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Gujarat Technological University – ECON 101 Chapter 07 Unemployment and Inflation MULTIPLE CHOICE 1)Which of the following refers to business cycles? a

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Gujarat Technological University –

ECON 101

Chapter 07 Unemployment and Inflation

MULTIPLE CHOICE

1)Which of the following refers to business cycles?

a.	Variations in the economy that are all equal in intensity
b.	Seasonal variations in the economy that occur every year
c.	Fluctuations in economic output that show a declining growth pattern over time
d.	Periodic but irregular variations in economic activity
e.	Period movements from one economic peak to another

2. In the business cycle, a trough marks the end of a(n) _____ and the beginning of a new _____.

a.	contraction; expansion
b.	peak; expansion
c.	expansion; contraction
d.	peak; contraction
e.	expansion; peak

3. The part of a business cycle that follows a peak is the:

a.	trough phase of the cycle.
b.	break-even point of the cycle.
c.	peak period of the cycle.
d.	recessionary phase of the cycle.
e.	expansionary phase of the cycle.

4. Which of the following signals the start of an expansion?

a.	A boom period
b.	A peak
c.	An inflation
d.	A contraction
e.	A trough

The figure given below represents the business cycle of an economy.

Figure 7.1

5. Refer to Figure 7.1. The movement from point A to point B in the figure is most likely to be associated with _____.

a.	negative inflation rates.
b.	an increase in the aggregate demand for goods and services.
c.	lagging economic productivity.
d.	an increase in cyclical unemployment.
e.	a downward trend in leading economic indicators.

6. Refer to Figure 7.1. At point D, lagging economic indicators should show that:

a.	real GDP is expanding.
b.	real GDP falls to zero.
c.	real GDP is contracting.
d.	real GDP growth is zero.
e.	real GDP growth will be positive over time.

7. Refer to Figure 7.1. The overall upward trend in real GDP reflected by this figure implies that:

a.	the real GDP gap is widening over time.
b.	cyclical unemployment is growing at positive rates.
c.	consumer purchasing power is rising over time.
d.	on average, labor productivity is declining.
e.	expansionary phases outweigh contractionary phases in the economy over time.

8. Which of the following is observed in an economy during the contraction phase of the business cycle?

a.	Nominal GDP begins to rise
b.	Real GDP remains constant
c.	Real GDP begins to fall
d.	Productivity of resources increase
e.	The rate of inflation falls

9. The long-run growth in the economy depends on all of the following, except:

a.	the growth in productive resources.
b.	the level of technological development in the country.
c.	the increase in the availability of inputs.
d.	the increase in the productivity of inputs.
e.	the total number of contractions witnessed during a decade.

10. Economists call a severe prolonged economic recession a:

a.	slump.
b.	depression.
c.	stagnation.
d.	stagflation.
e.	trend.

11. How is recession defined by the National Bureau of Economic Research [NBER]?

a.	Two consecutive quarters of declining GDP
b.	A significant decline in total output, income, employment, and trade for six months to one year
c.	A dramatic decline in unemployment for less than six months
d.	A sharp increase in money supply and the market rate of interest
e.	A significant decline in stock prices over three consecutive quarters of a business year

12. The official dating of recessions in the United States is the responsibility of the:

a.	Bureau of Labor Statistics (BLS).
b.	Internal Revenue Service (IRS).
c.	Federal Reserve.
d.	Congress.
e.	National Bureau of Economic Research (NBER).

13. Which of the following monthly data series are closely observed by the Business Cycle Dating Committee of the NBER?

a.	Real personal income less transfer payments
b.	Wholesale prices of goods
c.	Real GDP
d.	Total unemployment
e.	Real interest rates

14. A leading indicator:

a.	changes in either direction before a recession starts.
b.	usually declines before a recession starts.
c.	generally changes after real GDP changes.
d.	remains unaffected by changes in real GDP.
e.	does not change with fluctuations in economic activity.

