Deck 4: Introduction to Macroeconomics

Question 1

A period of time in which the overall business activity is falling is known as

A)inflation.
B)deflation.
C)an expansion.
D)a contraction.

Answer 1

a contraction.

Question 2

Unemployment implies that society is

A)on the wrong point on its production possibilities curve.
B)inside its production possibilities curve.
C)outside its production possibilities curve.
D)on an endpoint of the production possibilities curve.

Answer 2

inside its production possibilities curve.

Question 3

Which of the following statements is TRUE?

A)Expansions and contractions of the Canadian economy usually last the same length of time.
B)Expansions vary greatly in length,but contractions last the same amount of time.
C)The Canadian economy has neither expanded nor contracted since the end of World War II.
D)Expansions and contractions of the Canadian economy vary greatly in length.

Answer 3

Expansions and contractions of the Canadian economy vary greatly in length.

Question 4

An extremely severe recession is known as a

A)trough.
B)peak.
C)contraction.
D)depression.

Question 5

The unemployment rate can decrease when

A)the number of job finders decreases.
B)the size of the military decreases.
C)the proportion of 18-22 year olds who go to college decreases.
D)the duration of unemployment decreases.

Question 6

The total labour force is comprised of

A)the unemployed and the employed.
B)only the employed.
C)all individuals over 16 years of age,whether or not they work or are seeking work.
D)only full-time employed individuals between the ages of 18 and 55.

Question 7

The duration of unemployment tends to

A)increase when business activity goes into a downturn.
B)increase when employment increases.
C)increase when the labour force shrinks.
D)stay consistently the same over long periods of time.

Question 8

Which of the following would not be considered unemployed?

A)a new entrant to the labour force
B)a job leaver who is looking for a better job
C)an individual fired by her employer
D)a newly retired worker

Question 9

Suppose that last week 100,000 people lost their jobs or quit.We can say that

A)the number of unemployed increased by 100,000 people.
B)the number of unemployed increased by less than 100,000 people because we should not count those who quit their jobs.
C)the 100,000 people represent a flow known as job leavers.
D)the 100,000 people represent a stock known as the new unemployed.

Question 10

Dividing the number unemployed by the number of people in the labour force yields

A)the rate of unemployment.
B)the labour force participation rate.
C)the inflation rate.
D)the Help Wanted Index.

Question 11

The unemployment rate can increase when

A)the number of job finders increases.
B)the size of the military increases.
C)the proportion of 18-22 year olds who go to college increases.
D)the duration of unemployment increases.

Question 12

Which of the following best fits the definition of unemployed?

A)retired and not working
B)working less than a full work week
C)not working but looking for a job
D)not working at a gainful pursuit,either in or out of the home

Question 13

The unemployed and the employed combined represent

A)the total labour force.
B)the discouraged worker.
C)the duration effect.
D)all individuals between the ages of 18 and 55 available for work.

Question 14

An increase in the duration of unemployment occurs when

A)business activity goes into a downturn.
B)employment increases.
C)the labour force shrinks.
D)the labour force grows.

Question 15

The rate of unemployment is found by

A)dividing the number unemployed by the number of people in the labour force.
B)dividing the number unemployed by the number employed.
C)dividing the number employed by the number of people in the labour force.
D)dividing the number employed by the number unemployed.

Question 16

Suppose there are 100 million in the labour force,and 6 million unemployed people.During the next month,200,000 people lose their jobs and 300,000 find jobs.The new total of employed is ________ and the new unemployment rate is ________.

A)100.1 million;5.8 percent
B)100 million;6.1 percent
C)94.1 million;5.9 percent
D)93.9 million;6.1 percent

Question 17

When unemployment exists in the economy,then the economy

A)will also have inflation.
B)will be operating inside the production possibilities boundary.
C)will have excess demand for products.
D)will be at perfect equilibrium.

Question 18

According to Statistics Canada,if you voluntarily leave your job,then

A)you are classified as unemployed.
B)you are eligible for unemployment compensation.
C)you may not re-enter the labour force for six months.
D)you are classified as a job loser.

Question 19

The long-run trend in business activity is

A)downward.
B)constant.
C)upward.
D)such that it cannot be described as a trend.

Question 20

Historically,Canada has experienced

A)continuous decreases in the unemployment rate since WW II.
B)periods of both increases and decreases in the unemployment rate since WW II.
C)continuous increases in the unemployment rate since WW II.
D)no changes in the unemployment rate since WW II.

Question 21

Many economists would argue that some frictional unemployment

A)creates massive economic disruptions and should be eliminated as quickly as feasible.
B)should be eliminated whatever the cost.
C)no longer exists because increased unemployment benefits have generally solved this problem.
D)cannot and probably should not be eliminated.

