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Kennesaw State University ECON 2200 Chapter 6 Practice Questions 1)The twin perils of the modern macroeconomy are said to be: A) government and the trade deficit

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Kennesaw State University

ECON 2200 Chapter 6 Practice Questions

1)The twin perils of the modern macroeconomy are said to be: A) government and the trade deficit.

 

 

1. 2. unemployment and the trade surplus.
   3. inflation and unemployment.
   4. inflation and the trade deficit.

 

 

2. Which one of the following would NOT lead to higher prices?
   1. strong consumer demand
   2. higher gas prices
   3. an increase in the supply of money
   4. increases in the supply of food

 

 

3. Which of the following terms describes a situation in which there is a reduction in the rate of inflation from 4% to 3% per year?
   1. hyperinflation
   2. inflation
   3. deflation
   4. disinflation

 

 

4. Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living: A) rose by about 1%.
   2. rose by about 2%.
   3. fell by about 3%. D) fell by about 1%.

 

 

5. In the United States, our principal measure of inflation is: A) the consumer price index.
   2. gross domestic product.
   3. the producer price index.
   4. the Leading Economic Index.

 

 

6. _____ is a measure of the change in average prices paid by urban consumers for a typical market basket of goods and services.
   1. The consumer price index
   2. The producer price index
   3. Personal consumption expenditure
   4. The GDP deflator

 

7. What is real GDP in 2014 if nominal GDP in 2014 is $15,000 billion, the GDP deflator in 2014 is 110, and the GDP deflator in 2010 was 100?
   1. $9.1 billion
   2. $13,636 billion
   3. $14,010 billion D) $16.500 billion

 

 

8. Suppose in 2010 the cost of purchasing a basket of goods was $100. That same basket cost $150 in 2011. If 2010 is the base year, the consumer price index for 2011 is: A) 100.
   2. 50.
   3. 250. D) 150.

 

 

9. Suppose the market basket of goods and services cost $3,500 in 1996 but today costs $4,250. Using 1996 as the base year, the consumer price index for today is: A) 79.6.
   2. 120.0.
   3. 82.4.
   4. 121.4.

 

 

10. Suppose the Bureau of Labor Statistics collects the data presented in the following table:

Year   Cost of Basket

1. 2010. $200
   2011. $230
   2012. $250

If 2010 is the base year, then the consumer price index for 2012 is: A) 100.

1. 2. 114.
   3. 115. D) 125.

 

 

11. The price of feed corn would be included in the: A) consumer price index.
    2. personal consumption expenditures price index.
    3. producer price index.
    4. core consumer price index.
12. Which of the following items is NOT included in the GDP deflator?
    1. bubble gum
    2. turbines
    3. fire engines
    4. imported mangoes

 

 

Use the following to answer questions 13-15:

 

	2012	2013	2014
Nominal GDP (billions of $)	7,280		8,000
Real GDP (billions of $)	7,280	7,425
GDP deflator		103.6	106.1

 

 

 

13. (Table) According to the table, the GDP deflator for 2012 is: A) 0.
    2. 1.
    3. 72.8.
    4. 100.

 

 

14. (Table) According to the table, nominal GDP for 2013 is approximately: A) $7,292 billion.
    2. $7,492 billion.
    3. $7,692 billion. D) $7,892 billion.

 

 

15. (Table) According to the table, real GDP for 2014 is approximately: A) $7,540 billion.
    2. $7,894 billion.
    3. $8,106 billion. D) $8,488 billion.

 

 

16. If the cost of a typical market basket is 400 in 2018, 450 in 2019, and 550 in 2020, then during this period the economy is undergoing: A) inflation.
    2. disinflation.
    3. deflation.
    4. hyperinflation.

 

 

17. The current consumer price index is: A) a cost-of-goods index.
    2. a true cost-of-living measure.
    3. based on a changing bundle of goods and services from one period to the next.
    4. calculated by dividing the market basket's cost in the base period by its cost in the current period.

