)
100,000
C)
110,000
D)
200,000
244.
(Figure: The Labor Market) Look at the figure The Labor Market. What is the size of
the labor force at an efficiency wage of $16?
A)
80,000
B)
100,000
C)
110,000
D)
200,000
245.
(Figure: The Labor Market) Look at the figure The Labor Market. What is the
unemployment rate at an efficiency wage of $16?
A)
10%
B)
20%
C)
27%
D)
73%
246.
The unemployment rate is the ratio of the unemployed to the labor force.
A)
True
B)
False
247.
Discouraged workers are not working, want to work, but are not actively looking for a
job.
A)
True
B)
False
Page 49
248.
Discouraged workers is another term for the unemployed.
A)
True
B)
False
249.
Underemployed people are counted as employed even though they are not fully using
their skills.
A)
True
B)
False
250.
Counted among the unemployed are underemployed people, who cannot find a job
working as many hours as they wish.
A)
True
B)
False
251.
The official unemployment rate is a useful but not altogether accurate measure of
joblessness.
A)
True
B)
False
252.
A high unemployment rate implies a high level of GDP.
A)
True
B)
False
253.
A jobless recovery occurs when GDP is growing at a below-average rate and
unemployment is rising.
A)
True
B)
False
254.
A jobless recovery occurs when GDP is decreasing and unemployment is rising.
A)
True
B)
False
255.
Since the 2007 recession, recent college graduates aged 21 to 23, have had an
unemployment rate lower than that of any other age group in the labor force.
A)
True
B)
False
Page 50
256.
Since 2007 unemployment rates have been higher than average for recent college
graduates because they are less qualified than graduates of the 1990s.
A)
True
B)
False
257.
Long-term unemployment is usually frictional.
A)
True
B)
False
258.
Most economists agree that a binding minimum wage causes structural unemployment.
A)
True
B)
False
259.
Both binding minimum wages and union wages may cause structural unemployment.
A)
True
B)
False
260.
The minimum wage is higher in the United States than in most Western European
countries.
A)
True
B)
False
261.
When the actual rate of unemployment is equal to the natural rate of unemployment, we
conclude that there is no cyclical unemployment.
A)
True
B)
False
262.
Frictional and structural unemployment are a part of the natural rate of unemployment.
A)
True
B)
False
263.
Cyclical unemployment is a result of recessions and economic downturns and is not
considered a part of the natural rate of unemployment.
A)
True
B)
False
Page 51
264.
Frictional unemployment is a special type of structural unemployment.
A)
True
B)
False
265.
If the government increases the length and amount of unemployment benefits, the
unemployment rate will fall.
A)
True
B)
False
266.
If the labor force becomes younger, the natural rate of unemployment will fall.
A)
True
B)
False
267.
The unemployment rate in Western Europe has been higher than the unemployment rate
in the United States in recent years.
A)
True
B)
False
268.
In 2002, the French adopted the British pound as their national currency.
A)
True
B)
False
269.
In 2002, the French adopted the euro as their national currency.
A)
True
B)
False
270.
When the price level increases, everyone becomes wealthier.
A)
True
B)
False
271.
When the price level increases, everyone becomes poorer.
A)
True
B)
False
Page 52
272.
If the U.S. dollar were replaced with a “new dollar” at an exchange rate of 1 new dollar
for 8 old dollars, then a mortgage of $200,000 would become a debt of 25,000 new
dollars.
A)
True
B)
False
273.
If the U.S. dollar were replaced with a “new dollar” at an exchange rate of 1 new dollar
for 4 old dollars, then an hourly wage of $12 would become an hourly wage of 3 new
dollars.
A)
True
B)
False
274.
The real wage is the wage multiplied by the price level.
A)
True
B)
False
275.
Real income is income divided by the price level.
A)
True
B)
False
276.
If the wage rate is $20 per hour and the price level is 2, then the real wage is $40 per
hour.