15. An increase in stock prices can be considered as an increase in:

a.	a leading indicator.
b.	a coincident indicator.
c.	the consumer index.
d.	the consumer leverage ratio.
e.	a lagging indicator.

16. Which of the following would be considered a leading indicator?

a.	Prime interest rate
b.	Personal income
c.	Money supply
d.	Inventories to sales ratio
e.	Unemployment duration

17. Which of the following is not a coincident indicator of the business cycle?

a.	Unemployment claims
b.	Payroll employment
c.	Industrial production
d.	Personal income
e.	Manufacturing and trade sales

18. Which of the following will be considered a lagging indicator of the business cycle?

a.	Money supply
b.	New building permits
c.	Unemployment duration
d.	Unemployment claims
e.	New plant and equipment orders

19. Which of the following individuals will not be a part of the U.S. labor force?

a.	An unemployed computer worker who has given up looking for a job
b.	A college graduate seeking job after graduation
c.	A person who is not working because of a labor dispute
d.	A person who can work only part-time
e.	A person who recently moved to a new city and has not yet found a job

20. Unemployment data in the U.S. are published by the:

a.	Bureau of Economic Analysis.
b.	Bureau of Labor Statistics.
c.	Department of Commerce.
d.	Bureau of Federal Intelligence.
e.	Internal Revenue Service.

21. To be counted as part of the labor force, a person must:

a.	be less than 65 years old.
b.	have worked at some time in the past.
c.	be employed in some productive activity.
d.	be working or actively looking for work.
e.	be above 16 years of age.

22. The Bureau of Labor Statistics defines a person as unemployed if he or she does not:

a.	work full time.
b.	have a job but is actively seeking one.
c.	earn a wage above the minimum wage rate.
d.	earn enough income to be above the poverty level.
e.	work as much as he or she desires.

23. The official unemployment rate is:

a.	the number of unemployed people divided by the number of employed people.
b.	the number of unemployed people divided by the total size of the population.
c.	the number of unemployed people divided by the size of the non-institutionalized population.
d.	the number of unemployed people divided by the size of the labor force.
e.	the number of unemployed people divided by the size of the non-institutionalized population, age 16 or older.

24. Assume that the U.S. labor force consists of 185 million workers and that 17.5 million are officially unemployed. What is the unemployment rate if 68.5 million are under age 16 and 6 million are institutionalized?

a.	11.4 percent
b.	10.0 percent
c.	9.5 percent
d.	7.5 percent
e.	10.8 percent

25. Which of the following persons would be considered unemployed?

a.	A house wife
b.	A 15-year-old looking for summer employment
c.	A person who worked more than 20 hours in a family-owned business
d.	A recent college graduate looking for her first job
e.	A full-time student

26. Suppose Jess resigns from her low paying job. After looking for a new job for two weeks she is highly frustrated and gives up looking for a better-paying job. According to the U.S. Bureau of Labor Statistics, Jess would:

a.	be considered unemployed.
b.	be considered employed.
c.	be considered temporarily unemployed.
d.	not be considered as a part of the labor force.
e.	be considered as seasonally unemployed.

27. In the official labor statistics, discouraged workers are:

a.	counted as employed.
b.	counted as unemployed.
c.	included in the labor force.
d.	not included in the labor force.
e.	considered to be seasonally unemployed.

28. Which of the following individuals is not among the underemployed or discouraged workers?

a.	A person employed part-time but willing to work full-time
b.	A homeless person who has not found work for a year and has given up looking for jobs
c.	A nuclear physicist unable to work because of illness
d.	A gourmet French chef working part-time at Burger King
e.	A 60-year-old professor who has stopped looking for a teaching job because schools consider him too old

29. Which of the following people does an economist consider underemployed?

a.	Someone who prefers to spend more time on leisure and less time on wage-earning activities
b.	A person who is working fewer hours at wage-earning activities than she or he desires
c.	A rock star who voluntarily chooses to work part-time
d.	Someone who is in prison and is willing to work from his cell
e.	A gardener who hates plants but still does the job because he or she has no other skills

Scenario 7.1

Of 1,350 people surveyed, 318 are not working.

