Introduction to Economic Reasoning, 8e (Rohlf)
Chapter 10: Measuring Aggregate Performance
1) The difference between microeconomics and macroeconomics is that
A) microeconomics involves normative issues, while macroeconomics does not.
B) microeconomics studies the individual parts of the economy, while macroeconomics studies
its overall performance.
C) microeconomics utilizes theories, while macroeconomics relies exclusively on facts.
D) microeconomics tends to be very scientific, while macroeconomics is much more intuitive.
E) microeconomics requires the use of graphs, while macroeconomics does not.
2) The civilian labor force includes
A) all persons over the age of 16 who are not in the armed forces.
B) all persons over the age of 21 who are employed or actively seeking employment and who are
not in the armed forces.
C) all persons over the age of 16 who are employed or actively seeking employment and who are
not in the armed forces.
D) all persons over the age of 21 who are not in the armed forces.
E) all persons over the age of 18 who are employed and not in the armed forces.
3) The Bureau of Labor Statistics counts a person as unemployed if he or she is
A) without a job.
B) qualified for employment but unable to find it.
C) in the labor force but unable to find work.
D) in the labor force but unable to find full time work.
E) in the labor force but working less than 22 hours per week.
4) If you were working at a part-time job because you were unable to find a full-time job, the
Bureau of Labor Statistics would classify you as
A) unemployed.
B) not participating in the labor market.
C) employed.
D) quasi-employed.
E) unhappy.
5) Historically, blacks have had an unemployment rate
A) about equal to the rate for whites.
B) approximately 50 percent higher than whites.
C) approximately twice the rate for whites.
D) approximately four times the rate for whites.
E) approximately 1/2 the rate for whites.
6) Which of the following statements is false?
A) Discouraged workers are not counted as unemployed.
B) Teenagers have an unemployment rate approximately 5 times the rate for their racial group.
C) Recently, women have tended to have somewhat lower unemployment rates than men.
D) To economists, full employment does not mean a zero unemployment rate.
E) Black workers tend to have a higher unemployment rate than white workers.
7) Structural unemployment is caused by
A) a general slowdown or decline in the level of economic activity in the economy.
B) the unwillingness of workers to accept employment at prevailing wage rates.
C) a lack of marketable skills.
D) the time lags that are involved in changing jobs.
E) a slowdown in the rate of technological advance.
8) Cyclical unemployment exists because
A) certain skills tend to become obsolete as the economy continually changes.
B) there are periodic reductions in the economy’s total demand for goods and services.
C) it takes some time for new entrants into the labor force to find employment.
D) as workers become older, they become less attractive to businesses.
E) domestic producers have lost out to foreign competition.
9) The amount of unemployment that is normal or unavoidable is due to
A) structural changes in the economy and the time lags involved in labor market adjustments.
B) the voluntary idleness of those who choose not to seek employment.
C) the ups and downs in the level of economic activity in the economy.
D) the impact of foreign competition.
E) illness and injury.
10) The label “frictional unemployment” is used to describe individuals who
A) lose their jobs because of personality conflicts with their employers.
B) are out of work while they are changing jobs.
C) are out of work because they lack the motivation to seek employment.
D) are unemployed because they lack a sound general education.
E) are unemployed because of discrimination in hiring practices.
11) Which of the following individuals would be considered structurally unemployed?
A) a fork lift operator who quit her job to look for a similar position with better working
conditions
B) a meatpacker whose job was eliminated when the company purchased automated packing
equipment
C) a national sales representative who lost his job due to a general downturn in the overall
economy
D) a recent college graduate who is trying to choose between three job offers
E) a former nurse who is thinking about looking for a job but whose skills are rusty from disuse
12) Which of the following would be most likely to reduce frictional unemployment?
A) programs to assist in the retraining of workers
B) an increase in the amount of radio and television advertising of job openings
C) an increase in the level of financial support for elementary and secondary education
D) a program of subsidized day care so that welfare mothers could join the labor force more
easily
E) policies to stimulate the demand for goods and services so that businesses can sell more
output
13) A certain amount of unemployment is normal, or unavoidable. It consists of
A) cyclical unemployment.