A)
True
B)
False
277.
If Jenny’s income is $120,000 and the price level is 4, then Jenny’s real income is
$30,000.
A)
True
B)
False
278.
The inflation rate for the current year is the price level in the current year minus the
price level in the previous year.
A)
True
B)
False
Page 53
279.
The inflation rate for the current year is the percentage change in the price level from
the previous year.
A)
True
B)
False
280.
Since 1960 the price level in the United States has decreased in most years.
A)
True
B)
False
281.
Since 1960 the price level in the United States has increased in most years.
A)
True
B)
False
282.
The U.S. inflation rate was lower in the 2000s than it was in the 1970s.
A)
True
B)
False
283.
The U.S. inflation rate was higher in the 2000s than it was in the 1970s.
A)
True
B)
False
284.
If the price level at the end of year 1 is 150 and the price level at the end of year 2 is
160, the inflation rate in year 2 is 10%.
A)
True
B)
False
285.
If the price level at the end of year 1 is 150 and the price level at the end of year 2 is
160, the inflation rate in year 2 is 6.67%.
A)
True
B)
False
286.
The use of online banking increases the unit-of-account cost of a high inflation rate.
A)
True
B)
False
Page 54
287.
The increased availability of automatic teller machines has decreased the shoe-leather
costs of high inflation.
A)
True
B)
False
288.
When the rate of inflation is high, people usually transfer money from interest-bearing
accounts into checking accounts more often than when inflation is low. This is an
example of a menu cost.
A)
True
B)
False
289.
Between 1921 and 1923 Germany underwent a period of hyperinflation.
A)
True
B)
False
290.
During Brazil’s hyperinflation of the 1990s the economy lost real resources when the
transportation sector grew very large to cope with the consequences of the high rate of
inflation.
A)
True
B)
False
291.
During periods of high inflation, stores that publish catalogs find it necessary to revise
prices and publish new catalogs more frequently than before. This is an example of
menu costs.
A)
True
B)
False
292.
Unit-of-account costs arise when inflation makes it necessary to change listed prices
very often.
A)
True
B)
False
293.
Unit-of-account costs arise from the way inflation makes money a less reliable measure
of value.
A)
True
B)
False
Page 55
294.
Shoe-leather costs may be especially important in the tax system when inflation distorts
the measures of income on which taxes are collected.
A)
True
B)
False
295.
Unit-of-account costs may be especially important in the tax system when inflation
distorts the measures of income on which taxes are collected.
A)
True
B)
False
296.
The real rate of interest is the nominal rate of interest times the inflation rate.
A)
True
B)
False
297.
Real interest rates can be positive, zero, or negative, but nominal interest rates can only
be zero or positive.
A)
True
B)
False
298.
The real interest rate is the nominal interest rate less the rate of inflation.
A)
True
B)
False
299.
Unless deflation occurs, the nominal interest rate will always be greater than or equal to
the real interest rate.
A)
True
B)
False
300.
Inflation reduces nominal interest rates.
A)
True
B)
False
301.
In periods of inflation, lenders benefit because the money that they are repaid has more
purchasing power than the money they loaned initially.
A)
True
B)
False
Page 56
302.
In 1896 presidential candidate William Jennings Bryan wanted the United States to
abandon the gold standard and print more money, which would raise the price level and
benefit farmers who were deeply in debt.
A)
True
B)
False
303.
If the nominal interest rate is 4% and the inflation rate is 1%, then the real interest rate is
5%.
A)
True
B)
False
304.
If the real interest rate is 4% and the inflation rate is 1%, then the nominal interest rate is
5%.
A)
True
B)
False
305.
When policies drop the inflation rate from 10% to 5%, the economy is undergoing
disinflation.
A)
True
B)
False
306.
Disinflation is a drop in the price level.
A)
True
B)
False
307.
During the mid-1980s, Israel had a high rate of inflation, and prices often rose by more
than 10% per month.