The status of those not working is as follows:

122 full-time students

29 discouraged workers

18 in long-term-care facilities

21 seeking employment and age 16 or older

50 retirees

63 under age 16

15 working in the underground economy and not looking for a “real” job

Eight of those working were under 16 years of age.

30. Refer to Scenario 7.1. According to the data provided, the number of workers officially unemployed is:

a.	122.
b.	36.
c.	40.
d.	21.
e.	55.

31. Refer to Scenario 7.1. According to the data provided, the number officially in the labor force is:

a.	1,053.
b.	1,350.
c.	1,032.
d.	1,045.
e.	1,011.

32. Refer to Scenario 7.1. According to the data provided, the official unemployment rate is:

a.	0.02 percent.
b.	2.0 percent.
c.	10 percent.
d.	3.6 percent.
e.	33.7 percent.

33. Refer to Scenario 7.1. If any two individuals who were actively looking for a job, got tired of not finding one and decided to become full-time students, then:

a.	the official unemployment rate would remain unchanged.
b.	the U.S. Bureau of Labor Statistics would have to be informed immediately.
c.	the official unemployment rate would increase.
d.	the number officially in the labor force would remain unchanged.
e.	the official unemployment rate would decrease.

Scenario 7.2

Suppose it has been recently predicted that in the year 2020, the total number of residents in the United States will be 315.5 million, the number of residents under 16 years of age will be 85 million, the number of institutionalized adults will be 17 million, the number of adults not actively looking for work will be 39 million, and the number of unemployed will be 21.5 million.

34. Refer to the data in Scenario 7.2. What will be the size of the labor force in the United States in the year 2020?

a.	153 million
b.	294 million
c.	174.5 million
d.	198 million
e.	315.5 million

35. Refer to the data in Scenario 7.2. What is the predicted unemployment rate in the United States for the year 2020?

a.	6.8 percent
b.	8.3 percent
c.	11.5 percent
d.	12.3 percent
e.	16.5 percent

36. The effect of _____ is to produce an unemployment rate that understates actual unemployment.

a.	the underground economy
b.	discouraged workers and underemployment
c.	the growth in real GDP
d.	institutionalized and retired labor force
e.	seasonally unemployed workers

37. Because there is no way to account for them, the official unemployment rate does not include discouraged workers. What would happen to the unemployment rate if, because of a program that gave them new hope, all discouraged workers suddenly begin reporting themselves as ready to work?

a.	The official unemployment rate would remain unchanged.
b.	The size of the labor force would increase.
c.	The number of individuals officially in the labor force would remain unchanged.
d.	The official unemployment rate would decrease.
e.	The size of the underground economy would shrink.

38. Which of the following is true of seasonal unemployment?

a.	It is not considered a legitimate type of employment.
b.	It is reflected in the GDP gap.
c.	It is always present, even in a healthy economy.
d.	It causes the natural rate of unemployment to rise.
e.	It inflates potential GDP.

39. Which of the following is true about workers who experience structural unemployment?

a.	They quickly accept a much lower salary in a different industry.
b.	They do not adjust their expectations to the realities of the job market.
c.	They sometimes enter the pool of discouraged workers.
d.	They tend to quit their job search very easily.
e.	They usually have the necessary skills to maintain their level of income in another industry.

40. Which of the following statements about frictional unemployment is true?

a.	It can be eliminated only in a free society.
b.	It is a long-term unemployment.
c.	It does not exists in developed economies.
d.	It is also called structural unemployment.
e.	It arises when people elect to change jobs.

41. During the off season, a fruit picker did not work, so he should be considered:

a.	cyclically unemployed.
b.	frictionally unemployed.
c.	structurally unemployed.
d.	seasonally unemployed.
e.	occasionally unemployed.