 

 

18. Suppose the market basket of goods costs $10,000 in 2009, the reference or base period, and that same basket of goods now costs $11,200. What is the consumer price index for today? A) 112.0
    2. 120.0
    3. 89.3 D) 132.0

 

 

19. Which of the following is a problem in measuring consumer prices?
    1. The consumer price index does not account for product substitution.
    2. The consumer price index is not easy to adjust to changes in the quality of products.
    3. It takes time to  to include new products in the consumer price index.
    4. All answer choices are correct.

 

 

20. If the current year's consumer price index is 214 and last year's was 209, then the rate of inflation is:

A)	2.4%.
B)	5%.
C)	3%.
D)	2.8%.

 

 

21. Janet is receiving a 5% pay raise. If the rate of inflation is 2%, then Janet's purchasing power is:
    1. falling.
    2. rising.
    3. unaffected by either inflation or the pay raise, because they are expressed in nominal and not in real terms.
    4. It is impossible to tell what is happening to Janet's purchasing power without further information.
22. What is your new salary if you earned $40,000 last year, the consumer price index went from 120 to 125, and your salary is adjusted by the rate of inflation annually?
    1. $38,400
    2. $41,600
    3. $41,666.67
    4. $40,125

 

 

23. If your salary was $50,000 last year and this year you receive a cost-of-living increase tied to the consumer price index (CPI), what will your salary be, assuming the CPI has risen from 110 to 114?
    1. $49,114
    2. $50,114
    3. $50,300 D) $51,818

 

 

24. Suppose Robert has a wage contract subject to an escalator clause. He earned $22 an hour last year; in that same year, the consumer price index rose from 120.0 to 126.0. What should his new wage be?
    1. $24 an hour
    2. $23.10 an hour
    3. $24.40 an hour D) $22.50 an hour

 

 

25. Retirees and creditors:
    1. benefit from inflation because they are paid in cheaper dollars.
    2. benefit from inflation because interest rates rise.
    3. are hurt by inflation because their purchasing power drops.
    4. are hurt by inflation because taxes fall.

 

 

26. Inflation has significant long-run effects on the economy because:
    1. it distorts the price signal and produces incentives for speculation.
    2. it can enhance the purchasing power of a fixed income.
    3. it can lead to an improvement in real values.
    4. creditors can gain from inflation.

 

 

27. Which of the following groups benefits from an unanticipated rise in the inflation rate?
    1. homeowners with fixed-rate mortgages
    2. elderly people living on a fixed income
    3. creditors or lenders
    4. workers on contracts without escalator clauses

 

 

28. Which of the following statements about stopping hyperinflation is NOT correct? A) The government must rein in the budget deficit.
    2. The growth of the money supply must slow.
    3. Borrowing from foreign governments must take place.
    4. A change in government and a new currency are usually required.

 

 

29. 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.
    2. unemployed.
    3. employed.
    4. not in the labor force.

 

 

30. An economy has a population of 226,500. Of them, 12,500 are unemployed and actively seeking work, and 35,000 have given up looking for a job. Also, 28,000 people work part-time, and 151,000 people work full-time. This economy's unemployment rate is _______. (Round the percentage to one decimal place; for example, 0.0436 is 4.4%.)

A)	6.5%
B)	21.0%
C)	5.5%
D)	21.1%

 

 

31. Zach has been laid off from his job as an aircraft worker and is afraid that he will not be recalled. He has been actively looking for a job but has had no luck for the past six weeks. According to the Bureau of Labor Statistics, Zach is: A) employed.
    2. unemployed.
    3. a discouraged worker.
    4. not in the labor force.

 

 

32. Roughly half of unemployment normally consists of: A) people who lost their job.
    2. people who were job leavers.
    3. people reentering the job market.
    4. people who are new to the job market.
33. People who are considered UNEMPLOYED include: A) those who are doing temporary work.
    2. those who are unpaid family workers.
    3. those who do not have a job but are not actively seeking employment.
    4. None of those listed is considered unemployed.

