Deck 6: Measuring Inflation and Unemployment

Question 1

What is real GDP in 2010 dollars if nominal GDP in 2014 is $15,000 billion; the GDP deflator in 2014 is 110; and the GDP deflator in 2010 was 100?

A) $9,100 billion
B) $13,636 billion
C) $14,010 billion
D) $16,500 billion

Answer 1

$13,636 billion

Question 2

Unemployment rates differ little by education, age, or ethnic group.

Answer 2

False

Question 3

If nominal GDP is $13 trillion for a given year and the GDP deflator for that year is 115, then real GDP is

A) $11.3 trillion.
B) $12 trillion.
C) $13 trillion.
D) $14.95 trillion.

Answer 3

$11.3 trillion.

Question 4

Inflation results if the government increases the money supply at a slower rate than the rate of GDP growth.

Question 5

Suppose a market basket of goods costs $10,000 in 2009, the base period, and that same basket of goods now costs $11,200. What is the consumer price index for the current period?

A) 89.3
B) 112.0
C) 120.0
D) 132.0

Question 6

Excessive government spending and printing new money are signs that the economy is in danger of hyperinflation.

Question 7

_____ unemployment includes workers who voluntarily quit their jobs to search for better positions.

A) Structural
B) Frictional
C) Seasonal
D) Cyclical

Question 8

Like the consumer price index, the personal consumption expenditures price index is based solely on household surveys.

Question 9

Governments that run budget deficits benefit from unanticipated inflation.

Question 10

Discouraged workers are counted in the labor force.

Question 11

Most economists believe that the consumer price index _____ the rate of inflation.

A) understates
B) overstates
C) accurately states
D) disinflates

Question 12

Which of these is included in the consumer price index?

A) price of bauxite
B) price of a hotel room in Beirut, Lebanon
C) price of crude oil
D) price of gasoline

Question 13

The consumer price index measures the average change in prices paid by urban consumers and urban wage earners for a market basket of goods and services, covering roughly 87% of the population.

Question 14

(Table) According to the table, the GDP deflator for 2012 is approximately

A) 40.9.
B) 50.9.
C) 60.9.
D) 70.9.

Question 15

When the Bureau of Labor Statistics calculates the consumer price index, it assumes that

A) each consumer maximizes his or her utility.
B) consumers do not substitute cheaper goods for goods when prices have risen.
C) consumers overspend.
D) there is no unemployment.

Question 16

Most economists agree that _____ unemployment is the area in which public policymakers can have their greatest impact.

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

Question 17

The personal consumption expenditures price index does a better job in approximating the cost of living than does the consumer price index.

Question 18

_____ is an overall decline in prices throughout the economy.

A) Disinflation
B) Deflation
C) Hyperinflation
D) The price level

Question 19

The misery index is the sum of the unemployment rate and the inflation rate.

Question 20

When an economy has reached a zero unemployment rate, it is said to have reached full employment.

Question 21

Most economists define hyperinflation as an inflation rate greater than _____ a year.

A) 10%
B) 50%
C) 100%
D) 1,000%

Question 22

In the United States, people are considered unemployed if and when they

A) have become discouraged and are no longer actively seeking work.
B) do not have a job but are available for work and have been actively seeking work.
C) are working at a job that does not fully utilize their skills.
D) are on family leave.

Question 23

Suppose the unemployment rate is 10% and an economist breaks the unemployment rate into the following components: frictional (3%) and structural (3%). Based on these estimates, the cyclical inflation rate is

A) 3%.
B) 4%.
C) 5%.
D) 6%.

Question 24

Inflation is a

A) steady rise in the unemployment rate across the labor market.
B) general rise in interest rates.
C) decline in confidence in prices.
D) general rise in prices.

Question 25

If the cost of a typical market basket in 2019 is 400 and the cost of a typical market basket in 2020 is 390, then during this period the economy is undergoing

A) inflation.
B) disinflation.
C) deflation.
D) hyperinflation.

Question 26

The formula for calculating the percentage change in prices between any two years is [(CPI in Current Year / CPI in Original Year) × 100] - 100.

Question 27

(Table) According to the table, nominal GDP for 2013 is approximately

A) $7,292 billion.
B) $7,492 billion.
C) $7,692 billion.
D) $7,892 billion.

Question 28

Which statement does NOT describe a problem in measuring the consumer price index (CPI)?