42. Which of the following is the closest example of structural unemployment?

a.	An accountant quits her job to become an investment banker.
b.	An auto worker is fired for poor job performance.
c.	Workers in a firms manufacturing films for roll film cameras lost jobs once digital cameras became common.
d.	A consultant is laid off because poor economic conditions have depressed the market for consultants.
e.	A college graduate seeking his/her first job in the IT industry.

43. Technological advancements cause structural unemployment, however they help in:

a.	lowering the rate of interest in the economy.
b.	increasing the price level in the economy and hence makes business more profitable for the firms.
c.	improving living standards by giving consumers a greater variety of goods at lower costs.
d.	raising government's tax revenue.
e.	raising the aggregate income in the economy.

44. Structural unemployment will decline if:

a.	more seasonal work becomes available.
b.	the government increases taxes to support more welfare programs.
c.	consumer spending on new technology decreases.
d.	computerized job-search systems are improved.
e.	retrained workers can move to areas where new jobs are available.

45. A recent economics graduate is looking for a position as an industrial economist. During the period this individual starts looking for a job and ultimately finds one, he may be classified as:

a.	seasonally unemployed.
b.	frictionally unemployed.
c.	cyclically unemployed.
d.	structurally unemployed.
e.	occasionally unemployed.

46. A worker who loses his or her job as a consequence of a decline in aggregate demand in the economy is experiencing:

a.	disguised unemployment.
b.	underemployment.
c.	cyclical unemployment.
d.	frictional unemployment.
e.	seasonal unemployment.

47. Which of the following is an example of cyclical unemployment?

a.	A recent college graduate still looking for her first job
b.	A car salesman who loses his job because of a recession
c.	A ski instructor who is out of work during the summer
d.	An economics journalist who just quit her writing job in order to begin a new career as a college professor next month
e.	A worker displaced from his factory job because of greater mechanization in the workplace

48. At potential real GDP:

a.	there is zero unemployment.
b.	there is no seasonal unemployment.
c.	there is no frictional unemployment.
d.	unemployment is at its natural rate.
e.	cyclical unemployment equals approximately 5 percent.

49. The natural rate of unemployment is the unemployment rate that would exist in the absence of _____.

a.	structural unemployment
b.	educated unemployment
c.	cyclical unemployment
d.	frictional unemployment
e.	underemployment

50. Which of the following would tend to increase the natural unemployment rate?

a.	The creation of national unemployment offices to increase the information about job openings
b.	Recessionary downturns in the economy that result in massive layoffs of auto workers
c.	Sociological changes that encourage people to seek employment
d.	The creation of government subsidies for workers who relocate into areas where new jobs can be found
e.	Less government money made available as unemployment compensation

51. Which of the following statements about the GDP gap is not true?

a.	It widens during recessions and narrows during expansions.
b.	When the GDP gap equals zero, the economy operates on its production possibilities curve.
c.	It is a measure of output lost as a result of unemployment.
d.	There are more goods and services available as the gap widens.
e.	It is equal to potential real GDP minus actual real GDP.

The figure given below reports the GDP gap experienced by a country for four years in billions of dollars.

Figure 7.2

52. Refer to Figure 7.2. The difference between potential and actual GDP consistently widens between points:

a.	A and B.
b.	B and D.
c.	A and D.
d.	B and C.
e.	C and D.

53. Refer to Figure 7.2. Which time period is most likely to be associated with an economic expansion?

a.	Years 1 to 2
b.	Years 1 to 3
c.	Year 4 only
d.	Years 1 to 4
e.	Years 3 to 4

54. When the U.S. economy is at its full-employment level, the unemployment rate is not equal to zero because:

a.	cyclical unemployment is always present in a modern economy.
b.	of the statistical discrepancy.
c.	voluntary unemployment is always positive.
d.	frictional and structural unemployment are always present in a modern economy.
e.	there are always people who are too lazy to work.