Question 22

A decrease in the labour force participation rate

A)implies that the unemployment rate must fall.
B)implies that the unemployment rate must rise.
C)means there are more discouraged workers.
D)is consistent with either a rise or a fall in the unemployment rate.

Question 23

Environmental regulation reduces the demand for Saskatchewan coal,and the unemployment rate in Saskatchewan increases.This is an example of

A)frictional unemployment.
B)cyclical unemployment.
C)structural unemployment.
D)regulatory unemployment.

Question 24

Cutbacks in auto sales due to increased imports from Japan is an example of

A)cyclical unemployment.
B)frictional unemployment.
C)seasonal unemployment.
D)structural unemployment.

Question 25

When the automobile replaced the horse as the primary means of transportation,the unemployment rate of blacksmiths increased.This was an example of

A)cyclical unemployment.
B)frictional unemployment.
C)seasonal unemployment.
D)structural unemployment.

Question 26

Official unemployment rates may underestimate the true rate of unemployment because the official rate

A)includes those workers who only work part-time.
B)may include some individuals who are not actually in the labour force.
C)does not include individuals receiving any type of unemployment compensation.
D)fails to include discouraged workers.

Question 27

Decreases in the duration of unemployment will

A)cause the unemployment rate to increase.
B)not affect the unemployment rate.
C)increase the number of discouraged workers.
D)decrease the unemployment rate.

Question 28

Hidden unemployment describes individuals who

A)goof-off on the job.
B)are employed by the federal government.
C)would like to work,but are discouraged from looking for a job.
D)do voluntary work.

Question 29

When an economy experiences hidden unemployment,

A)its labour force increases,but the level of employment remains unchanged.
B)the true rate of unemployment may exceed the official rate.
C)the true rate of unemployment may be less than the official rate.
D)the labour force may shrink and the unemployment rate may increase.

Question 30

An increase in the labour force participation rate

A)implies that the unemployment rate must fall.
B)implies that the unemployment rate must rise.
C)means there are more discouraged workers.
D)is consistent with either a rise or a fall in the unemployment rate.

Question 31

The labour-force participation rate shows the percentage of

A)people not working,but who want to work.
B)people who are not actively participating in meaningful economic activity.
C)new entrants into the labour force.
D)non-institutionalized working-age people who are actually working or seeking employment.

Question 32

Frictional unemployment would increase when

A)migrant workers are unemployed after harvest season.
B)the number of individuals who quit one job to find another increases.
C)discouraged workers drop out of the work force.
D)workers are replaced by machines in production.

Question 33

When an individual is frictionally unemployed,the unemployment arises from

A)a short-term elimination of jobs because of a slowdown in business activity.
B)imperfect labour market information which requires individuals to search for appropriate employment.
C)the permanent elimination of jobs because of a change in the structure of the economy.
D)a reduction in the overall demand for labour's skills.

Question 34

The official unemployment rate may understate the true rate of unemployment because of

A)workers who hold two jobs.
B)increases in worker productivity.
C)changes in wage rates.
D)discouraged workers who no longer are actively seeking work.

Question 35

In Canada,the labour-force participation rate since 1950 has been

A)increasing for females.
B)declining for females.
C)declining for both males and females.
D)unchanged for both males and females.

Question 36

A person quits her job in order to spend time looking for a better-paying job.This is an example of

A)frictional unemployment.
B)cyclical unemployment.
C)seasonal unemployment.
D)structural unemployment.

Question 37

In recent years the labour force participation rate has been fairly stable,

A)as has the labour force participation rate for males,females,minorities,and nonminorities.
B)although the female labour force participation rate has fallen while the male labour force participation rate has increased.
C)although the male labour force participation rate has fallen while the female labour force participation rate has increased.
D)although the labour force participation rate of young adults has increased while the labour force participation rate of those in the 40-55 age classification has fallen.

Question 38

The unemployment rate will decrease when

A)the duration of unemployment increases.
B)the average work week falls from 40 to 39 hours.
C)the age of the labour force increases.
D)people get discouraged and quit looking for work.

Question 39

Suppose that Matt quits a job with the XYZ Corporation in order to look for more rewarding employment.Matt would be

A)counted as still being employed.
B)included in the economy's "hidden employment."
C)counted as frictionally unemployed.
D)counted as cyclically unemployed.

Question 40

Increases in the duration of unemployment will

A)cause the unemployment rate to decrease.
B)not affect the unemployment rate.
C)decrease the number of discouraged workers.
D)increase the unemployment rate.

Question 41

Which one of the following individuals would be classified as structurally unemployed?

A)Bennett lost his job because there was a reduction in the number of houses built during the winter of 1986.
B)Gail lost her job with the province because there was a reduction in the provincial budget.
C)Tommy lost his job when the steel mill where he worked closed because domestic producers would not produce as efficiently and cheaply as foreign firms.
D)Fay lost her job in early January when the Christmas store where she worked closed.

