89) For deflation to occur,
A) national income must decrease.
B) real GDP must decrease.
C) the price level must decrease.
D) nominal GDP must decrease.
90) In the economic way of thinking,
A) inflation is better than deflation.
B) deflation is better than inflation.
C) deflation is better than disinflation.
D) inflation, deflation, and disinflation make it more difficult for people to cooperate with one
another.
91) Which of the following most accurately describes what occurs during a time of inflation?
A) People must work longer to live as well.
B) Prices rise faster than incomes.
C) The average standard of living declines.
D) The cost of living increases.
E) The purchasing power of money falls.
92) Professor I.M. Dismal returns to campus in the fall to find that the bookstore is charging 10%
more for the new economics textbooks he ordered this year compared to last year. On the basis
of this information, and using the economic way of thinking, what can Professor Dismal clearly
conclude?
A) The economy has experienced a 10% inflation over the year.
B) The economy has experienced a 10% deflation over the year.
C) The economy has experienced a disinflation over the year.
D) The economy has experienced a steady price level over the year.
E) The bookstore is charging 10% more for the new textbooks he ordered this year compared to
last year.
93) Suppose, compared to last year, the price of beer has increased 4%, the price of jeans has
increased 7%, and the price of video rentals has decreased 1%. On the basis of this data, what
can an economist conclude about the rate of inflation in the overall economy?
A) Nothing.
B) The inflation rate is 4%.
C) The inflation rate is 7%.
D) The inflation rate is 10%.
E) The inflation rate is 11%.
94) Suppose coffee prices, gasoline prices, and concert ticket prices are all sharply higher this
year compared to last year. The economy is experiencing
A) disinflation.
B) deflation.
C) inflation.
D) possibly A, B, or C above.
95) Which of the following is not a usual consequence of inflation?
A) Income is redistributed among people.
B) People are misled into supposing that their earnings have risen substantially.
C) People believe that rising prices have made them worse off.
D) The cost of living goes up for everyone.
E) The value of money falls.
96) The problems that inflation creates are caused almost entirely by
A) corporations.
B) greed.
C) price searchers.
D) uncertainty.
E) unions.
97) The systemic costs and burdens that inflation imposes upon a society are almost entirely the
result of
A) government price controls.
B) inability to predict its rate and timing.
C) the fact that no one can ultimately gain from higher prices because everyone is a consumer.
D) the lag between the rise of wage costs and the subsequent rise of prices.
E) the lag between the rise of prices and the subsequent rise of wages.
98) The overwhelming unpopularity of inflation among citizens is largely a result of the fact that
A) inflation raises the real cost of such basic necessities as food, housing, and clothing.
B) inflation reduces the value of real wealth.
C) no one knows what causes it.
D) no one (or almost no one) gains from inflation.
E) people who gain from inflation often erroneously conclude that they are losing as a result of
it.
99) The efforts of individuals to protect themselves against losses as a result of inflation
A) are irrational because one person’s loss as a result of inflation is someone else’s gain.
B) can only succeed if everyone correctly anticipates the rate and timing of inflation.
C) cannot succeed because no private citizen has the ability to stop inflation.
D) use up valuable resources that could have been employed in other ways.
100) According to the text, the most serious cost of continued inflation in a democratic society is
A) its tendency to undermine social consensus and feed political conflict.
B) the eventual recession that must inevitably occur as a result of the inflation.
C) the open and disguised unemployment that accompanies it, especially among minorities and
teenagers.
D) the slowdown in the rate of economic growth that it causes.
E) the steady rise in the cost of living that it entails.
101) In an economy that did not use money, but in which barter was exclusively employed for
the exchange of goods, inflation
A) could not occur.
B) would be almost entirely the result of speculation.
C) would benefit buyers more than sellers.
D) would redistribute real income rather than money income.
E) would strike hardest at those on fixed incomes.
102) Why does inflation cause problems in a society?
A) It gives people an incentive to hold money rather than spend it and provide income for others.
B) It makes everything more expensive in real terms.
C) People aren’t able to anticipate it accurately.
D) The cost of living rises for almost everyone in an inflation.
E) For all of the above reasons.
103) The principal way in which inflation imposes costs upon the members of a society is by
A) destroying the incentive to consume.
B) increasing the cost of planning correctly.
C) lowering wages relative to prices.