A)
True
B)
False
308.
The severe inflation in Israel during the mid-1980s was due to a war, an unstable
government, and civil unrest in the country.
A)
True
B)
False
Page 57
309.
During times of high inflation people hold less cash and make more withdrawals, so
banks often open new branches.
A)
True
B)
False
310.
Some economists argue that the official unemployment rate understates the true level of
unemployment. Summarize these arguments.
311.
How is it possible for the unemployment rate to overstate the true level of
unemployment?
Use the following to answer questions 312-313:
312.
(Table: Dexter’s Employment Statistics) Look at the table Dexter’s Employment
Statistics. Use these data to complete the following computations.
a. What is the size of the labor force?
b. What is the labor force participation rate?
313.
(Table: Dexter’s Employment Statistics) Look at the table Dexter’s Employment
Statistics. Use these data for the following computations.
a. What is the unemployment rate?
b. Including discouraged workers, what is the unemployment rate?
314.
If a labor market is in equilibrium at a wage that sets the quantity of labor demanded
equal to the quantity of labor supplied, how can there still be unemployment?
Page 58
315.
Minimum wages and efficiency wages are both above the equilibrium market wage.
Briefly describe each type of wage. Do they have similar results in the labor market?
316.
Kelli is a server at a casual restaurant in a small town. In each of the following
situations, explain Kelli’s type of unemployment.
a. The local economy is in a minor recession and the restaurant lays Kelli off. The
owner assures her that she will be rehired when business picks up again.
b. A large factory, the major employer in the town, permanently closes, and this hurts all
restaurants in town. The restaurant fires Kelli because the owner can only afford to stay
open on the weekends.
c. Kelli is dissatisfied with her schedule at the restaurant and quits her job. She is
qualified to work at other restaurants and immediately begins to send her résumé to
restaurants all over town.
317.
What do economists mean by the natural rate of unemployment? How would it be
affected by a permanent influx of younger, predominantly unskilled immigrant workers?
318.
Explain the difference between shoe-leather costs and menu costs of inflation.
319.
Ted is looking to borrow money from a bank. He is told that the nominal rate is 8%; that
includes expected inflation of 5% and a real interest rate of 3%. If there is unexpectedly
high inflation over the term of this loan, will Ted be hurt or will the bank be hurt?
Explain your answer.
320.
Suppose you have estimated the supply curve for the local labor market as Qs = W – 5,
where W is the hourly wage and Qs is the quantity of workers willing to work at each
wage. You have estimated the demand curve for the local labor market as Qd, = 25 – W,
where W is the hourly wage and Qd is the quantity of workers demanded by employers
at each wage.
a. Solve for the equilibrium wage and quantity of labor.
b. If the government imposes a minimum wage of $18, what are the size of the labor
force, the number of unemployed workers, and the unemployment rate?
321.
Two primary goals for macroeconomists are price stability and:
A)
no unemployment.
B)
no frictional unemployment.
C)
low unemployment.
D)
no structural unemployment.
Page 59
322.
To be classified as unemployed, a worker must:
A)
be working less than full-time (40 hours a week).
B)
not have a job and must be actively looking for work.
C)
not be looking for a job and must not have a job.
D)
be a discouraged worker.
323.
Unemployment rates tend to:
A)
be the same across geographic areas.
B)
vary between age groups and ethnicities.
C)
increase when the economy expands.
D)
stay the same only when there is cyclical unemployment.
324.
The population of discouraged workers causes the:
A)
actual unemployment rate to increase when the workers are not included in the
unemployment calculation.
B)
actual unemployment rate to understate the true level of unemployment.
C)
actual unemployment rate to overstate the true level of unemployment.
D)
natural rate of unemployment to increase.
325.
Sally works 20 hours a week for an accounting firm. She would like to work full-time
and expects that she will in the future. Sally is a(n) _____ worker.
A)
discouraged
B)
unemployed
C)
underemployed
D)
full-time
326.
