105. To be classified as unemployed, a person must be at least 16 years old and trying to find a
job within the past four weeks.
106. Frictional unemployment occurs because the economy is experiencing a recession.
107. Structural unemployment refers to unemployment caused by the restructuring of firms or
by a mismatch between the skills or location of job seekers and the requirements or location of
available jobs.
108. Inflation refers to a general rise in the prices of goods and services over time.
109. Inflation refers to the persistent rise in the purchasing power of money.
110. Disinflation refers to a situation in which prices continue to rise, but not at the rate they
were rising previously.
111. Deflation means prices are declining.
112. The consumer price index (CPI) measures what is happening to prices at the wholesale
level.
113. The CPI measures the pace of inflation or deflation.
114. The CPI is based on the prices of a carefully selected market basket of goods, all of which
consumers can purchase at a supermarket.
115. Some wages, tax brackets, interest rates, and government benefits are based on the CPI.
116. Core inflation figures omit health care prices, but not energy prices.
117. The producer price index measures what is happening to prices at the wholesale level.
118. Productivity of workers in the U.S. is helped by the use of better machinery.
119. The higher the measurement of productivity, the higher the likely costs of production.
120. An increase in productivity means that a worker is now able to produce more goods and
services in the same amount of time.
121. As productivity increases, the cost of producing goods and services is likely to fall.
122. In the service sector of the economy, the influx of machinery such as computers increases
output per worker, but does little to improve the quality of services.
123. Current measures of productivity in the service sector provide an accurate measure of
changes in the quality of output.
124. An economy is said to be in a recession if GDP declines for two or more consecutive
quarters.
125. A depression is a severe recession that is often accompanied by deflation.
126. A prediction that GDP will increase significantly over the next six months is bad news for
most businesspeople.
127. Although changes in the CPI provide interesting insights into the overall performance of
the economy, these changes have little practical impact on the lives of ordinary people.
128. It is understandable that productivity is rising faster in the service sector because service
businesses have newer technologies than the manufacturing sector and fewer laborers.
129. A rising GDP, rising unemployment rate, and rising inflation rate signify a healthy
economy.
130. A problem with the CPI is that it measures the price changes of only food and clothing,
while ignoring what happens to the prices of such important items as medical care and energy.
131. Danny was laid off from his job five months ago. At first, he looked for a new job every
day. During the past six weeks, however, Danny became depressed about his employment status
and quit trying to find a job. According to the criteria used by the government, Danny is a civilian
whose job status is included in computing the national unemployment rate.
132. Larry and Moe are having an argument. Larry believes that over the past year, the
economy is experiencing rapid inflation, while Moe says that the economy actually experienced
disinflation during this period. The easiest way for Larry and Moe to settle their argument is to
look at GDP figures for the past year.
133. Maureen is the office manager of a service company. She recently approved the
installation of new computers and office equipment for all workers in her office. If Maureen’s
company is like most service companies, she will probably see a big jump in the productivity
figures reported for workers in her office.
134. The government of Velovia made progress in its efforts to bring rapid inflation under
control. Although prices are still rising, the rate of increase has slowed considerably. This
suggests that Velovia is experiencing disinflation.
135. The nation of Desperia is reporting a significant decline in GDP for four consecutive
years, with no relief in sight. With unemployment at record levels and businesses failing faster
than at any time in the past century, Desperia is likely experiencing a depression.
136. Yesterday, Casey received a cable company ad for bundled TV, telephone, and Internet
service that cost appreciably more than what she is currently paying. At the same time, she
received a notice from her utility company that summer rates would be increasing. Her
schoolbooks are costing almost twice what they cost last year, and yesterday, gasoline cost her
30 cents more per gallon than it did last week. As she ponders the situation, she can’t help but
wonder how prices could be rising when so many people have lost their jobs and are cutting back
on expenditures. She is certain that this situation characterizes her economics professor’s
description of
stagflation
.
137. Sam is a recent college graduate with a lot of
firsts
: First professional job, first new car,
first apartment, and first time making all of his own financial decisions. As he works on his
monthly budget, he can’t help but wonder why he is barely making ends meet. Each month, it
takes his entire paycheck to pay his rent, his car payment, and buy food. Last month, he told his
parents, “I’m sure I had more money when I was a starving student!” You recently learned about
key economic indicators in your business class. You inform Sam that his problems are caused by
severe deflation and lack of demand for products and services.
138. Robin just graduated from college and is seeking her first job. She received a degree in
engineering at a prestigious university. Robin has several leads and has heard that the market for
engineers is very strong, so she is convinced that she should locate a good job in the near future.
Robin’s current situation is an example of structural unemployment.
139. Fiscal policy refers to the federal government’s efforts to keep the economy stable by
controlling the amount of money in circulation.
140. Fiscal policy involves the federal government’s efforts to stabilize the economy by
increasing or decreasing taxes and/or government spending.
141. When the government attempts to stabilize the economy by changing taxes or government
expenditures, it is using fiscal policy.
142. The national deficit is the difference between our nation’s exports and its imports.
143. The size of the national debt increases when the federal government runs a deficit.
144. The U.S. national debt equals the sum of all recorded years of deficits.
145. The Federal Reserve Board is responsible for controlling the money supply.
146. Monetary policy is directly under the control of the U.S. Department of the Treasury.
147. One of the major ways the Fed influences economic conditions is through its control of
interest rates.
148. High tax rates that put money into the government’s coffers tend to slow spending, and
ultimately slow the economy.
149. If the government wants to jump-start the economy resulting in more consumer spending,
it will raise taxes.
150. Monetary policy is implemented to ease the up and down swings of business cycles,
while fiscal policy is implemented to create swings when the cycle is stalled in an economic
boom.
151. If the national debt is $14 trillion, the national deficit will be considerably higher.
152. Government spending on defense decreases the national deficit.
153. To jump-start the economy, the Fed is likely to lower interest rates, in order to encourage
individuals and businesses to spend money.
154. The best way to avoid national budget deficits is to increase our exports and decrease
our imports.
155. In order to restrict spending by businesses and households, the Fed would take measures
designed to lower interest rates.
156. Senator Spendital made a speech deploring the continuous deficits in the federal budget.
He is proposing an increase in tax rates to raise more revenue for the government and thus
gradually reduce the size of the national debt over a period of several years. The strategy Senator
Spendital is proposing is a common type of monetary policy.