B) cyclical and structural unemployment.
C) cyclical and frictional unemployment.
D) voluntary unemployment.
E) frictional and structural unemployment.
14) In our economy, full employment means
A) a zero unemployment rate.
B) an unemployment rate of about 2.5 percent.
C) an unemployment rate of about 5.0 percent.
D) an unemployment rate of about 8 percent.
E) an unemployment rate between 1 and 2 percent.
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15) Unanticipated inflation is generally regarded as undesirable because it
A) harms everyone in the economy.
B) arbitrarily redistributes income.
C) is always accompanied by increased unemployment.
D) results in a uniform reduction in everyone’s standard of living.
E) often helps creditors at the expense of debtors.
16) Which of the following is most likely to benefit from unanticipated inflation?
A) a retired couple living on a fixed income
B) an individual with a savings account that pays a fixed rate of interest for the next 2 years
C) a young couple who borrowed money at a fixed interest rate in order to purchase a home
D) an assembly-line worker whose long-term contract does not contain a cost-of-living
adjustment clause
E) a school teacher whose home mortgage loan payments automatically adjust to reflect changes
in market interest rates
17) Which of the following is least likely to suffer a reduction in real income during a period of
unanticipated inflation?
A) an unskilled worker earning the minimum wage
B) a widow on a fixed pension
C) a lawyer in private practice
D) a bus driver with a 3-year contract without a COLA clause
E) a salesperson with funds in a long-term, fixed interest savings deposit
18) During a period of unanticipated inflation
A) debtors tend to benefit at the expense of creditors.
B) creditors tend to benefit at the expense of debtors.
C) businesses that have borrowed money at a fixed interest rate tend to be harmed.
D) income will be redistributed from the federal government to private households.
E) everyone is harmed.
19) The Consumer Price Index attempts to measure the rate of inflation
A) for all of the items that make GNP.
B) for a market basket of products typically purchased by urban residents.
C) for food and clothing.
D) at the wholesale level.
E) for services only.
20) If the Consumer Price Index is 150 (1982 = 100), then prices have risen
A) 150 percent in the last year.
B) 50 percent in the last year.
C) 50 percent since 1982.
D) 150 percent since 1982.
E) 15 percent since 1982.
21) If the Consumer Price Index is 75, then prices have
A) risen 75 percent in the last year.
B) risen 75 percent since the base year.
C) declined 25 percent since the base year.
D) risen 175 percent since the base year.
E) declined 75 percent since the base year.
22) The major difference between the Consumer Price Index (CPI) and the Implicit Price
Deflator (IPD) is that
A) the IPD uses a base year, while the CPI does not.
B) the CPI examines consumer goods, while the IPD ignores consumer goods.
C) the IPD looks at a broader range of products than the CPI.
D) the CPI looks at wholesale prices, while the IPD looks at retail prices.
E) the IPD considers only services, while the CPI considers both goods and services.
23) Gross domestic product is defined as the monetary value of
A) all goods and services sold in 1 year.
B) all final goods and services produced and sold in 1 year.
C) all final goods and services produced in 1 year.
D) all goods and services produced in 1 year.
E) all final goods and services sold in 1 year.
24) Which of the following would not be included in GDP?
A) a new car produced by General Motors
B) typing lessons taken at the local business college
C) firewood received by a music teacher in return for violin lessons
D) a trip on a U.S. commercial airline
E) a notebook purchased at the school bookstore
25) Which of the following would be included in GDP?
A) the value of a used car sold by its former owner
B) the dollar value of the welfare payments received by a young mother
C) the services of a house painter
D) the value of the services performed by a homemaker
E) the value of the firewood you cut yourself
26) Suppose that you hire a maid to do work that you have been doing yourself. Because of your
decision,
A) GDP will fall.
B) GDP will remain unchanged.
C) GDP will increase.
D) money GDP will increase, but real GDP will be unchanged.
E) real GDP will increase, but money GDP will be unchanged.
27) Which of the following would not be included in the “government purchases” component of
GDP?
A) government spending for military weapons
B) Social Security payments by the federal government
C) government spending for roads, including major highways
D) purchases of office supplies by the federal government
E) government spending for space exploration
28) In calculating GDP, the purchase of a new home would be recorded as
A) a consumption expenditure.