D) making goods more scarce.
E) raising the percentage of the population below the official poverty line.
104) Changes in conditions of supply and demand lead to price changes. For which of the
following types of goods is the change in price likely to occur most quickly?
A) Commercial rents
B) Hourly labor
C) Public utilities
D) Residential rents
E) Retail groceries
105) A financial institution that wants a 5 percent real return on its loans and contemplates a 4
percent annual inflation rate should loan at a nominal interest rate of approximately
A) minus 1 percent.
B) 1 percent.
C) 9 percent.
D) 15 percent.
E) 20 percent.
106) A bank seeks a 4% real return on its loans and predicts a 4% annual rate of inflation. It
should therefore charge a nominal interest rate of
A) 0%.
B) 1%.
C) 4%.
D) 8%.
E) 12%.
107) A savings and loan strives for a 6% real return on its loans and estimates a 7% annual rate
of inflation. It should therefore charge its borrowers a nominal interest rate of
A) 13%.
B) 7%.
C) 6%.
D) 1.17%.
E) 1%.
108) If a financial institution extends a 25 year loan at a 6 percent interest rate, and then the
inflation rate increases suddenly and unexpectedly to 6 percent per year, the institution receives
on its loan a real return of
A) minus 12 percent.
B) zero percent.
C) 6 percent.
D) 12 percent.
E) 36 percent.
109) Suppose a bank wants a 5% real return on its loans, and contemplates a 1% annual inflation
rate. The bank should therefore charge a nominal interest rate of
A) 1%.
B) 4%.
C) 5%.
D) 6%.
110) Suppose a credit union strives for a 3% real return on its loans to members, and expects a
2% inflation rate. What nominal rate of interest should it charge its members?
A) 0%
B) 1%
C) 3%
D) 6%
111) The official decision in the U.S. as to whether and when a slowdown in the rate of
economic growth has become a recession is made by the
A) Bureau of Economic Analysis in the Department of Commerce.
B) Bureau of Labor Statistics.
C) Federal Reserve Board of Governors.
D) National Bureau of Economic Research, a private research organization.
112) Fill in the blanks: Recessions are generally measured as a ________ in ________.
A) rise; real GDP
B) fall; real GDP
C) rise; nominal GDP
D) fall, nominal GDP
113) Which aggregate measure is used to determine whether or not a country is experiencing a
recession?
A) Nominal GDP
B) Nominal interest rate
C) Real GDP
D) Real interest rate
E) Gross business inventory investment
114) Fill in the blank: ________ is another term for a decline in real GDP is
A) Deflation.
B) Inflation
C) Economic growth
D) Recession
E) Unemployment
115) Recession is the opposite of
A) economic growth.
B) economic decay.
C) stagflation.
D) inflation.
E) deflation.
116) A recession is a slowdown in the rate of economic growth that
A) causes total income to fall even though total output has not declined.
B) is unintended and therefore disappoints people’s expectations.
C) lowers the nominal level of gross domestic product.
D) persists longer than one year.
E) results in fewer people being employed.
117) The costs of a recession are largely
A) losses to some people but gains to others.
B) made up in the subsequent recovery.
C) the consequences of falling prices.
D) the costs of disappointed expectations.
E) welcomed by advocates of zero economic growth.
118) What is the historical relationship in the United States between the unemployment rate and
recessions?
A) The relationship depends on whether or not the price level is also changing.
B) The unemployment rate rises during a recession and turns negative during the subsequent
recovery.
C) The unemployment rate rises shortly before a recession begins and declines shortly before it
ends.
D) The unemployment rate rises soon after a recession has begun and starts to decline sometime
after the recovery has started.
E) There is no regular or systematic link that can be discerned from the data.
119) Is it possible for inflation and recession to occur simultaneously in an economy?
A) No, because prices cannot rise during a recession.
B) No, because recession is caused by too little demand and inflation by too much demand.
C) Yes, and this has happened several times in the U.S. economy since World War II.
D) Yes, but it has not occurred since the Great Depression in the 1930s.
E) Yes, but while it is logically possible it has never actually happened in any major
industrialized economy.
120) Recessions in the U.S. economy show up in economic data as periods of
A) declining prices.
B) rising interest rates.
C) slower growth or actual decline in nominal GDP.
D) slower growth or actual decline in real GDP.
