Deck 9: Inflation and Unemployment

Question 1

A price index is:

A)a comparison of the price of one product with the change in real GDP
B)a comparison of real GDP in one period relative to another
C)the cost of a basket of products in a base or reference period divided by the cost of the same basket in another period
D)a ratio of real GDP in one period to nominal GDP in another
E)a measure of changes in prices

Answer 1

E

Question 2

A country's consumer price index was 124.0 at the end of year 1 and 130.7 at the end of year 2.Therefore,the rate of inflation during year 2 was about:

A)6.7 percent
B)5.4 percent
C)3.2 percent
D)13.6 percent
E)15.4 percent

Answer 2

B

Question 3

Which of the following is least likely to be hurt by unanticipated inflation?

A)a disabled labourer who is living off accumulated savings
B)an owner of a small business with high debts
C)a secretary
D)a retired steelworker with a partially indexed pension
E)an unskilled worker who makes an unindexed wage

Answer 3

B

Question 4

Inflation means that:

A)all prices are rising, but at different rates
B)all prices are rising, and at the same rate
C)prices are rising in general, although some particular prices may be falling
D)real incomes are rising
E)real incomes are falling

Question 5

Cost-of-living adjustment clauses (COLAs):

A)make the effect of inflation more harmful for some workers
B)apply only to younger workers
C)cause workers to experience significant changes in real income
D)apply only to nonunionized workers
E)minimize the impact of inflation for affected workers

Question 6

Inflation is undesirable because it:

A)arbitrarily redistributes real income and wealth
B)is always cumulative; that is, creeping inflation invariably causes high rates of inflation
C)reduces everyone's standard of living
D)is always accompanied by a declining real output
E)can lead to higher unemployment

Question 7

Unanticipated inflation:

A)reduces the real burden of the debt for borrowers
B)hurts borrowers and helps lenders
C)automatically hurts people whose sole source of income is from wages
D)helps both borrowers and lenders
E)hurts both borrowers and lenders

Question 8

In a given year,a country's nominal income rose by 8 percent and its price level rose by 5 percent.We can conclude that the country's real income:

A)may have either increased or decreased
B)rose by 13 percent
C)rose by 3 percent
D)fell by 13 percent
E)fell by 3 percent

Question 9

If the consumer price index falls from 120 to 116 in a particular year,the economy has experienced:

A)inflation of 4 percent
B)inflation of 3.33 percent
C)deflation of 3.33 percent
D)deflation of 4 percent
E)low unemployment

Question 10

During a period of unanticipated deflation:

A)debtors gain, because they repay their debts with dollars of diminished value
B)people with partially indexed incomes suffer
C)income is redistributed away from savers
D)people on unindexed incomes are hurt
E)debtors lose, because they repay their debts with dollars of greater value

Question 11

Unanticipated inflation:

A)arbitrarily "taxes" fixed-income groups
B)increases the real value of savings
C)increases the purchasing power of the dollar
D)benefits lenders at the expense of borrowers
E)does not affect lenders or borrowers

Question 12

If a price index rises from one year to the next:

A)all prices must be rising
B)nominal GDP must be rising
C)real GDP must be rising
D)real GDP must be falling
E)some individual prices may fall or stay the same, and nominal or real GDP may fall or stay the same

Question 13

The rate of inflation can be found by subtracting:

A)real income from nominal income
B)last year's price index from this year's price index
C)this year's price index from last year's price index, and dividing the difference by this year's price index
D)last year's price index from this year's price index, and dividing the difference by last year's price index
E)this year's price index from last year's price index, and dividing the difference by last year's price index

Question 14

If the consumer price index rises from 300 to 333 in a particular year,the rate of inflation in that year is:

A)11 percent
B)33 percent
C)91 percent
D)10 percent
E)99 percent

Question 15

If real GDP in a particular year is $80 billion and nominal GDP is $240 billion,the value of the GDP deflator for that year is:

A)100
B)200
C)240
D)300
E)333

Question 16

A lender need not be penalized by inflation if the:

A)long-term rate of inflation is less than the short-term rate of inflation
B)short-term rate of inflation is less than the long-term rate of inflation
C)lender correctly anticipates inflation and increases the nominal interest rate accordingly
D)inflation is unanticipated by both borrower and lender
E)long-term rate of inflation is the same as the short-term rate of inflation

Question 17

Recently a labour union argued that the standard of living of its members was falling.A critic of the union argued that this could not possibly be true,because the union had been acquiring increases in the nominal incomes of its members through collective bargaining.Is the critic correct?

A)Yes, because when you have an increase in nominal income, your standard of living automatically increases.
B)No, because real income may fall if price increases are proportionally greater than the increases in nominal income.
C)No, because real income may fall if price increases are proportionally less than the increases in nominal income.
D)Yes, because real income may fall if price increases are proportionally less than the increases in nominal income.
E)Yes, because real income may fall if price increases are proportionally greater than the increases in nominal income.