55. What is another name for the natural unemployment rate?

a.	Non-deteriorating low-inflationary unemployment (NDLIU)
b.	Natural rate of no-inflation unemployment (NRNIU)
c.	Non-accelerating-inflation rate of unemployment (NAIRU)
d.	Non-inflationary rate of low unemployment (NIRLU)
e.	Natural unaffected rate of inflationary unemployment (NURIU)

56. Some economists say that “full employment” exists in an economy when:

a.	cyclical unemployment is 2 percent.
b.	cyclical unemployment is 4 to 6 percent.
c.	frictional unemployment is zero.
d.	the unemployment rate is 4 to 7 percent.
e.	the natural unemployment rate is zero.

57. If an economy operates on its production possibilities frontier, the natural unemployment rate must be:

a.	zero.
b.	positive.
c.	negative.
d.	at 1 percent.
e.	at 5 percent.

58. Unemployment will decrease over time if:

a.	actual GDP increases faster than potential GDP.
b.	actual GDP increases at the same rate as potential GDP.
c.	the GDP gap widens.
d.	actual GDP increases at a less than proportionate rate than potential GDP.
e.	actual GDP decreases but potential GDP increases.

59. Which of the following statements regarding the unemployment rates in the U.S. between 1971 and 2002 is true?

a.	The unemployment among the whites were much lower compared to the non-whites.
b.	The unemployment rate for all workers reached a low of 2.9 percent in 1982.
c.	The unemployment rate of both male and female workers have consistently increased from 1971 to 1998.
d.	The whites had much higher unemployment rates than the nonwhites.
e.	Teenagers reported the lowest unemployment rates in the country.

60. General trends in the incidence of unemployment across different demographic groups in the United States show which of the following groups to have the lowest unemployment rates in the country?

a.	Teenagers
b.	Hispanics
c.	Whites
d.	Nonwhites
e.	Women

61. According to the labor statistics of the United States, the _____ reported the highest unemployment rate between 1960 and 2008.

a.	Whites
b.	Asians
c.	African Americans
d.	Hispanics
e.	Latinos

62. Why do the European countries like France, Germany, Italy and Spain have higher unemployment rates than other industrialized nations?

a.	Low interest rate and low capital formation
b.	Minimum wages are lower in these European countries compared to the other industrialized nations
c.	Trade unions are not so prominent in these European countries
d.	Stringent policies adopted by the governments of these nations against termination of workers by firms
e.	Nominal wages are more flexible in these nations compared to the other industrialized nations

63. In the 1990s, the Danish government passed laws tightening eligibility requirements for receiving unemployment benefits. What happened to Danish unemployment rates as a result of this policy change?

a.	The size of the labor force declined
b.	The unemployment rate decreased
c.	More teenagers entered the labor force
d.	The wage rate increased
e.	The natural rate of unemployment increased

64. The inflation rate is a:

a.	change in price level.
b.	percentage increase in price level.
c.	sustained increase in relative prices.
d.	sustained increase in price level.
e.	sudden increase in the weighted average of all prices.

65. Which of the following is most likely to occur during recession?

a.	Increase in wage rate
b.	Decrease in potential real GDP
c.	Increase in the market rate of interest
d.	Decrease in the average price level
e.	Decrease in the government transfer payments

The table given below reports the consumer price index in a country for four different years.

Table 7.1

Inflation Data

Year

Consumer Price Index

1976

1980

1990

2003

100.00

110.50

128.50

145.00

66. Refer to Table 7.1. By how much did consumer prices rise between 1980 and 2003 (rounded to the first decimal place)?

a.	34.5 percent
b.	10.5 percent
c.	13.3 percent
d.	31.2 percent
e.	76.2 percent

67. Refer to Table 7.1. If a bicycle used to cost $90 in 1990, what did it cost in 2003 based on the inflation rate (rounded to the first decimal place)?

