Ohio Northern University

IBEC 430

BASIC ECON REVIEW QUESTIONS

Chapter 3

1)Allocative inefficiency due to unregulated monopoly is characterized by the condition:

1. 1. P = MC.
   2. P = MR.
   3. P > MC.
   4. P > AVC.

2. Assuming no economies of scale and identical costs, if the firms in a purely competitive industry were replaced by a profit- maximizing monopolist, the likely result would be:
   1. an increase in both price and output.
   2. unchanged price and reduced output.
   3. an increase in price and unchanged output.
   4. an increase in price and reduced output.

 

3. If a monopolized industry should become purely competitive without any change in cost conditions:
   1. both price and quantity produced will increase.
   2. both price and quantity produced will decrease.
   3. price will increase and quantity produced will decrease.
   4. price will decrease and quantity produced will increase.

 

4. A product's ability to satisfy a large number of consumers at the same time is called:
   1. network effects.
   2. rent-seeking.
   3. simultaneous consumption.
   4. consumer sovereignty.

 

5. In general, the amount of X-inefficiency in an industry:
   1. increases as the amount of competition increases.
   2. increases as the amount of competition decreases.
   3. decreases as the amount of competition stays the same.
   4. has no relationship to the amount of competition in an industry.

 

6. Assume the owners of the only gambling casino in Wisconsin spend large sums of money lobbying state government officials to protect their gambling monopoly. Economists refer to these expenditures as:
   1. rent-seeking.
   2. socially optimal pricing.
   3. perfect price discrimination.
   4. diseconomies of scale in production.

 

7. Which is not true of price discrimination?
   1. It exists when price differences depend critically on different buyers' evaluations of a product.
   2. Successful price discrimination will provide the firm with more profit than if it does not discriminate.
   3. Successful price discrimination implies that the producer can separate customers into easily identifiable groups.
   4. Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly.

 

8. Successful price discrimination requires that:
   1. buyers with inelastic demand be charged higher prices than buyers with elastic demand.
   2. buyers with inelastic demand be charged lower prices than buyers with elastic demand.
   3. all buyers be charged the same price regardless of their elasticity of demand.
   4. all buyers have the same price elasticity of demand.

 

9. If a price-discriminating monopolist sells the same product in two markets but charges a lower price in market X and a higher price in market Y, the pricing difference indicates that demand is:
   1. more elastic in market X than market Y.
   2. less elastic in market X than market Y.
   3. more elastic in market Y than market X.
   4. the same in both markets X and Y.

 

10. Other things equal, in which of the following cases would economic profit be the greatest?
    1. An unregulated monopolist who is able to engage in price discrimination
    2. An unregulated, nondiscriminating monopolist
    3. A regulated monopolist charging a price equal to average total cost
    4. A regulated monopolist charging a price equal to marginal cost

11. 

    211.

 

 

 

 

 

 

 

 

 

 

Refer to the figures above. Suppose the graphs represent the demand for use of a local golf course for which there is no significant competition (it has a local monopoly). P denotes the price of a round of golf and Q is the quantity of rounds sold each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, then over the course of a full seven-day week this price-discriminating, profit-maximizing golf course should sell a total of:

1. 1. 300 rounds.
   2. 740 rounds.
   3. 900 rounds.
   4. 1200 rounds.

 

12. Firms are prohibited from entering into contracts, combinations, and conspiracies that restrain trade by:
    1. Section 2 of the Sherman Act.
    2. Section 8 of the Clayton Act.
    3. Section 1 of the Sherman Act.
    4. the Wheeler-Lea Act.

 

13. Patents and licenses are barriers to entry. True False

 

14. Equilibrium for the monopolist occurs where P > MR > MC > Average total cost. True False

 

15. A monopolist seeks maximum profit per unit. True False

 

16. Which is a characteristic of monopolistic competition?
    1. Standardized product.
    2. A relatively small number of firms.
    3. Absence of nonprice competition.
    4. Relatively easy entry.

 

17. Which assumption is part of the model of monopolistic competition?
    1. Firms make identical products.
    2. There is no collusion among firms.
    3. There are significant barriers to entry into the market.
    4. There are few buyers and sellers.

 

18. One difference between monopolistic competition and pure competition is that:
    1. products can be standardized or differentiated in pure competition.
    2. there is some control over price in monopolistic competition.
    3. monopolistic competition has significant barriers to entry.
    4. firms differentiate their products in pure competition.