121) Official data on unemployment are based on
A) a survey of households by the Bureau of the Census.
B) employer data on hiring rates.
C) the number of actual payments for unemployment compensation.
D) the number of claims for unemployment compensation.
E) the number of responses to ads in the help-wanted section of major newspapers.
122) To be unemployed is to be
A) without a job, but actively looking for a job.
B) without any source of income.
C) without an identity.
D) all of the above.
123) What is a necessary condition for being categorized as unemployed?
A) Being homeless
B) Actively searching for a job
C) Having no source of income
D) Having no hope of finding a job in the foreseeable future
124) Amber Crombie is a stay-at-home mom while her husband Fitch works two jobs. What can
we clearly conclude?
A) Amber Crombie is unemployed.
B) Fitch is employed.
C) Amber Crombie is exploited.
D) Fitch is exploited.
E) All of the above are true.
125) Eliza Doolittle hasn’t worked in years, and doesn’t intend to. What can we clearly conclude
about Eliza?
A) She’s lazy.
B) She’s a parasite on society.
C) She’s not employed.
D) She’s unemployed.
E) All of above are true.
126) Ed Sike is tired of working as a special events manager at the college. He quits his price-
searcher job to devote himself to studying full time. Ed Sike is now
A) a price taker.
B) a price giver.
C) unemployed.
D) no longer employed.
E) All of the above.
127) Guiseppe Vibrato was so sick of his job that he quit, and now spends his days at the tavern,
saying he never wants to work again. Guiseppe is
A) a discouraged worker.
B) a discouraged drinker.
C) unemployed.
D) neither employed nor unemployed.
128) Dolly Varden is not employed. She is also not unemployed. How can that be?
A) It can’t. Dolly must be either employed or unemployed.
B) Dolly must be over 65 years old.
C) Dolly must not be actively searching for a job.
D) Dolly must be a discouraged worker.
129) Professor I.M. Dismal retired from his economics faculty position at the age of 66. Is he
now unemployed?
A) No, because he is retired.
B) No, because he is over the age of 65.
C) Yes, because he is not employed.
D) Yes, if he is looking for some other job.
130) Little Richie Lemons, a thirteen-year-old former lemonade stand owner, quit the business
and now searches for an after-school job. Is he officially unemployed?
A) No, because he was never employed in the first place.
B) No, because he is under 16 years old.
C) Yes, because he is no longer self-employed.
D) Yes, because he is looking for work.
131) Which of the following individuals will the Bureau of Labor Statistics not count as
unemployed?
A) Those who are not eligible for unemployment compensation because they have not worked in
covered employment.
B) Those who have turned down job offers comparable to the most recent one they held.
C) Those who have used up their unemployment compensation benefits.
D) Those who live in a household where at least one other person is employed full time.
E) None of the above prevents an individual from being counted as unemployed.
132) Who would the BLS count as unemployed? The person who
A) searches for a job after retiring from the military.
B) quits work and intends to stay at home raising his kids.
C) was fired from work and decides to attend college full time rather than seek work.
D) is dissatisfied with her present job and spends hours reading the help-wanted ads.
133) Who would the BLS count as unemployed?
A) Anybody over 16 who doesn’t have a full-time job
B) Anybody over 16 who doesn’t even work odd jobs
C) Anybody under 65 who doesn’t have a full time job
D) Anybody, regardless of age, who is seeking work
E) None of the above.
134) George loses his job. The BLS will consider him unemployed
A) immediately.
B) only after his severance pay runs out.
C) only after he begins to actively seek another job.
D) even if he accepts a cheaper part-time job.
135) Martha quits a minimum-wage part-time job for a salaried full-time job. The BLS will
count Martha as
A) originally unemployed but now employed.
B) originally employed and continuing to be employed.
C) originally a discouraged worker but now happily employed.
D) any of the above.
136) The amount of unemployment that policymakers should not worry about because it
constitutes no social problem is
A) 2 percent of the labor force.
B) 4 percent of the labor force.
C) not any single amount that can be clearly measured.
D) the amount that can exist without causing a recession.
E) the amount that is due to people’s choices among available alternatives.
137) A person who refuses an offer of employment in order to keep looking for a better job is
counted by the BLS as
A) a discouraged worker.
B) a shirker.
C) eligible for unemployment compensation.