a.	$115.7
b.	$118.1
c.	$101.6
d.	$130.5
e.	$79.8

68. The purchasing power of one dollar is equal to _____.

a.	real GDP divided by nominal GDP
b.	nominal GDP divided by real GDP
c.	1 minus the average price level
d.	the reciprocal of the average price level
e.	the implicit GDP deflator divided by the CPI

69. If the average price level in 2002 was 1.25 relative to the base year in 1992, then:

a.	a dollar in 2002 bought just 80 percent of the goods and services that a dollar bought in 1992.
b.	average prices were 80 percent higher in 2002 than in 1992.
c.	a dollar in 2002 bought 25 percent more goods and services than a dollar bought in 1992.
d.	average prices were 125 percent higher in 2000 than in 1992.
e.	purchasing power rose 25 percent between 1992 and 2002.

70. Which of the following factors may lead to a decline in the real value of money?

a.	Increase in the rate of interest
b.	Decline in aggregate demand in the economy
c.	Decrease in money supply
d.	Increase in the average price level
e.	Decrease in aggregate output

71. What does it mean if the purchasing power in 1950 was $4.15 relative to the 1982 base year?

a.	It took $4.15 in 1950 to buy what $1 bought in 1982.
b.	The average price level in 1982 was five times as high as in 1950.
c.	$4.15 in 1950 had the same nominal money value as $1 in 1982.
d.	It took $4.15 in 1982 to buy what $1 bought in 1950.
e.	Nominal prices have increased by more than 400 percent between 1950 and 1982, but the real value of money has not changed.

The table given below lists the average price level in a country for four consecutive years.

Table 7.2

Price Data

Year

Average Price Level

1992

1993

1994

1995

1.000

1.039

1.064

1.093

72. Refer to Table 7.2. What was the purchasing power of the dollar in 1995 relative to the base year 1992?

a.	0.54
b.	0.72
c.	0.91
d.	0.97
e.	1.93

73. Refer to Table 7.2. Between 1993 and 1994, the annual inflation rate was _____ percent.

a.	2.4
b.	2.7
c.	3.8
d.	6.0
e.	8.5

74. Refer to the Table 7.2. How many times more goods and services could be purchased with one dollar in 1992 than in 1995?

a.	1.064
b.	1.07
c.	1.093
d.	1.93
e.	1.96

ANS: C

75. During periods of inflation:

a.	everyone’s real income rises.
b.	those people who have fixed incomes benefit.
c.	those people whose nominal income rises faster than the general price level benefit.
d.	those people who enter long-term wage agreements benefit.
e.	those people who hold a lot of cash benefit.

76. When inflation is much higher than expected, which of the following is true?

a.	Nominal incomes are lower than expected.
b.	Real interest rates are higher than expected.
c.	Income is redistributed from those whose expenditures are fixed toward those who receive a fixed income.
d.	Nominal interest rates are lower than expected.
e.	Real interest rates are lower than expected.

77. Unexpected inflation redistributes income:

a.	away from workers with cost-of-living adjustments, benefiting employers.
b.	away from renters, benefiting landlords.
c.	away from poor people, benefiting the rich.
d.	away from people with fixed incomes, benefiting people with fixed costs.
e.	away from debtors, benefiting creditors.

78. The cost-of-living adjustments that are included in the wage contracts protect:

a.	businesses from unexpected inflation.
b.	workers from unexpected inflation.
c.	workers from expected inflation.
d.	employers from unexpected inflation.
e.	consumers from expected inflation.

79. Which of the following is true of expected inflation?

a.	It increases the efficiency of the economy.
b.	It is more of a problem than unexpected inflation.
c.	It results in lower prices over time as people make adjustments.
d.	It is not a major problem if people can make the right interest rate and income level adjustments.
e.	It is necessarily tied to a decline in purchasing power.

80. If the nominal interest rate is less than the rate of inflation, the real interest rate:

a.	will be less than zero.
b.	will be equal to the nominal interest rate.
c.	will equal zero.
d.	will be greater than zero.
e.	will be equal to the rate of inflation.