Low unemployment rates are often:
A)
associated with recessions.
B)
associated with an ability to find a job with relative ease.
C)
an indicator that finding a job is extremely difficult.
D)
the result of high cyclical unemployment rates.
327.
Unemployment rates tend to decrease when:
A)
the economy expands.
B)
discouraged workers become active job seekers.
C)
underemployed workers become unemployed.
D)
the economy contracts.
Page 60
328.
When the unemployment rate increased, the annual growth rate of real GDP has usually:
A)
increased.
B)
decreased.
C)
not changed.
D)
shown no relationship with changes in the unemployment rate.
Use the following to answer questions 329-330:
Scenario: Employment in Xenia
Xenia has 10,000 people. Of this population, 1,000 residents are below age 16, and 2,000 have
given up looking for work. Currently, 500 people are unemployed but are actively looking for
work; 2,500 work part-time, and the rest are fully employed.
329.
(Scenario: Employment in Xenia) Look at the scenario Employment in Xenia. What is
the unemployment rate?
A)
7.14%
B)
4.25%
C)
11.11%
D)
2%
330.
(Scenario: Employment in Xenia) Look at the scenario Employment in Xenia. Suppose
some of those who had given up looking for work start looking again. The
unemployment rate will:
A)
increase.
B)
decrease.
C)
not be affected.
D)
rise, fall, or stay the same.
Use the following to answer questions 331-333:
Scenario: The Employment Rate
A group of 10 people includes 3 retirees, 2 part-time workers, 2 discouraged workers, 1
unemployed worker, and 2 full-time workers.
331.
(Scenario: The Employment Rate) Look at the scenario The Employment Rate. The
unemployment rate is:
A)
10%.
B)
30%.
C)
20%.
D)
50%.
Page 61
332.
(Scenario: The Employment Rate) Look at the scenario The Employment Rate. The
labor force participation rate is:
A)
30%.
B)
50%.
C)
70%.
D)
80%.
333.
(Scenario: The Employment Rate) Look at the scenario The Employment Rate. If the
discouraged workers in this group became active job searchers, the:
A)
unemployment rate would fall.
B)
unemployment rate and the labor force participation rate would rise.
C)
labor force participation rate would fall.
D)
unemployment rate and the labor force participation rates would both fall.
334.
Structural changes in an economy and changes in consumer tastes are reasons for:
A)
job creation and job destruction.
B)
job searches.
C)
unemployment during recessions.
D)
unemployment during expansions.
335.
Frictional unemployment:
A)
occurs only during expansions.
B)
is due to time workers spend in job search.
C)
is the difference between cyclical unemployment and the natural rate of
unemployment.
D)
hasn’t occurred since the 1930s.
336.
Radhika just graduated from college. She recently quit her part-time job to focus on
finding a full-time job that better uses the skills she acquired in college. Radhika is
considered to be:
A)
structurally unemployed.
B)
frictionally unemployed.
C)
cyclically unemployed.
D)
employed, since she is focusing on finding a full-time job.
Page 62
337.
Structural unemployment occurs when:
A)
new workers enter the work force.
B)
there is a surplus of labor.
C)
the economy expands.
D)
there is cyclical unemployment.
338.
An effective minimum wage can lead to:
A)
frictional unemployment.
B)
structural unemployment.
C)
a decrease in wages.
D)
a shortage of workers in that labor market.
339.
When labor unions successfully bargain for wage rates that are _____ than the
equilibrium wage rate, they may cause _____.
A)
lower; frictional unemployment.
B)
equal to; shortages in that labor market.
C)
higher than; an increase in structural unemployment.
D)
higher than; shortages in that labor market.
340.
A wage offered by an employer as an incentive for more work effort and performance
and that exceeds the equilibrium wage rate is known as a(n) _____ wage.
A)
minimum
B)
equilibrium
C)
efficiency
D)
union
341.
