Question 1

If other things are constant, the longer the average unemployed worker searches before accepting a job

Accepted Answer

A)  the lower will be the measured unemployment rate. 
B)  the higher will be the measured unemployment rate. 
C)  the lower will be the natural unemployment rate. 
D)  none of the above.

Question 2

For inflation to have no real effect on the economy, leaving all decisions and their real outcomes unchanged, five conditions must be met. Which of the following incorrectly states one of those conditions?

Accepted Answer

A)  Inflation is universally and accurately anticipated. 
B)  All savings and money earn the nominal interest rate. 
C)  Inflation of p0 percent lowers the nominal interest rate by p0 below the no-inflation nominal rate. 
D)  Only real interest income is taxable and only the real cost of borrowing is tax-deductible. 
E)  Inflation raises the prices of all goods by the same percentage.

Question 3

The natural rate of unemployment is in the vicinity of

Accepted Answer

A)  0 percent. 
B)  2 percent. 
C)  3 percent. 
D)  5 percent. 
E)  8 percent.

Question 4

Which of the following anti-inflation policies imposes costs on society?

Accepted Answer

A)  price controls. 
B)  indexation. 
C)  reduced growth in nominal demand. 
D)  all of these

Question 5

In the quantity equation framework for understanding the determinants of long-run inflation, a drop in consumer confidence ________ velocity, putting ________ pressure on inflation.

Accepted Answer

A)  raises, upward 
B)  raises, downward 
C)  lowers, upward 
D)  lowers, downward

Question 6

A major difference between the costs of unemployment and the costs of inflation is that

Accepted Answer

A)  the former is structural the latter frictional. 
B)  the government pays the latter, the population pays the former. 
C)  unemployment costs are concentrated among a few people, while inflation costs are distributed more broadly across the entire population. 
D)  unemployment costs are distributed among people, while inflation costs are distributed more narrowly across the entire population.

Question 7

When the economy is near the natural unemployment rate, most adult males looking for work are experiencing ________ unemployment.

Accepted Answer

A)  turnover 
B)  mismatch 
C)  cyclically 
D)  seasonally

Question 8

Rising velocity means that people want to hold ________ nominal money per dollar of nominal GDP, which ________ the inflationary tendency of an increase in the money supply as one way of re-equating the demand and supply of money.

Accepted Answer

A)  more, strengthens 
B)  more, weakens 
C)  less, strengthens 
D)  less, weakens

Question 9

Suppose that the number of jobs for engineers expands by 10 percent per year, the number of new engineers by 5 percent per year while the number of automobile mechanics grows by 8 percent and the number of new automobile mechanics jobs grows by 3 percent. We conclude that

Accepted Answer

A)  frictional unemployment will increase. 
B)  frictional unemployment will decrease. 
C)  structural unemployment will increase. 
D)  structural unemployment will increase 4 times.

Question 10

A needed reform in the U.S. income tax system that would reduce the costs of inflation is to

Accepted Answer

A)  go back to taxing nominal wage and salary income. 
B)  start taxing real wage and salary income. 
C)  go back to taxing nominal interest income. 
D)  tax real interest income.

Question 11

If a worker receives 6 percent higher nominal wages over a year in which inflation is 2 percent, the worker's real wages have

Accepted Answer

A)  risen by 8 percent. 
B)  risen by 4 percent. 
C)  risen by 3 percent. 
D)  fallen by 3 percent. 
E)  fallen by 4 percent.

Question 12

Mismatch and turnover unemployment, while conceptually easy to distinguish, are often difficult to identify. Ceteris paribus, a person out of work for two months would be classified by Gordon as

Accepted Answer

A)  experiencing turnover unemployment. 
B)  experiencing mismatch unemployment. 
C)  impossible to distinguish the type. 
D)  first frictionally unemployed (the first month) and then structurally unemployed.

Question 13

Which of the following statements is true?

Accepted Answer

A)  Adult males, adult females, and teenagers all have similar rates of unemployment due to job losses. 
B)  Almost half of the total teenage unemployment rate appears to be due to the search for the first job. 
C)  Relative to adult males, adult females and teenagers have more frequent unemployment due to reentry and higher quit rates. 
D)  All of the above.

Question 14

Mismatch and turnover unemployment, while conceptually easy to distinguish, are often difficult to identify. Ceteris paribus, a person out of work for six months or an extended period would be classified by Gordon as

Accepted Answer

A)  experiencing turnover unemployment. 
B)  experiencing mismatch unemployment. 
C)  impossible to distinguish the type. 
D)  first frictionally unemployed (the first month) and then structurally unemployed.

Question 15

Government deficit financing is made easier by a rise in inflation when inflation ________ the private sector's demand for high-powered money, which the government can ________.

Accepted Answer

A)  lowers, create and spend 
B)  lowers, obtain through taxation 
C)  raises, create and spend 
D)  raises, obtain through taxation

Question 16

If a rise in anticipated inflation produces for some reason a less-than-equal rise in the nominal interest rate, this ________ the costs of anticipated inflation by ________ saving.

Accepted Answer

A)  reduces, encouraging 
B)  reduces, discouraging 
C)  increases, encouraging 
D)  increases, discouraging

Question 17

When the actual exceeds the natural unemployment rate, this means that we have ________ unemployment.

Accepted Answer

A)  positive structural 
B)  negative structural 
C)  positive cyclical 
D)  negative cyclical

Question 18

The natural unemployment rate is ________ unemployment rates.

Accepted Answer

A)  the sum of the turnover and cyclical 
B)  the sum of the turnover and mismatch 
C)  the sum of the structural and cyclical 
D)  the sum of the structural, cyclical, and frictional 
E)  the cyclical minus the mismatch

Question 19

Excessive unemployment benefits and government overregulation are part of the ________ hypothesis of why a nation's ________ unemployment rate can be high.

Accepted Answer

A)  hysteresis, cyclical 
B)  hysteresis, natural 
C)  structuralist, cyclical 
D)  structuralist, natural

Question 20

If there is a basic surplus and a negative total deficit, then

Accepted Answer

A)  interest cost > basic surplus 
B)  interest cost  positive total deficit 
D)  interest cost < positive total deficit

Exam 9: The Goals of Stabilization Policy: Low Inflation and Low Unemployment