81. When the real interest rate is less than zero, then:

a.	a creditor will gain purchasing power.
b.	a creditor will just break even on his or her real loan return.
c.	a creditor will lose purchasing power.
d.	a creditor will benefit from inflation.
e.	a creditor’s purchasing power will not be affected, because the nominal interest rate is greater than zero.

82. Other things equal, the equation for the real interest rate indicates that:

a.	as inflation increases, the real interest rate will rise.
b.	as inflation increases, the nominal interest rate will fall.
c.	as inflation decreases, real income will fall.
d.	as inflation decreases, the real interest rate will rise.
e.	as inflation changes, the real interest rate will not change.

83. If the nominal interest rate is 6.3 percent and the inflation rate is 7.2 percent, then the real interest rate equals:

a.	- 13.5 percent.
b.	+ 13.5 percent.
c.	- 0.9 percent.
d.	-7.2 percent.
e.	+ 1.1 percent.

84. Assume that for a given year, the nominal interest rate is 9 percent while inflation rises to 11 percent indicating a 4 percent higher rate than anticipated. Which group of people is made better off by the inflation?

a.	Those who lend at fixed interest rates
b.	Those who borrow at fixed interest rates
c.	Those who borrow at variable interest rates
d.	Those who receive fixed incomes
e.	Those who save at variable interest rates

ANS: B

85. A variable-rate mortgage:

a.	eliminates the risk of expected inflation.
b.	increases the efficiency of the economy.
c.	is offered at an interest rate that increases with inflation.
d.	is a fixed interest rate on a particular loan, but that fixed rate varies depending on the duration of the loan.
e.	shifts the risk of unexpected inflation from the borrower to the lender.

86. Assume you borrow $1,000 on credit cards at an annual interest rate of 10 percent. If the inflation rate is 12 percent during the year and the debt has to be paid back in 12 months, then:

a.	income will be redistributed from you to the bank.
b.	the real return for the bank will be greater than initially expected.
c.	you will repay the bank with fewer dollars than you borrowed.
d.	the dollars repaid will have less purchasing power than those borrowed.
e.	the bank will obtain the same return on the loan as initially expected.

87. If increases in total spending are not offset by increases in the supply of goods and services, the average price level will rise. Which of the following factors is responsible for this rise?

a.	Cost-push inflation
b.	Fiscal deficit
c.	Demand-pull inflation
d.	Wage-push inflation
e.	Unemployment

88. Which if the following is most likely to result if the Congress passes the living wage law?

a.	Cost-push inflation
b.	Demand-pull inflation
c.	Deflation
d.	Recession
e.	Stagnation

89. Which of the following could contribute to cost-push inflation?

a.	Greater demand for exports
b.	Lower income taxes
c.	An increase in consumption demand
d.	Higher government spending
e.	Higher wage demands by trade unions

90. Demand-pull inflation is caused by:

a.	high unemployment of resources in the economy.
b.	increase in tax rates by the government.
c.	trade unions’ pressure for wage hike.
d.	increased spending when the economy is producing at maximum capacity.
e.	the supply side of the market.

The figure given below represents the demand and supply conditions of an economy.

Figure 7.3

91. Refer to Figure 7.3. Which of the following explains the shift in supply curve from S₁ to S₂?

a.	decreases in oil supplies as experienced in the 1970s.
b.	wage concessions by union members.
c.	businesses reducing their profit margins.
d.	discoveries of natural gas.
e.	increased foreign demand for domestic products.

92. Which of the following is true of hyperinflation?

a.	It causes the value of a currency to deteriorate so quickly that people become reluctant to hold that currency.
b.	It is a situation in which people hoard currency expecting its value to increase in recent future.
c.	It is a simultaneous increase in inflation and decrease in the quality of products.
d.	It occurred in the United States in the 1970s.
e.	It is a synonym for cost-push inflation.