 

 

Use the following to answer questions 34-36:

 

Population	500
Number employed	300
Number unemployed	50

 

 

 

34. (Table) According to the table, what is the labor force of this economy?
    1. 50
    2. 300
    3. 350 D) 500

 

 

35. (Table) According to the table, what is the unemployment rate of this economy?

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

 

 

36. (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%

 

 

37. Which of the following activities would NOT qualify a person as being in the labor force?
    1. going on interviews
    2. submitting applications via the Internet
    3. using social media to reach out to employers
    4. reading help wanted ads

 

 

38. (Table) According to the table, the number of people in the labor force is:

Employed      85

Unemployed seeking work    25

Discouraged workers            15

Unpaid family members working 15-plus hours      5

Retired          10       

1. 1. 115.
   2. 110.
   3. 130. D) 120.

 

 

39. How many hours does a person have to work for pay to be counted as employed?
    1. one hour a week
    2. 1 hour a day
    3. 20 hours a week D) 40 hours a week

 

 

40. 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. 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.
    2. Johnny is considered employed because he works hard at his football career.
    3. Johnny is not part of the labor force.
    4. Johnny is considered underemployed.

 

 

41. Hannah is not at work because she broke her leg, but she will return once it heals. She is:
    1. unemployed.
    2. in the labor force.
    3. temporarily unemployed.
    4. part-time employed.

 

 

42. The household survey is a great source of discovering: A) entrepreneurial activity.
    2. manufacturing activity.
    3. inflationary trends.
    4. outsourcing trends.

 

 

43. Scott, who has a Ph.D. in physics, waits on tables for a living. Scott is categorized as: A) unemployed.
    2. not part of the labor force.
    3. underemployed.
    4. discouraged.

 

 

44. Workers who want to work but have been frustrated by the inability to find work and have stopped searching are known as: A) the invisible unemployed.
    2. temporary workers.
    3. discouraged workers.
    4. the disgruntled unemployed.

 

 

45. The biggest group missing from the reported unemployment rate is: A) discouraged workers.
    2. marginally attached workers.
    3. those working part time for economic reasons.
    4. those actively seeking work.

 

 

46. Wages set high to discourage employee turnover are called ________ wages.
    1. turnover minimization
    2. efficiency
    3. productivity
    4. labor utilization

 

 

47. If a product becomes obsolete and the workers who produced that product will need additional training to find new jobs, then they are experiencing: A) frictional unemployment.
    2. cyclical unemployment.
    3. full unemployment.
    4. structural unemployment.

 

 

48. Jennifer did not work during college. She just obtained a bachelor's degree in marketing, and she is now looking for a marketing job in the retail industry. Jennifer is considered: A) structurally unemployed.
    2. frictionally unemployed.
    3. cyclically unemployed.
    4. not in the labor force.

 

 

49. The mortgage crisis caused a lot of consumers to stop spending money. The decrease in spending led to a decrease in production. Which type of unemployment resulted?
    1. structural
    2. frictional
    3. cyclical
    4. statistical

 

 

50. Most economists agree that ______ unemployment is the area in which public policymakers can have their greatest impact.
    1. structural
    2. frictional
    3. seasonal
    4. cyclical

 

 

51. U.S. steelworkers who have lost their job to workers receiving lower wages overseas are part of ____________ unemployment.
    1. frictional
    2. cyclical
    3. seasonal
    4. structural

 

 

52. The natural rate of employment:
    1. explains why some people are underemployed.
    2. explains why the unemployment rate is too high.
    3. occurs when the actual inflation rate is lower than the consumer's inflationary expectations.
    4. is the rate at which the actual inflation rate is equal to people's inflationary expectations.

 

 

53. Suppose an economist breaks the unemployment rate into the following components:

frictional (2%), structural (1%), and cyclical (4%). Based on these estimates, the natural rate of unemployment is:

1. 1. 0%.
   2. 3%.
   3. 5%. D) 7%.