Question 42

When there is full employment

A)everyone has a job.
B)there is no frictional unemployment.
C)there are no job vacancies.
D)the level of unemployment corresponds to the "normal" friction in the labour market.

Question 43

An example of a cyclically unemployed individual is

A)Charles who lost his job as a real estate salesperson when the housing market went soft.
B)Alice who quit her job to enter college.
C)Mary who lost her job in the textile industry following a decrease in the tariff on textiles.
D)Bob who has just graduated from college and is entering the labour market.

Question 44

Last year a CD had a price of $12 and this year it is $15.Which of the following does not express this price change accurately?

A)Price rose by 25 percent
B)Price rose by $3
C)If this year is the base year,the index number for last year would be 80
D)If last year is the base year,the index number for this year would be 80

Question 45

Cyclical unemployment occurs when

A)individuals enter into the labour market making the rounds of potential employers.
B)individuals with skills no longer valued in the domestic labour market can not find employment.
C)individuals give up the search for employment.
D)a downturn in economic activity reduces employment.

Question 46

The formula for computing a basic price index is

A)(cost of market basket today/cost of market basket in base year)× 100.
B)(cost of market basket in base year/100)× cost of market basket today.
C)(cost of market basket in base year/cost of market basket today)× 100.
D)(100/cost of market basket in base year)+ cost of market basket today.

Question 47

Deflation refers to the situation when

A)the inflation rate decreases.
B)the average of all prices is falling.
C)there is a recession and inflation.
D)prices are not changing.

Question 48

A new Pentium computer costs less than a 486 computer when it first came out three years earlier.The real price of personal computers over the last three years has

A)decreased.
B)increased.
C)stayed the same.
D)changed,but there is not enough information to tell in which direction.

Question 49

Structural unemployment results

A)when a reduction in consumer income reduces demand for products.
B)when individuals enter the labour market in June following graduation.
C)when workers face layoffs following a decrease in economic activity.
D)when consumers' demand for a product falls so dramatically that workers specializing in the production of that product find themselves out of work.

Question 50

The fact that a number of lifeguards lose their jobs at the end of each summer would be counted as

A)cyclical unemployment.
B)frictional unemployment.
C)seasonal unemployment.
D)structural unemployment.

Question 51

Last year the price of a dozen eggs was $1 and this year the price is $1.30.Which of the following does NOT express this price change accurately?

A)The price increased 30 percent.
B)The price increased by 30 cents.
C)If last year was the base year,the index number for this year would be 130.
D)If this year is the base year,the index number for last year would be 130.

Question 52

A lifeguard who is out of work in the winter is

A)frictionally unemployed.
B)structurally unemployed.
C)cyclically unemployed.
D)seasonally unemployed.

Question 53

An unemployment rate of zero can not be expected since

A)there are some people who do not want to work.
B)there will always be discouraged workers.
C)some portion of the labour force will always be between jobs.
D)aggregate demand can never create enough job vacancies.

Question 54

The faster the drop in the purchasing power of money,the

A)faster the drop in the inflation rate.
B)faster the drop in the deflation rate.
C)faster the increase in the deflation rate.
D)the faster the increase in the inflation rate.

Question 55

An individual with good job prospects who is between jobs is

A)structurally unemployed.
B)cyclically unemployed.
C)not in the labour force.
D)frictionally unemployed.

Question 56

Last year you purchased 20 shirts at $15 a piece,30 CDs at $12 each,and 5 sweaters at $25 a piece.This year you buy 16 shirts at $20 a piece,30 CDs at $15 a piece,and 8 shirts at $20 a piece.If last year's index was 100,this year's index is

A)82.6.
B)101.9.
C)118.5.
D)121.0.

Question 57

A recession causes a decrease in the demand for housing,resulting in substantial layoffs in the construction industry.This is an example of

A)cyclical unemployment.
B)frictional unemployment.
C)seasonal unemployment.
D)structural unemployment.

Question 58

The nominal value of a good is

A)the good's value expressed in purchasing power terms.
B)the good's anticipated value one year from now.
C)the price of the good in today's dollars,minus an anticipated inflation premium.
D)the price of the good in today's dollars.

Question 59

An example of a frictionally unemployed individual is

A)Charles who has lost his job as an autoworker because of increased imports.
B)Mary who quit her job to find work closer to her home.
C)Sam who lost his job as a real estate salesperson when the housing market went soft.
D)Cynthia who has few skills and is no longer looking for work.

Question 60

Inflation is best defined as

A)a price decrease.
B)a relative price increase.
C)an increase in the general price level.
D)an increase in the price of a single necessity.

Question 61

Unanticipated positive inflation will create

A)losses for creditors and gains for debtors.
B)losses for both creditors and debtors.
C)gains for both creditors and debtors.
D)gains for creditors and losses for debtors.