93. Which of the following led to an introduction of a new currency in Argentina in mid 1980s?

a.	An economic depression
b.	A misguided political situation
c.	Social instability
d.	Hyperinflation
e.	A prolonged deflation

94. Which of the following countries experienced hyperinflation in the 1920s?

a.	Argentina
b.	Chile
c.	Brazil
d.	Canada
e.	Germany

95. Which of the following countries did not experience hyperinflation in the past 20 years?

a.	South Korea
b.	Nicaragua
c.	Ukraine
d.	Bolivia
e.	Argentina

TRUE/FALSE

1. The four phases of a business cycle, in order, are trough, depression, peak, and expansion.

2. When there is an upward rise in the volume of economic activity, the economy is said to be in a recession.

3. In a business cycle, a peak marks the end of an expansion and the beginning of a recession.

4. The Great Depression was the most severe recession experienced by the U.S. economy, during which national output had declined by 25 percent.

5. During a period of economic expansion, we would expect increasing levels of employment.

6. The NBER focuses primarily on the value of real GDP while deciding whether an economic contraction is a recession, because it is measured monthly and allows the identification of the month in which business-cycle turning points occur.

7. Suppose statistical surveys indicate that new orders for manufactured goods and new building permits for single-family homes are declining and that business inventories are rising. This implies economic activity is slowing down and the economy is potentially entering a recessionary period.

8. A coincident indicator will change before a recession starts.

9. Leading and lagging indicators show the effects of economic fluctuations but coincident indicators do not.

10. Individuals who are under the age of 16 can sometimes be out of work, but they are still not included among the unemployed.

11. Institutionalized adults are not considered to be a part of the labor force by the Bureau of Labor Statistics.

12. To be considered employed, a person must have a full-time job.

13. Frictional and structural unemployment are always present in a dynamic economy.

14. Including discouraged workers in the labor market statistics would raise the unemployment rate.

15. Underemployed workers include individuals who are employed in tasks that do not fully utilize their productive potential.

16. The smaller the underground economy the more will be the overstatement of the official unemployment rate.

17. When the economy moves into recession, some companies lay off workers. Those unemployed workers are experiencing cyclical unemployment.

18. Other things equal, as the number of discouraged workers rises in an economy, the gap between potential and actual real GDP will widen.

19. The natural rate of unemployment is always more than the actual rate of unemployment because it excludes frictional and seasonal unemployment rates.

20. The GDP gap tends to increase when the economy shifts into recession.

21. Looking at the labor statistics of the United States from 1951 to 2002, we find that the unemployment rate for women is higher than that for men in most years.

22. Teenagers are usually the demographic group with the highest unemployment rates.

23. In the 1990s, the unemployment rates in the U.S. were higher than that in the European nations.

24. Countries that have policies that encourage unemployment should be expected to have more unemployed workers.

25. When the government provides generous unemployment benefits, unemployed workers have less incentive to look for jobs.

26. The more difficult it is for a firm to adjust its labor force in the face of economic fluctuation, the more likely the firm is to hire new workers.

27. Inflation is defined as the sustained increase in relative prices.

28. If the average price level in 1991 was 1.20 relative to the base year in 1986, then a dollar in 1991 bought 20 percent more goods and services than a dollar in 1986.

29. If the inflation rate for a given year is 5 percent, then $1.00 in the previous year will buy goods worth approximately $0.95 this year.

30. Variable-rate mortgages decrease the risks associated with unexpected inflation.

31. If a student borrowed $5,000 at a fixed rate of 8.9 percent to pay for this year’s college expenses and the annual inflation rate turns out to be 11 percent, then the student’s purchasing power for the year has increased.

32. Rapid increases in military spending by the federal government without accompanying increases in real output could be a cause of cost-push inflation.

33. Demand-pull inflation is more likely to occur when the economy is producing at maximum capacity.

34. Indonesia experienced hyperinflation in the 1990s.

35. Hyperinflation is usually accompanied by a great macroeconomic expansion.

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