Question 18

Suppose that a person's nominal income rises from $10 000 to $11 000 and the consumer price index rises from 100 to 105.The person's real income will:

A)fall by about 5 percent
B)fall by about 1 percent
C)rise by about 5 percent
D)rise by about 10 percent
E)rise by about 1 percent

Question 19

Which of the following statements is correct?

A)Real and nominal incomes always move in the same direction.
B)Inflation increases the purchasing power of the dollar and necessarily reduces one's nominal income.
C)Inflation reduces the purchasing power of the dollar and necessarily reduces one's real income.
D)Inflation reduces the purchasing power of the dollar, but does not necessarily reduce one's real income.
E)Inflation increases the purchasing power of the dollar, but does not necessarily reduce one's real income

Question 20

Suppose that a person's nominal income rises by 5 percent and the consumer price index rises from 125 to 130.The person's real income will:

A)fall by about 1 percent
B)remain constant
C)rise by about 4 percent
D)fall by about 4 percent
E)rise by about 1 percent

Question 21

To be officially unemployed,a person must:

A)be in the labour force
B)be 21 years of age or older
C)have just lost a job
D)be waiting to be called back from a layoff
E)be collecting Employment Insurance

Question 22

Suppose that there are 1 million unemployed workers seeking jobs.After a period of time,100,000 of them become discouraged over their job prospects and cease looking for work.As a result,the official unemployment rate would:

A)increase in the short run, but eventually decrease
B)increase
C)decrease
D)remain unchanged
E)remain unchanged in the short run, but eventually decrease

Question 23

If nominal GDP rises:

A)real GDP may either rise or fall
B)the price level has risen
C)real GDP must fall
D)real GDP must also rise
E)the price level has fallen

Question 24

Cyclical unemployment is a consequence of:

A)downturns in the economy
B)the decreasing relative importance of goods and the increasing relative importance of services in our economy
C)the everyday dynamics of a free labour market
D)technological change
E)seasonal changes in the labour market

Question 25

Although economists disagree as to the level of the natural unemployment rate,most agree that full employment means an unemployment rate of about:

A)12 percent to 15 percent
B)10 percent
C)8 percent to 9 percent
D)2 percent to 3 percent
E)6 percent to 7 percent

Question 26

Suppose that nominal GDP in 2006 was $100 billion and,in 2012,it was $260 billion.The GDP deflator in 2006 was 100 and,in 2012,it was 180.Between 2006 and 2012,real GDP rose by:

A)160 percent
B)44 percent
C)37 percent
D)12 percent
E)80 percent

Question 27

Assuming that the total population is 100 million,the labour force is 50 million,and 3 million workers in the labour force are unemployed,the unemployment rate:

A)is 3 percent
B)is 6 percent
C)is 9 percent
D)is 12 percent
E)cannot be determined from the information given

Question 28

Suppose that there are 1 million part-time workers and 9 million full-time workers in an economy.Then 500,000 of the part-time workers switch to full-time work.We can conclude that the:

A)official unemployment rate will fall
B)official unemployment rate will rise
C)official unemployment rate will remain unchanged
D)size of the labour force will increase
E)size of the labour force will decrease

Question 29

Kimberly voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree.With degree in hand,she is now searching for a position in management.At present,Kimberly is:

A)cyclically unemployed
B)structurally unemployed
C)frictionally unemployed
D)seasonally unemployed
E)not a member of the labour force

Question 30

The unemployment rate is the:

A)ratio of unemployed in the total population to employed workers
B)number of employed workers minus the number of workers who are not in the labour force
C)percentage of the labour force that is out of work
D)percentage of the total population that is out of work
E)ratio of unemployed in the labour force to employed workers in the labour force

Question 31

The type of unemployment associated with downturns in the economy is called:

A)frictional unemployment
B)structural unemployment
C)cyclical unemployment
D)seasonal unemployment
E)secular unemployment

Question 32

The presence of discouraged workers:

A)increases the size of the labour force, but does not affect the unemployment rate
B)reduces the size of the labour force, but does not affect the unemployment rate
C)may cause the official unemployment rate to understate the level of unemployment
D)may cause the official unemployment rate to overstate the level of unemployment
E)increases both the size of the labour force and the unemployment rate

Question 33

Official unemployment statistics:

A)may understate unemployment, because individuals receiving unemployment compensation are counted as employed
B)may understate unemployment, because discouraged workers are not counted as unemployed
C)include cyclical and structural unemployment, but not frictional unemployment
D)may overstate unemployment, because workers who are involuntarily working part-time are counted as being employed
E)include cyclical and frictional unemployment, but not structural unemployment