Question 62

The Consumer Price Index attempts to measure

A)the average of raw material prices paid by producing firms.
B)the level of prices with respect to goods and services purchased by wage earners in urban areas.
C)the level of prices with respect to goods and services purchased by retired couples in rural areas.
D)hourly wage rates of manufacturing workers.

Question 63

A price index shows

A)the current cost of a basket of goods.
B)the relative price of necessities.
C)the price of goods in the future.
D)the cost of today's goods expressed in terms of the cost of goods in a base year.

Question 64

The CPI tends to overstate the true inflation rate because

A)we cannot know what the true inflation rate is.
B)it fails to consider the effects of new products in the marketplace.
C)the market basket actually selected is inappropriate.
D)the market basket fails to weigh housing costs sufficiently.

Question 65

Assume a ten percent decrease in the price of all goods in 1991;if the base year is 1990,then the price index in 1991 will be

A)90.
B)110.
C)200.
D)1100.

Question 66

Under which one of the following situations would you be better off?

A)You have $10,000 in your savings account paying 5 percent per year,and unanticipated inflation is 8 percent per year.
B)You have paid $500 for a $1,000 Canada savings bond that matures in 10 years,and unanticipated inflation is 10 percent per year.
C)You lend a friend $1,000 at 6 percent to be repaid in one year,and unanticipated inflation is 7 percent during the year.
D)You borrowed $2,500 at 7 percent to pay for this year's college expenses,and unanticipated inflation is 12 percent during the year.

Question 67

The most general indication of economy-wide inflation is captured by the

A)Consumer Price Index.
B)GDP deflator.
C)Producer Price Index.
D)Urban Wage Deflator.

Question 68

Typically,nominal interest rates and anticipated inflation rates

A)move in opposite directions.
B)are not related.
C)move in the same direction.
D)are such that the nominal rate is one-half the anticipated rate.

Question 69

Suppose that you borrow $5,000 from the bank to purchase some land,and you agree to pay 9 percent interest on the loan.If the loan must be repaid in 12 months,and the inflation rate is 13 percent during the year,then

A)you will repay the bank with more purchasing power than you initially borrowed.
B)you will repay the bank with fewer dollars than the bank initially loaned you.
C)you will repay the bank with less purchasing power than it initially loaned you.
D)the bank will receive fewer dollars,because of inflation,than it had initially expected to receive.

Question 70

Assume that the current price of a market basket of goods is $2,500 and the base year price of the same market basket is $1,340.The price index is

A)53.6.
B)40.0.
C)138.3.
D)186.6.

Question 71

The CPI may be an inaccurate measure of changes in the price level because

A)consumers rarely switch to less expensive products when the price of a particular good increases.
B)it is a changing quantity index.
C)consumers can substitute higher priced goods when the price of a particular good increases.
D)the market basket of goods was determined arbitrarily by the government without conducting surveys of spending patterns.

Question 72

The CPI is an accurate measure of inflation for

A)farmers.
B)an elderly couple recently retired to Vernon,British Columbia.
C)Apple Computer.
D)a family who consumes the market basket used to calculate the index.

Question 73

Assume a ten percent increase in the price of all goods in 1991;if the base year is 1990,then the price index in 1991 will be

A)90.
B)110.
C)200.
D)1100.

Question 74

Which of the following measures gives the earliest warning of increasing inflation?

A)the Consumer Price Index
B)the Producer Price Index
C)the GDP deflator
D)all of these should signal the same short-run inflation

Question 75

Unanticipated negative inflation will create

A)losses for creditors and gains for debtors.
B)losses for both creditors and debtors.
C)gains for both creditors and debtors.
D)gains for creditors and losses for debtors.

Question 76

The CPI may be an inaccurate measure of changes in the price level because

A)consumers rarely switch to less expensive products when the price of a particular good increases.
B)it is a changing quantity index.
C)changes in product quality are not taken into account.
D)the market basket of goods was determined arbitrarily by the government without conducting surveys of spending patterns.

Question 77

If the current price of a market basket of goods is $850 and the base year price for the same basket is $500,what is the value of the price index?

A)140
B)170
C)120
D)100

Question 78

The CPI tends to overstate the true inflation rate because

A)we cannot know what the true inflation rate is.
B)changes in product quality are not taken into account.
C)the market basket actually selected is inappropriate.
D)the market basket fails to weigh housing costs sufficiently.

Question 79

The price index that measures the changes in prices of ALL goods and services produced by the economy is the

A)CPI.
B)PPI.
C)GDP deflator.
D)fixed-quantity index.

Question 80

The statistical measure of the weighted average of prices of goods purchased by an urban wage earner is called the

A)Producer Price Index.
B)GDP deflator.
C)Consumer Price Index.
D)Urban Wage Index.