B) an investment expenditure.
C) a capital consumption allowance.
D) a government expenditure.
E) personal saving.
29) Capital consumption allowances are
A) taxes paid to the federal government.
B) a category of consumer spending.
C) funds set aside to replace worn out factories and equipment.
D) money set aside for future spending on consumer goods.
E) taxes collected to help renovate the capitol building.
30) The value of GDP can be determined by adding together
A) compensation of employees, interest, government purchases, and net exports.
B) government purchases, consumption expenditures, private investment, and net exports.
C) compensation of employees, net interest, corporate profits, and government purchases.
D) compensation of employees, consumption expenditures, government purchases, and net
exports.
E) consumption expenditures, compensation of employees, net interest, and government
purchases.
31) The difference between nominal or “money” GDP and “real” GDP is that
A) real GDP measures the output of goods and services, while money GDP records financial
transactions.
B) real GDP is adjusted for changes in the price level, while money GDP is not.
C) money GDP considers goods and services, while real GDP considers only goods.
D) real GDP deducts taxes, while money GDP does not.
E) real GDP must be measured in units of output, while money GDP is measured in dollars or
other currency units.
32) Between 2000 and 2009, real GDP in the United States rose less than nominal GDP. This
indicates that
A) the welfare of U.S. citizens was lower in 2009 than it was in 2000.
B) U.S. citizens paid a substantial portion of their incomes in taxes.
C) the price level rose during this period.
D) services made up a substantial portion of the value of nominal GDP.
E) imports exceeded exports.
33) Suppose that an economy produces only wheat, and that between 1998 and 2008 the money
GDP of that economy doubled. It could be concluded that
A) the price of wheat had increased.
B) the price index (using 1998 as a base year) had doubled.
C) the number of tons of wheat produced by the economy had doubled.
D) the total market value of the wheat produced by the economy had doubled.
E) consumers were substantially better off in 2008 than they had been in 1998 (provided they
like wheat).
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34) If the value of nominal or money GDP was higher in 2000 than in 2002, and the price index
(2000 = 100) was higher in 2002 than in 2000, then
A) real GDP must have increased from 2000 to 2002.
B) real GDP must have declined from 2000 to 2002.
C) we cannot say whether real GDP increased or decreased from 2000 to 2002.
D) consumers were clearly better off in 2002 than they were in 2000.
E) inflation must have exceeded 50 percent between 2000 and 2002.
35) Which of the following is included in the annual GDP calculation?
A) the value of leisure enjoyed that year
B) the value of housework performed that year
C) a subtraction for the value of external costs created that year
D) the value of barter transactions during the year
E) the value of consulting services hired by government agencies during the year
Multiple Questions Reproduced from the Study Questions
1) The civilian labor force is made up of
A) all persons over the age of sixteen.
B) all persons over the age of eighteen who are not in the armed forces.
C) all persons over the age of sixteen who are not in the armed forces and who are either
employed or actively seeking employment.
D) all persons over the age of eighteen who are not in the armed forces and who are either
employed or actively seeking employment.
2) If you are out of work because you are in the process of looking for a better job, economists
would say that you are
A) frictionally unemployed.
B) cyclically unemployed.
C) structurally unemployed.
D) None of the above.
3) John recently lost his job because consumers are concerned about the future of the economy
and have slowed their purchases of new vehicles. John is
A) frictionally unemployed.
B) cyclically unemployed.
C) seasonally unemployed.
D) structurally unemployed.
4) The unemployment rate for blacks is usually about
A) three times the rate for whites.
B) twice the rate for whites.
C) 2 percent higher than the rate for whites.
D) the same as the rate for whites.
5) Which of the following is false?
A) Inflation tends to redistribute income.
B) Inflation is particularly hard on people with fixed incomes.
C) No one benefits from inflation.
D) COLA clauses help protect workers from inflation.
6) If the Consumer Price Index is 250, that means that
A) the average price of a product is $2.50.
B) prices are two times as high as they were in the base year.
C) prices have risen 150 percent since the base year.