 

19. Which industry would be considered to be monopolistically competitive?
    1. Asphalt paving
    2. Breakfast cereals
    3. Vacuum cleaners
    4. Small-arms ammunition

 

20. The demand curve for a monopolistically competitive firm has a:
    1. positive slope and the marginal revenue curve has a negative slope.
    2. positive slope and the marginal revenue curve has a positive slope.
    3. negative slope and the marginal revenue curve has a negative slope.
    4. negative slope and the marginal revenue curve has a positive slope.

21. The demand curve faced by a monopolistically competitive firm:
    1. is more elastic than the monopolist's demand curve.
    2. is less elastic than the monopolist's demand curve.
    3. will shift outward as new firms enter the industry.
    4. is more elastic than the demand curve faced by the purely competitive firm.

 

22. The graph depicts a monopolistically competitive firm.

 

 

Refer to the above graph representing an individual firm. In the short run, this monopolistically competitive firm will set price at:

1. 1. $65 and produce 45 units of output.
   2. $65 and produce 35 units of output.
   3. $50 and produce 35 units of output.
   4. $50 and produce 50 units of output.

 

23. Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will:
    1. reduce the excess capacity in the industry as firms expand production.
    2. attract other firms to enter the industry since the barriers to entry are low.
    3. cause firms to standardize their product to limit the degree of competition.
    4. make the industry allocatively efficient as each firm seeks to maintain its profits.

 

24. 

    224.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the above graph of a representative firm in monopolistic competition. What does line 3 represent?

1. 1. Demand
   2. Marginal cost
   3. Marginal revenue
   4. Average total cost

 

25. In the long run, profits for a monopolistic competitor will be:
    1. the same as the profits for a monopolist.
    2. slightly less than the profits of a monopolist.
    3. the same as the profits for a purely competitive firm.
    4. slightly more than the profits of a purely competitive firm.

26. 

    226.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the above graphs. The long-run equilibrium for a monopolistically competitive firm is represented by graph:

1. 1. A.
   2. B.
   3. C.
   4. D.

 

27. Which statement concerning monopolistic competition is false?
    1. In the long run P = AC > MC.
    2. Firms may experience losses in the short run.
    3. Firms differentiate their products, but the products are relatively substitutable.
    4. Firms may experience positive economic profits in the long run since barriers to entry are significant.

 

28. 

    228.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the above graph of the representative firm in monopolistic competition. Marginal revenue and marginal cost intersect at point:

1. 1. a.
   2. b.
   3. c.
   4. d.

 

29. In monopolistic competition there is an underallocation of resources at the profit-maximizing level of output, which means that:
    1. minimum ATC is less than MC.
    2. minimum ATC is less than MR.
    3. price is greater than minimum ATC.
    4. price is greater than MC.

 

30. Compared to pure competition, monopolistic competition:
    1. provides greater product differentiation at the cost of some excess capacity.
    2. offers less product differentiation but attains equal productive efficiency.
    3. provides greater product differentiation and achieves greater productive efficiency.
    4. offers less product differentiation and lower productive efficiency.

31. In long-run equilibrium, a monopolistically competitive firm achieves:
    1. productive and allocative efficiency.
    2. productive efficiency but not allocative efficiency.
    3. allocative efficiency but not productive efficiency.
    4. neither allocative efficiency nor productive efficiency.

 

32. 

    232.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the above graph. Assume that in long-run equilibrium a purely competitive firm has the same cost curves as that of the monopolistically competitive firm shown. It can be concluded that the:

1. 1. purely competitive firm would have lower profits.
   2. purely competitive firm would have higher profits.
   3. purely competitive producer would produce less at a higher ATC.
   4. monopolistically competitive producer would produce less at a higher ATC.

 

33. The U.S. primary steel industry is best described as a:
    1. cartel.
    2. monopoly.
    3. differentiated oligopoly.
    4. homogeneous oligopoly.

 

34. A unique feature of oligopolies, when compared with other industry types, is:
    1. low barriers to entry.
    2. standardized products.
    3. diminishing marginal returns.
    4. mutual interdependence.

 

35. Mutual interdependence means that:
    1. product differentiation exists, that is, firms produce close substitutes but not identical products.
    2. each seller faces a completely inelastic demand curve.
    3. each firm must consider the possible reactions of rivals when establishing price policy.
    4. when a pure monopolist chooses a price, it also necessarily chooses some specific level of output.