A) The CPI measures only private goods and services.
B) The CPI uses a fixed market basket of goods determined by surveys that are three to five years old.
C) Approximately 10% of the original market basket must be replaced each year by products that are improved or modified.
D) The CPI includes new products in its baskets.

Question 29

The nominal value of wages explains how much a consumer can pay for goods and services.

Question 30

From a macroeconomic perspective, policymakers can be most effective with policies that target cyclical unemployment.

Question 31

The labor force consists of all adults in the United States.

Question 32

_____ is an index of the average prices for all goods and services in the economy and is the broadest measure of inflation.

A) The consumer price index
B) The producer price index
C) Personal consumption expenditure
D) The GDP deflator

Question 33

Retirees and creditors

A) are hurt by inflation because their purchasing power is reduced.
B) are hurt by inflation because taxes decrease.
C) benefit from inflation because they are paid in cheaper dollars.
D) benefit from inflation because interest rates rise.

Question 34

If Kim's salary was $50,000 last year, and this year she receives a cost-of-living increase tied to the consumer price index (CPI), what will her salary be this year assuming the CPI has risen from 110 to 114?

A) $49,114
B) $50,114
C) $50,300
D) $51,818

Question 35

People who are considered unemployed include those who

A) are doing temporary work.
B) are unpaid family workers.
C) do not have a job and are not actively seeking employment.
D) do not have a job but are available for work and have been actively seeking work.

Question 36

Frictional unemployment refers primarily to workers between jobs.

Question 37

The costs of inflation are greater when it is unanticipated.

Question 38

Which statement regarding the types of unemployment is TRUE?

A) Frictional unemployment is generally short-term, whereas structural unemployment is often long-term.
B) Cyclical unemployment is due to expansions in the business cycle.
C) Frictional unemployment is brought about by changes in technology.
D) Structural unemployment is the result of normal labor turnover.

Question 39

Cathy works part-time as a bookkeeper but would like to have a full-time position. She has been actively searching for months but so far has not found a job. According to the Bureau of Labor Statistics, Cathy is unemployed.

Question 40

Full employment, or the natural rate of unemployment, is determined by institutional factors such as the presence or absence of employment agencies and their effectiveness.

Question 41

Which person would NOT be considered employed?

A) a person working 10 hours a week for pay
B) a unionized worker on strike
C) an unpaid family employee working 10 hours a week
D) a full-time worker on vacation

Question 42

Periods of drought can cause inflation.

Question 43

If nominal GDP and the GDP deflator both rise by 5%, then real GDP is unchanged.

Question 44

Other things equal, if a recession gets worse, the number of discouraged workers _____, and the number of those in the labor force _____.

A) increases; decreases
B) decreases; increases
C) increases; increases
D) decreases; decreases

Question 45

(Table) According to the table, real GDP for 2014 is approximately

A) $7,540 billion.
B) $7,894 billion.
C) $8,106 billion.
D) $8,488 billion.

Question 46

Inflation has significant long-run effects on the economy because

A) it distorts the price signal and produces incentives for speculation.
B) it can enhance the purchasing power of a fixed income.
C) it can lead to an improvement in real values.
D) creditors can gain from inflation.

Question 47

For the purposes of calculating the unemployment rate, part-time workers are not counted as employed.

Question 48

Which of these is a NOT a problem in measuring consumer prices?

A) The consumer price index does not account for product substitution.
B) The consumer price index does not easily adjust to changes in the quality of products.
C) It takes time to include new products in the consumer price index.
D) The reference period used for the consumer price index is 1982-1984.

Question 49

The household survey focuses on the payrolls of businesses and government agencies.

Question 50

The existence of discouraged workers tends to cause the official unemployment rate to understate the actual rate.

Question 51

Which group benefits from an unanticipated rise in the inflation rate?

A) homeowners with fixed-rate mortgages
B) senior citizens living on a fixed income
C) creditors or lenders
D) workers on contracts without escalator clauses

Question 52

The payroll survey has a larger sample size than the household survey and so is considered a more accurate measure of employment.

Question 53

The producer price index measures the average changes in the prices received by domestic producers for their output.

Question 54

A consumer price index change from 130 to 135 reflects a 3.85% inflation rate.

Question 55

With everything else held constant, if society increased the efficiency of matching people to jobs that need their skills, the natural rate of unemployment would likely

A) increase.
B) decrease.
C) increase or decrease, as there is not enough information to determine the answer.
D) not change.

Question 56

If nominal GDP is $12.5 trillion for a given year and the GDP deflator for that year is 111, then real GDP is approximately $11.261 trillion.