D) Both B and C are correct.
7) The natural rate of unemployment is the rate that would exist in the absence of
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) frictional and structural unemployment.
8) Which of the following items would be counted in GDP?
A) the work of a homemaker
B) the sale of a used car
C) a soda you buy at your local drive-in
D) the firewood you cut for your home last winter
9) Over the last ten years, the United States experienced
A) lower than average unemployment and inflation rates when compared with other major
industrialized nations.
B) higher than average unemployment and inflation rates when compared with other major
industrialized nations.
C) lower than average inflation and higher than average unemployment when compared with
other major industrialized nations.
D) higher than average inflation and lower than average unemployment when compared with
other major industrialized nations.
10) If both output and prices are higher in year 2 than they were in year 1, which of the following
is true?
A) Real GDP declined from year 1 to year 2.
B) GDP declined from year 1 to year 2.
C) GDP increased from year 1 to year 2, but real GDP declined.
D) Both GDP and real GDP increased from year 1 to year 2.
11) The Consumer Price Index was 126.1 in December 1989 and 133.8 in December 1990.
Therefore, the rate of inflation experienced in 1990 was approximately,
A) 26.1 percent.
B) 7.7 percent.
C) 6.1 percent.
D) about 126 percent.
12) Susan’s paycheck increased by 5 percent this year. Over the same period, the CPI increased
from 180 to 189. What happened to Susan’s real income?
A) It increased.
B) It decreased.
C) It did not change.
D) We can’t tell what happened.
13) Which of the following would not be considered in computing GDP by the expenditures
approach?
A) personal consumption expenditures
B) gross private domestic investment
C) compensation of employees
D) net exports
14) Which of the following would not be considered in computing GDP by the income
approach?
A) rental income
B) corporate profits
C) indirect business taxes
D) government purchases of goods and services
15) If nominal GDP is increasing but real GDP is not, then,
A) the economy must be experiencing inflation.
B) output must be falling.
C) the price level must be falling.
D) population must be increasing.
1) Suppose you are a 19-year-old, full-time college student. You’re not working, and don’t want a
job. Which of the following is true?
A) You would be counted as unemployed because you do not have a job.
B) You would not be counted as unemployed because you must be over 21 to be counted as
unemployed.
C) You would not be counted as unemployed because you are not in the labor force.
D) You would not be counted as unemployed because being a college student is considered to be
equivalent to working at paid employment.
2) Suppose a nation’s population is 100,000. It consists of 80,000 people over the age of 16, and
70,000 people over the age of 18. Last week, 60,000 of those people had jobs and 7,000 were
actively seeking employment. What is the unemployment rate?
A) 7 percent
B) 8.75 percent
C) 10 percent
D) 10.4 percent
3) Joan recently quit her job to look for a better one. She would be regarded as
A) frictionally unemployed.
B) cyclically unemployed.
C) structurally unemployed.
D) voluntarily out of work and therefore not unemployed.
4) Roger lost his job to a robot. He has been unable to find other employment for which he is
qualified. Economists would classify him as
A) frictionally unemployed.
B) cyclically unemployed.
C) structurally unemployed.
D) robotically unemployed.
5) The natural rate of unemployment is
A) commonly estimated to be about 7 percent.
B) the rate that would exist if there was no cyclical unemployment.
C) equal to the rate of structural unemployment.
D) equal to the rate of frictional unemployment.
6) Which of the following is true?
A) Teenagers tend to have an unemployment rate about 3 times the overall rate for their race.
B) Blacks generally have an unemployment rate about twice the rate for whites.
C) Discouraged workers are not counted as unemployed.
D) All of the above are true.
7) Suppose that people become pessimistic about the future and cut back on their spending. This
reduction in spending means less demand for goods and services. Because there is less demand,
employers require fewer workers to make their products. Consequently, they fire some of
workers, leading to
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) seasonal unemployment.
8) Unexpected inflation
A) redistributes income from creditors to debtors.
B) benefits those on fixed incomes.
C) harms everyone.
D) is particularly hard on workers with COLA clauses.
9) People who are unemployed because they have no marketable skills are said to be
A) frictionally unemployed.
B) cyclically unemployed.