D) not in the labor force.
E) unemployed.
138) People who are not currently employed, but say they want a job, are counted as unemployed
only if they
A) are actively seeking employment.
B) are between 16 and 65 years of age.
C) are willing to accept a reasonable offer.
D) have no other source of income.
E) have previously held a job.
139) People who are not employed and are not actively looking for work, because they are fairly
certain they could not find a satisfactory job, are counted by the BLS as
A) involuntarily employed.
B) neither employed nor unemployed.
C) unemployed members of the labor force.
D) voluntarily unemployed.
140) When the Bureau of labor Statistics makes seasonal adjustments in the labor force data,
what is it likely to do with the number of people in the labor force during the month of June?
A) Lower the number each year.
B) Raise the number each year.
C) Lower the number about as often as it raises the number in the long run.
D) Multiply the number by the labor force participation rate.
141) Dividing the number of people unemployed by the civilian labor force gives us
A) the employment rate.
B) the unemployment rate.
C) the labor force participation rate.
D) none of the above.
142) The employment rate is defined as
A) the percentage of the labor force holding employment.
B) the percentage of the noninstitutional population either working currently or looking for work.
C) the percentage of the noninstitutional population holding employment.
D) the percentage of the population currently receiving wages or salaries.
E) the percentage of the population currently working and living principally on earnings from
labor.
143) The unemployment rate is obtained by
A) dividing the number of employed people by the number of unemployed people.
B) dividing the number of employed people by the noninstitutional population.
C) dividing the number of unemployed people by the noninstitutional population.
D) dividing the number of unemployed people by the civilian labor force.
144) In the economy of Pandemonia, 500 people have jobs, 500 people are not working but are
searching for work, and 1500 people don’t work and don’t seek work. The unemployment rate is
A) 10 percent.
B) 40 percent.
C) 50 percent.
D) 66 percent.
E) none of the above.
145) In the economy of Pandemonia, 500 people have jobs, 500 people are not working but are
searching for work, and 1500 people don’t work and don’t seek work. The unemployment rate is
A) 10 percent.
B) 40 percent.
C) 55 percent.
D) 66 percent.
E) none of the above.
146) In the economy of Confoundia, 500 people have jobs, 1000 people are not working but are
searching for work, and 2000 people don’t work and don’t seek work. The unemployment rate is
A) 25 percent.
B) 33 percent.
C) 40 percent.
D) 50 percent.
E) 66 percent.
147) In the economy of Confoundia, 500 people have jobs, 1000 people are not working but are
searching for work, and 2000 people don’t work and don’t seek work. The unemployment rate is
A) 25 percent.
B) 33 percent.
C) 40 percent.
D) 50 percent.
E) none of the above.
148) In the economy of Grippe, 40 people have jobs, 10 people are not working but are searching
for work, and 100 people don’t work and don’t seek work. The unemployment rate is
A) 14 percent.
B) 15 percent
C) 20 percent.
D) 25 percent.
E) none of the above.
149) In the economy of Euphoria, 400 people have jobs, 200 people are not working but are
searching for work, and 100 people don’t work and don’t seek work. The unemployment rate is
A) 20 percent.
B) 25 percent.
C) 33 percent.
D) 50 percent.
E) none of the above.
150) In the economy of Euphoria, 400 people have jobs, 200 people are not working but are
searching for work, and 100 people don’t work and don’t seek work. The unemployment rate is
A) 20 percent.
B) 25 percent.
C) 40 percent.
D) 45 percent.
E) none of the above.
151) In the economy of Iota, 9 people have jobs, 1 person is not working but is searching for
work, and 10 people don’t work and don’t seek work. The unemployment rate is
A) 10 percent.
B) 25 percent.
C) 33 percent.
D) 50 percent.
E) none of the above.
152) The Illyrian economy has 1000 people in the labor force. 100 people don’t have jobs but are
searching for work, another 100 people would like to have jobs but quit searching because of
poor job prospects, and another 100 people don’t work and don’t want to work. What’s the rate of
unemployment?
A) 10 percent
B) 20 percent
C) 30 percent
D) 100 percent
E) None of the above.
153) Suppose an economy has the following characteristics: 100 people in the noninstitutional
population; 60 people employed; 20 people not in the labor force. How many people are in the
economy’s labor force?