Question 34

A college or university graduate searching for a job following graduation would best be classified as:

A)not officially a member of the labour force
B)a part of structural unemployment
C)a part of cyclical unemployment
D)a part of frictional unemployment
E)a part of secular unemployment

Question 35

Suppose that GDP in current dollars was $360 billion in 2006 and $450 billion in 2012.The GDP deflator was 120 in 2006 and 125 in 2012.It can be concluded that,between 2006 and 2012,real GDP:

A)increased by about $5 billion
B)decreased by about $32 billion
C)increased by about $100 billion
D)increased by about $117 billion
E)increased by about $60 billion

Question 36

Assume that Sharma is temporarily unemployed because he has voluntarily quit his job with Company A and will begin a better job next week with Company B.Sharma is considered to be:

A) cyclically unemployed
B) seasonally unemployed
C) structurally unemployed
D) employed
E) frictionally unemployed

Question 37

Suppose that a nation's nominal GDP is $972 billion and the GDP deflator is 90.In order to make this year's GDP comparable to the reference year GDP,this year's GDP must be:

A)adjusted downward to $687 billion
B)deflated to $896 billion
C)inflated to $1080 billion
D)deflated to $875 billion
E)inflated to $896 billion

Question 38

Ms.Eckstein has lost her job in a Quebec textile plant because of import competition.She intends to take a short course in electronics and move to Alberta where she anticipates new jobs will be available.We can say that Ms.Eckstein is faced with:

A)secular unemployment
B)cyclical unemployment
C)structural unemployment
D)frictional unemployment
E)seasonal unemployment

Question 39

Mee Ming works in her own home as a full-time caregiver and homemaker.Officially,she is:

A)officially unemployed
B)employed
C)not in the labour force
D)in the labour force
E)unofficially unemployed

Question 40

Part-time workers are counted as:

A)unemployed and, therefore, the official unemployment rate can overstate the level of unemployment
B)unemployed and, therefore, the official unemployment rate can understate the level of unemployment
C)fully employed and, therefore, the official unemployment rate can overstate the level of unemployment
D)fully employed and, therefore, the official unemployment rate can understate the level of unemployment
E)only partly employed, and therefore the official unemployment rate accurately reflects the underlying unemployment rate

Question 41

According to David Foot's demographic analysis,the second half of the Echo generation:

A)will have a relatively easy time finding jobs once they reach working age
B)will face many of the same problems once experienced by Generation X
C)is a particularly small demographic group
D)will have the advantage of having parents born during the Baby Bust
E)will face many of the same advantages as those born during the early part of the Baby Boom

Question 42

If real GDP in 2007 dollars is $1200 billion and the unemployment rate is 8.0 percent when the natural unemployment rate is presumed to be 6.5 percent,then according to Okun's law how much higher could real GDP have been if the economy were operating at its potential output?

A)$45 billion
B)$12 billion
C)$37.5 billion
D)$4.5 billion
E)$25 billion

Question 43

The economic cost of unemployment can be measured by the:

A)amount by which actual real output exceeds potential output
B)amount by which potential output exceeds actual real output
C)excess of real output over nominal output
D)excess of nominal output over real output
E)amount by which the unemployment rate exceeds the inflation rate

Question 44

The unemployment rate is:

A)18.8 percent
B)12.5 percent
C)16.7 percent
D)22.3 percent
E)25.0 percent

Question 45

At the economy's natural rate of unemployment:

A)the economy achieves its potential output
B)there is a relatively low level of cyclical unemployment
C)only frictional unemployment exists
D)only seasonal unemployment exists
E)only structural unemployment exists

Question 46

According to David Foot's demographic analysis:

A)the Baby Boom generation was born between 1929 and 1946
B)the Baby Bust generation was born between 1947 and 1966
C)the Baby Boom Echo generation was born between 1995 and 2005
D)the Baby Bust generation was born between 1967 and 1979
E)the Baby Boom Echo generation was born after 2005

Question 47

The rate of inflation:

A)is 110 percent
B)is 10 percent
C)is 0 percent
D)is 5 percent
E)cannot be determined by the data given

Question 48

If real GDP in 2007 dollars is $1500 billion and the unemployment rate is 7.5 percent when the natural unemployment rate is presumed to be 6.5 percent,then according to Okun's law how much higher could real GDP have been if the economy were operating at its potential output?

A)$3.75 billion
B)$10 billion
C)$25 billion
D)$37.5 billion
E)$15 billion

Question 49

If potential output exceeds actual real output by a wide margin,this implies:

A)an excess of imports over exports
B)a high rate of unemployment
C)that the majority of consumer demand has changed from goods to services
D)a sharply rising price level
E)that the majority of consumer demand has changed from services to goods