C) structurally unemployed.
D) None of the above are true.
10) When inflation is anticipated,
A) its redistributive effects are magnified.
B) it imposes no costs on society.
C) resources are wasted trying to offset its impact.
D) None of the above are true.
11) The price index that measures the rate of inflation for all of the items included in gross
domestic product is
A) the Consumer Price Index.
B) the Producer Price Index.
C) the Implicit Price Deflator.
D) the Wholesale Price Index.
12) If the Consumer Price Index for widgets was 172.2 in 2000 and 189.3 in 2001, then the rate
of inflation for widgets between 2000 and 2001 would be
A) 180.9 percent.
B) 17.1 percent.
C) 9.9 percent.
D) 9.0 percent.
13) The Consumer Price Index contains many different indexes for specific categories of goods
and services. Which of the following would not be found in the consumer price index?
A) an index for household furnishings and operation
B) an index for machines used in manufacturing automobiles
C) an index for medical care
D) an index for food and beverages
14) In comparison to other major industrialized nations, the United States has experienced
A) higher than average unemployment and inflation rates over the last decade.
B) lower than average unemployment and inflation rates over the last decade.
C) higher than average inflation rates over the last decade, but lower rates of unemployment.
D) higher than average unemployment rates over the last decade, but lower rates of inflation.
15) Gross domestic product is the total monetary value of all
A) goods and services sold within a nation in 1 year.
B) goods and services produced and sold within a nation in 1 year.
C) final goods and services produced within a nation in 1 year.
D) consumer goods produced within a nation in 1 year.
16) Which of the following would not be required in computing GDP by the expenditures
approach?
A) personal consumption expenditures
B) gross private domestic investment
C) employee compensation
D) government purchases of goods and services
17) The government purchases component of GDP includes all of the following EXCEPT
A) purchases of government vehicles.
B) payments to private consulting firms hired by the government.
C) purchases of weapons by the military
D) transfer payments such as Social Security
Use the following information for a hypothetical economy in answering the following question.
(Figures in billions of dollars.)
18) Based on the above table, GDP for this hypothetical economy is (not all data is required)
A) $9,445 billion.
B) $9,205 billion.
C) $8,511 billion.
D) $8,236 billion.
19) The difference between real GDP and money (or nominal) GDP is that
A) money GDP does not take government taxation into account while real GDP does.
B) real GDP has been adjusted to eliminate the impact of inflation while nominal GDP has not.
C) money GDP includes government transfer payments (such as Social Security) while real GDP
does not.
D) real GDP does not take government taxation into account while money GDP does.
20) Nominal GDP was $2 billion in year 1 and $2.4 billion in year two. Prices increased between
year 1 and year 2. We can say that
A) real GDP clearly increased between year 1 and year 2.
B) real GDP clearly decreased between year 1 and year 2.
C) real GDP increased if prices went up by less than 20 percent.
D) real GDP increased if prices went up by more than 20 percent.
21) Your real income is certain to increase if
A) both your salary and the general level of prices increase.
B) prices increase but your salary does not.
C) your salary increases more rapidly than the general level of prices.
D) prices increase at a faster rate than your salary.
22) Which of the following is not counted in GDP?
A) the purchase of a new television
B) a trip to the doctor
C) a used car purchased from your neighbor
D) an evening’s lodging in Las Vegas
23) Suppose that Susan received a 3 percent raise last year, but her rent and the other prices she
had to pay rose 5 percent. An economist would say that Susan’s
A) real income rose, but her nominal or “money” income fell.
B) nominal or “money” income fell.
C) real income rose.
D) nominal or “money” income rose, but her real income fell.
1) If a person is over 16 years old and without a job, that person must be classified as
“unemployed” by the Bureau of Labor Statistics.
2) The civilian labor force is made up of all persons over the age of 16 who are not in the armed
forces and who are either employed or actively seeking employment.
3) Before you can be classified as unemployed, you must be considered part of the labor force.
4) If a person works part-time but wants to work full-time, that person will be counted as
employed.
5) If a person works even 5 hours a week for pay, that person will be classified as employed.
6) In 2008, the civilian labor force in the United States contained approximately 350 million
people.
