Question 1

When prices are rising, which of the following will be true?

Accepted Answer

A)  The real interest rate will be lower than the nominal interest rate. 
B)  The real interest rate will be negative. 
C)  The real interest rate will be higher than the nominal interest rate. 
D)  The nominal interest rate will be negative.

Question 2

When an economy is at its natural rate of unemployment, which of the following will be true?

Accepted Answer

A)  The unemployment rate will be 0%. 
B)  The labor force participation rate will be 100%. 
C)  The unemployment rate will be greater than 0%. 
D)  Only structural unemployment as a result of technological change will exist in the economy.

Question 3

Except for recessions, the duration of unemployment for the typical person lasts

Accepted Answer

A)  less than six months. 
B)  six to nine months. 
C)  over nine months. 
D)  over one year. 
E)  over five years.

Question 4

Table 20-13
 
-Refer to Table 20-13. Consider a simple economy that produces only three products: tacos, earplugs, and toothbrushes. Use the information in the table to calculate the inflation rate for 2013, as measured by the consumer price index.

Accepted Answer

The answer of Table 20-13
 
-Refer to Table 20-13. Consider...

Question 5

Which of the following price indices comes closest to measuring the cost of living of the typical household?

Accepted Answer

A)  GDP deflator 
B)  producer price index 
C)  consumer price index 
D)  household price index

Question 6

The increased generosity of unemployment insurance programs in Canada as compared to the United States should

Accepted Answer

A)  decrease the duration of unemployment in Canada as compared to the United States. 
B)  increase the duration of unemployment in Canada as compared to the United States. 
C)  have no impact on the duration of unemployment in Canada. 
D)  raise the duration of unemployment in the United States.

Question 7

Table 20-6
 
-Refer to Table 20-6. Consider the following values of the consumer price index for 1996, 1997, and 1998: The inflation rate for 1997 was equal to

Accepted Answer

A)  1.2 percent. 
B)  2.0 percent. 
C)  2.5 percent. 
D)  4.0 percent.

Question 8

If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge?

Accepted Answer

A)  1% 
B)  5% 
C)  6% 
D)  9%

Question 9

The Bureau of Labor Statistics has taken several steps to reduce the bias in the consumer price index. Which of the following is not one of the steps taken to reduce the bias?

Accepted Answer

A)  using statistical methods to reduce the size of the quality bias 
B)  updating the market basket every two years, rather than every 10 years 
C)  incorporating substitutions by consumers when prices of specific products rise rapidly 
D)  conducting a point-of-purchase survey to track where consumers actually make their purchases

Question 10

A student who just graduated from college but has not found a job would most likely be

Accepted Answer

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

Question 11

The unemployment rate is

Accepted Answer

A)  the percentage of the labor force that is employed. 
B)  the percentage of the number employed that is unemployed. 
C)  the percentage of the working-age population that is unemployed. 
D)  the percentage of the labor force that is unemployed. 
E)  the percentage of the working-age population that is employed.

Question 12

Your grandfather tells you that he earned $7,000/year in his first job in 1961. You earn $35,000/year in your first job in 2013. You know that average prices have risen steadily since 1961. You earn

Accepted Answer

A)  5 times as much as your grandfather in terms of real income. 
B)  more than 5 times as much as your grandfather in terms of real income. 
C)  less than 5 times as much as your grandfather in terms of real income. 
D)  less than 5 times as much as your grandfather in terms of nominal income.

Question 13

The unemployment rate equals the number of unemployed divided by the ________, all times 100.

Accepted Answer

A)  number of employed 
B)  labor force 
C)  working-age population 
D)  total population

Question 14

What impact would including members of the military in employment, labor force, and working-age population statistics have on the unemployment rate and the labor force participation rate?

Accepted Answer

A)  Including members of the military would increase the unemployment rate and reduce the labor force participation rate. 
B)  Including members of the military would reduce the unemployment rate and increase the labor force participation rate. 
C)  Including the military would increase both the unemployment rate and the labor force participation rate. 
D)  Including the military would reduce both the unemployment rate and the labor force participation rate.

Question 15

Table 20-2
 
-Refer to Table 20-2. Assume the market basket for the consumer price index has two products - bread and milk - with the following values in 2006 and 2013 for price and quantity: The Consumer Price Index for 2013 equals

Accepted Answer

A)  118. 
B)  116. 
C)  86. 
D)  85.

Question 16

Workers laid off as a result of a recession suffer

Accepted Answer

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

Question 17

Which of the following policies would reduce frictional unemployment?

Accepted Answer

A)  a decrease in the minimum wage 
B)  a job retraining program 
C)  implementing an unemployment insurance policy 
D)  building an online job database that helps workers find jobs

Question 18

You lend $5,000 to a friend for one year at a nominal interest rate of 10%. Inflation during that year is 5%. As a result, you will receive ________ at the end of the year, but that money has a purchasing power of ________.

Accepted Answer

A)  $5,050; $5,025 
B)  $5,100; $5,050 
C)  $5,500; $5,250 
D)  $6,000; $5,500

Question 19

If the number employed is 190 million, the number unemployed is 10 million, and the working-age population is 250 million, then the labor force participation rate is

Accepted Answer

A)  4%. 
B)  5.2%. 
C)  60%. 
D)  76%. 
E)  80%.

Question 20

The real rate of interest is

Accepted Answer

A)  the nominal interest rate plus the inflation rate. 
B)  the nominal interest rate minus the inflation rate. 
C)  the interest rate determined by the supply and demand in the money market. 
D)  the nominal interest rate.

Exam 20: Unemployment and Inflation