Question 57

Johnny is 17 and works in his father's bubble gum store 10 hours a week after school. His father pays him no money but buys video games for him. However, Johnny earns a spot on the high school football team and no longer works in his father's store. How is Johnny categorized in the unemployment figures?

A) Johnny is considered unemployed.
B) Johnny is considered employed because he works hard at his football career.
C) Johnny is not part of the labor force.
D) Johnny is considered underemployed.

Question 58

The current consumer price index is

A) a cost-of-goods index.
B) a true cost-of-living measure.
C) based on a changing bundle of goods and services from one period to the next.
D) calculated by dividing the market basket's cost in the base period by its cost in the current period.

Question 59

(Table) According to the table, if 50 discouraged workers suddenly decide to start actively seeking employment again, what will be the unemployment rate of this economy?

A) 10%
B) 14.3%
C) 16.67%
D) 25%

Question 60

Hannah is not at work because she broke her leg, but she will return once it heals. She is

A) unemployed.
B) in the labor force.
C) temporarily unemployed.
D) part-time employed.

Question 61

Measuring changes in a fixed basket of goods to assess changes in price is a _____ method.

A) cost-of-goods index
B) cost-of-living index
C) cost-of-production
D) utility maximization

Question 62

Which statement about counterfeiting is NOT true?

A) Most banks will replace a fake bill and report it to the nearest U.S. Secret Service office.
B) Counterfeiting has the same effect as increasing the money supply and causes inflation.
C) Everyone pays for counterfeiting in the form of higher prices.
D) Passing a fake bill to another person is punishable by law.

Question 63

Lexie works Monday to Friday from 4 P.M. to 6 P.M. in the after-school program at a local elementary school. She began looking for a full-time job last week and has already scheduled three job interviews. According to the Bureau of Labor Statistics, Lexie is

A) a discouraged worker.
B) unemployed.
C) employed.
D) not in the labor force.

Question 64

When an economy is going through disinflation, prices

A) are falling.
B) fall back to their original levels.
C) stop rising.
D) are rising but at a declining rate.

Question 65

The GDP deflator is a measure of the average change in prices for all goods and services in the economy.

Question 66

Suppose the market basket of goods costs $10,000 in 2009, the base period, and that same basket of goods now costs $11,200. What is the percentage change in the cost of goods between the base period and the current period?

A) -20%
B) -10.7%
C) 11.2%
D) 20%

Question 67

Which of these would be included in the consumer price index?

A) a payment made to a doctor by Medicare
B) a payment made by a patient to his doctor
C) a payment made to a doctor by an employer-provided insurance company
D) a payment made to a doctor by Medicaid

Question 68

(Table) Suppose the Bureau of Labor Statistics collects the data presented in the following table If 2010 is the base year, then the consumer price index for 2012 is

A) 100.
B) 114.
C) 115.
D) 125.

Question 69

Wages set high to discourage employee turnover are called _____ wages.

A) turnover minimization
B) efficiency
C) productivity
D) labor utilization

Question 70

The main reason people were unemployed in the United States in 2018 was because they

A) were new entrants into the labor force.
B) were reentrants into the labor force.
C) lost their job.
D) left their job.

Question 71

_____ is a reduction in the rate of inflation.

A) Disinflation
B) Deflation
C) Hyperinflation
D) The price level

Question 72

Escalator clauses are important in times of rising inflation because they protect the real value of wages.

Question 73

During a deflationary period, prices will increase at a decreasing rate.

Question 74

The consumer price index is a measure of the changes in the cost of production.

Question 75

Which statement about stopping hyperinflation is NOT correct?

A) The government must reduce the budget deficit.
B) The growth of the money supply must decrease.
C) Borrowing from foreign governments must take place.
D) A change in government and a new currency are usually required.

Question 76

Hyperinflation is usually caused by

A) supply shocks.
B) excessive consumer demand.
C) the government printing money to finance budget deficits.
D) crop failures.

Question 77

(Table) According to the table, what is the labor force of this economy?

A) 50
B) 300
C) 350
D) 500

Question 78

The unemployment rate does not explicitly include underemployed and discouraged workers.

Question 79

If the inflation rate is 4% and Social Security payments automatically rise by 4%, this adjustment is authorized by an

A) inflation rate.
B) escalator clause.
C) elevator clause.
D) insanity clause.

Question 80

Technological innovations in consumer products make it difficult to compare market baskets over time.