7) During the past decade, the average unemployment rate in the United States has been lower
than in any of the other major industrialized nations.
8) The term cyclical unemployment is used to describe people who are out of work because they
are changing jobs or searching for their first job.
9) People who are unemployed because they lack adequate skills are said to be experiencing
“structural unemployment.”
10) Teenagers generally experience a rate of unemployment roughly 50 percent higher than the
rate for their racial group.
11) Recently, adult women have had a lower unemployment rate than adult men.
12) The unemployment rate for blacks is generally about twice the unemployment rate for
whites.
13) When the economy has been in recession for some time, a sudden drop in the unemployment
rate may signal an increase in the number of discouraged workers.
14) Unanticipated inflation tends to redistribute income.
15) Individuals with COLA clauses in their labor contracts are more likely to be harmed by
inflation than those without these clauses.
16) Unanticipated inflation tends to benefit lenders and harm borrowers.
17) Anticipated inflation can lead to inefficiency by distorting price information.
18) If the consumer price index rose from 150 in year 1 to 155 in year 2, then the economy has
experienced 5 percent inflation in the intervening year.
19) Over last decade the United States has experienced the lowest average inflation rate of any
major industrialized nation.
20) If the consumer price index for all items is 168, that means consumer prices have risen by 68
percent since the base year.
21) The producer price index is used to forecast changes in consumer prices.
22) Gross domestic product is the total monetary value of all goods and services produced in a
year.
23) The value of intermediate goods is excluded from the calculation of GDP.
24) In calculating GDP, the expenditures approach adds together the value of personal
consumption expenditures, gross private domestic investment, government spending for products
and transfer payments, and net exports.
25) In calculating GDP, the income approach adds together compensation of employees, rental
income, net interest, corporate profits, capital consumption allowances, government transfer
payments, and personal consumption expenditures.
26) If GDP increased from $2,000 billion in period 1 to $3,000 billion in period 2 and prices
were higher in period 2 than in period 1, then real GDP must have increased between period 1
and period 2.
27) Indirect business taxes represent funds set aside to replace worn-out factories and equipment.
28) In arriving at GDP by the expenditures approach, we must deduct the value of U.S. products
sold to consumers in other countries.
29) Cyclical unemployment is caused by a lack of spending in the economy.
30) Structurally unemployed workers probably require retraining before they will be able to find
employment.
31) Today, a common estimate of the natural rate of unemployment is 3 percent.
32) If your income increases from $30,000 a year to $40,000 a year and the price level remains
stable, your real income has clearly increased.
33) If nominal GDP increased between year 1 and year 2 but prices fell over the same period,
real GDP would clearly be higher in year 2.
34) The natural unemployment rate represents the rate that would exist in the absence of cyclical
unemployment.
35) Inflation tends to benefit some individuals and groups in society at the expense of others.
36) The broadest measure of inflation is the producer price index because it considers more items
than either the consumer price index or the implicit price deflator.
37) The two approaches to the calculation of gross domestic product are the income approach
and the expenditures approach.
1) Suppose Jack wants a job but is convinced he won’t be able to find one and, therefore, decides
not to look. Will Jack be classified as unemployed? Why or why not?
2) Susan has a part-time job but really wants to work full-time. She has filled out applications at
several department stores, but no one seems to be hiring full-time employees. Would the Bureau
of Labor Statistics classify Susan as employed or unemployed? Defend your answer.
3) The consequences of inflation depend, at least in part, on whether it is anticipated or
unanticipated. Discuss in detail.
4) In 1994 the rate of inflation was 4.2 percent when measured by the percent change in the CPI
(consumer price index) but only 3.5 percent when measured by the percent change in the IPD
(implicit price deflator). Why do these different indexes arrive at different inflation rates?
5) Suppose you and your neighbor have identical houses, lawns, and cars which you maintain on
a regular basis.
(a) How do our GDP accounts record your efforts to keep your home clean, mow your lawn,
and wash your car?
(b) Suppose you paid your neighbor to perform your chores, and she paid you to perform
hers. Would this change in your behavior (and that of your neighbor) have any impact on GDP?
Why or why not?