A) 20
B) 40
C) 60
D) 80
E) 100
154) Suppose an economy has the following characteristics: 100 people in the noninstitutional
population; 60 people employed; 20 people not in the labor force. How many people are
unemployed?
A) 20
B) 40
C) 60
D) 80
E) 100
155) Suppose an economy has the following characteristics: 100 people in the noninstitutional
population; 60 people employed; 20 people not in the labor force. What’s the unemployment
rate?
A) 20 percent
B) 25 percent
C) 33 percent
D) 40 percent
E) 60 percent
156) Suppose an economy has the following characteristics: 100 people in the noninstitutional
population; 40 people employed; 50 people not in the labor force. How many people are in the
economy’s labor force?
A) 40
B) 50
C) 90
D) 100
157) Suppose an economy has the following characteristics: 100 people in the noninstitutional
population; 40 people employed; 50 people not in the labor force. How many people are
unemployed?
A) 100
B) 90
C) 50
D) 40
E) 10
158) Suppose an economy has the following characteristics: 100 people in the noninstitutional
population; 40 people employed; 50 people not in the labor force. What’s the unemployment
rate?
A) 10 percent
B) 15 percent
C) 20 percent
D) 40 percent
E) 50 percent
159) Suppose the Utopian economy has the following characteristics: 100,000 people in the
noninstitutional population; 80,000 people employed; 20,000 people not in the labor force. How
many people are in the economy’s labor force?
A) 0
B) 20,000
C) 60,000
D) 80,000
E) 100,000
160) Suppose the Utopian economy has the following characteristics: 100,000 people in the
noninstitutional population; 80,000 people employed; 20,000 people not in the labor force. How
many people are unemployed?
A) 0
B) 20,000
C) 60,000
D) 80,000
E) None of the above.
161) Suppose the Utopian economy has the following characteristics: 100,000 people in the
noninstitutional population; 80,000 people employed; 20,000 people not in the labor force.
What’s the unemployment rate?
A) -20 percent
B) 0 percent
C) 25 percent
D) 60 percent
E) 80 percent
162) Unemployment rates were much higher in the 1980s than they were in the 1950s basically
because
A) a higher percentage of the population was in the labor force in the 1980s, but the cost to many
of them of being unemployed was much lower than it was in the 1950s.
B) automation has eliminated many unskilled jobs.
C) fewer jobs are available in the 1980s relative to the population.
D) inflation raises unemployment rates.
E) recessions have become much more severe since the 1950s.
163) GDP accounts systematically ignore
A) non-market production.
B) illegal and underground production.
C) barter trades.
D) the market value of services provided by illegal aliens.
E) all of the above.
164) Which of the following economic activities is ignored in GDP accounts?
A) The market value of medical services
B) The market value of educational services
C) The market value of illegal drugs
D) The market value of prescription drugs
E) The market value of the services associated with used-car dealers
165) Jack swapped his basketball for Jim’s glove. Even if national income accountants were
aware of this trade, they wouldn’t include it in their GDP measure because
A) it was an unproductive exchange.
B) the basketball and glove were not final goods.
C) this was not a market transaction.
D) it failed to increase the wealth of both traders.
E) there is no satisfactory way to determine market values for bartered goods, new or used.
166) The services produced by spouses who cook, clean, and otherwise maintain homes are not
counted in the gross domestic product because
A) services are not tangible goods.
B) there is no accepted and reliable way to measure their value.
C) they do not add to the wealth of the nation.
D) this would entail double-counting, since such spouses usually receive free room and board.
E) while they are useful services, they do not represent productive labor.
167) Which of the following expenditures would be included when we measure GDP?
A) Expenditures on illegal drugs
B) Expenditures on illegal weapons
C) Expenditures on medical services associated with drugs and crime
D) All of the above.
E) None of the above.
168) Would the services supplied by prostitutes and brothels be included in calculating GDP in
the United States?
A) Yes, because those are final services.
B) Yes, but only in those states where brothels are legal.
C) No, because those services are immoral.
D) No, because those are not truly economic services.
169) GDP accounting ignores
A) all non-market forms of production.
B) illegal (black market) production.
C) economic value added.
D) all of the above.
170) When determining value added, national income accounting systematically ignore
A) accounting profits.
B) economic profits.
C) accounting losses.
D) the expected market value of unsold inventory.