In a particular labor market, the demand for labor is given by W = 20 – (1 / 100)L, and
the supply of labor is given by W = 4 + (1 / 100)L, where W is the wage rate and L is the
number of workers. The equilibrium wage is _____, and the equilibrium number of
workers is _____.
A)
$10; 1,000
B)
$12; 800
C)
$8; 1,200
D)
$20; 1,000
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342.
In a particular labor market, the demand for labor is given by W = 20 – (1 / 100)L, and
the supply of labor is given by W = 4 + (1 / 100)L, where W is the wage rate, and L is
the number of workers. Suppose government decides to impose a minimum wage of
$15. The wage will:
A)
have no effect, since it is below the equilibrium wage.
B)
cause a shortage of workers, since it is above the equilibrium wage.
C)
cause a surplus of workers, since it is above the equilibrium wage.
D)
result in increases in wages for workers who were employed at the equilibrium
wage only.
343.
A binding minimum wage results in:
A)
higher wages for those who were working prior to the minimum wage
implementation.
B)
an increase in structural unemployment.
C)
a decrease in the amount of cyclical unemployment.
D)
lower actual unemployment rates, since higher wages encourage more people to
enter the labor force.
344.
An efficiency wage:
A)
can be secured only with the help of a labor union.
B)
is one that causes greater frictional unemployment.
C)
is offered by an employer to encourage workers to work harder.
D)
results in a less productive work force.
345.
The sum of frictional and structural unemployment is the:
A)
actual unemployment level.
B)
cyclical amount of unemployment.
C)
natural rate of unemployment.
D)
amount of unemployment in an economy during a recession.
346.
The natural rate of unemployment:
A)
equals zero.
B)
equals the actual rate of unemployment when cyclical unemployment equals zero.
C)
equals the cyclical plus the actual rate of unemployment.
D)
fluctuates around the actual rate of unemployment.
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347.
Analysts believe that generous unemployment benefits in Europe are associated with:
A)
low unemployment rates in Europe.
B)
high unemployment rates in Europe.
C)
weak labor unions in Europe.
D)
relatively constant levels of unemployment in Europe.
348.
The natural rate of unemployment changes when:
A)
the cyclical unemployment changes.
B)
the actual rate of unemployment changes.
C)
labor market institutions change.
D)
government policies remain the same.
349.
High rates of inflation often result in people spending inordinate amounts of time trying
to make transactions and finding ways to keep the real value of their money from
decreasing. This is an example of _____ costs.
A)
shoe-leather
B)
menu
C)
efficiency wage
D)
unit-of-account
350.
Unit-of-account costs refer to the problem associated with high inflation rates that:
A)
cause people to expend extra effort to reduce their holdings of money.
B)
result in increased costs associated with necessary changes in the list price of items.
C)
makes money a less reliable unit of measurement.
D)
decrease the costs associated with holding less money.
351.
Anticipated inflation affects:
A)
borrowers only.
B)
lenders only.
C)
all aspects of the economy.
D)
only business firms involved in investment spending.
352.
Alex expects the inflation rate to be 4%. If Alex borrows money at a nominal interest
rate of 5%, his real interest rate is:
A)
greater than the nominal interest rate.
B)
less than the nominal interest rate.
C)
equal to the nominal interest rate.
D)
negative.
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353.
In periods of unexpected inflation:
A)
borrowers benefit, since they repay their loans in dollars with lower real value.
B)
lenders benefit, since they are repaid in dollars with a higher real value.
C)
neither borrowers nor lenders are affected by the inflation rate, since their nominal
interest rate stays the same.
D)
lenders benefit, since the nominal interest rate does not change.
354.
When disinflation occurs:
A)
the natural rate of unemployment rises.
B)
and inflationary expectations do not change, an economy may have a recession.
C)
and inflationary expectations do not change, unemployment rates will fall.
D)
with inflationary expectations unchanging, aggregate output will rise.
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Answer Key
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