 

36. Which statement about oligopoly is false?
    1. Oligopolistic firms recognize their interdependence.
    2. Prices in oligopoly are predicted to fluctuate widely and frequently.
    3. A few firms play an important role in the sale of an identical or differentiated product.
    4. There is no single predicted pattern of action and reaction for oligopolists because one firm's behavior is a function of what its rivals do.

 

37. Which statement concerning the kinked demand curve model of oligopoly is false?
    1. It addresses the question of price stickiness.
    2. It assumes when one oligopolist raises the price, all others follow.
    3. The portion of the demand curve above the kink is more elastic than the portion below.
    4. The firm's marginal costs can sometimes shift without changing the profit-maximizing price and output.

 

38. In the kinked-demand model, there will be a vertical break in the firm's:
    1. demand curve.
    2. marginal cost curve.
    3. marginal revenue curve.
    4. average total cost curve.

39. 

    239.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On the above graph, if the oligopolist's MC curve shifts from MC₁ to MC₂, the firm will charge:

1. 1. a higher price and total revenue will increase.
   2. the same price and sell more output; total revenue will increase.
   3. the same price and sell the same amount of output; total revenue will remain the same.
   4. a higher price and sell less output; it can't be determined whether total revenue will increase.

 

40. If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?
    1. Kinked-demand curve model of oligopoly.
    2. Price-leadership model of oligopoly.
    3. Pure monopoly model.
    4. Monopolistic competition model.

 

41. A cartel is formed among the major firms in an industry that maximizes joint profits of the firms. Each firm:
    1. will operate at the level of output associated with the kink in the demand curve.
    2. will be protected from the economic effects of a recession.
    3. has a perfectly elastic demand for its product.
    4. has the incentive to cheat by cutting its price.

 

42. The Organization of Petroleum Exporting Countries (OPEC) behaves in many ways like an international cartel. If the cartel were to hire a consulting firm to monitor the production rates of member countries, the economic reason for this monitoring is to:
    1. make sure that each member country is producing at an output level at which price equals marginal cost.
    2. make sure all the member countries produce at least their quotas so that there will be no oil shortage.
    3. detect those member countries that are depressing prices by producing more than their assigned quotas.
    4. make sure that the marginal revenue for the last barrel of oil sold by each member country is less than its price.

 

43. Price leadership represents a situation where oligopolistic firms:
    1. reduce their reliance on nonprice competition.
    2. conspire to form a cartel.
    3. face a kinked-demand curve.
    4. tacitly collude.

 

44. What is a positive effect of advertising?
    1. It reduces economic efficiency in the economy.
    2. It promotes economic concentration in industry.
    3. It is designed to persuade rather than inform consumers.
    4. It provides information that reduces search costs.

 

45. How would many economists view inefficiency in oligopoly?
    1. P > MC and P = minimum ATC
    2. P = MC and P > minimum ATC
    3. P = MC and P = minimum ATC
    4. P > MC and P > minimum ATC

 

46. Which is a primary use for national income accounting?
    1. To analyze the environmental cost of economic growth.
    2. To assess the economic efficiency of specific industries in the economy.
    3. To measure changes in the value of goods and services produced in the economy.
    4. To determine whether there is a fair and equitable distribution of income in the economy.

47. A definition of the gross domestic product (GDP) is:
    1. personal consumption expenditures, gross private domestic investment, and net exports.
    2. the sum of wage and salary compensation of employees, interest income, and rental income.
    3. the market value of all intermediate goods and services produced by the economy in one year.
    4. the market value of final goods and services produced by the economy in one year.

 

48. An example of a final good in national income accounts would be a new:
    1. automobile purchased by a travel agency.
    2. tractor purchased by a construction company.
    3. microcomputer purchased by an executive for personal use.
    4. microcomputer purchased by an executive for business use.

 

49. The sale of a used automobile would not be included in the GDP for the current year because it is a:
    1. nonmarket transaction.
    2. nonproduction transaction.
    3. noninvestment transaction.
    4. public transfer payment.

 

50. The value of corporate stocks and bonds traded in a given year is:
    1. included in the calculation of GDP because they make a contribution to the current production of goods and services.
    2. excluded from the calculation of GDP because they make no contribution to current production of goods and services.
    3. included in the calculation of net private domestic investment.
    4. included in the calculation of gross private domestic investment.

 

51. From an economist's perspective, which is not considered to be an investment?
    1. Construction of a new factory.
    2. Purchase of shares of company stock.
    3. The building of an apartment complex.
    4. Additions to inventories at steel plants.

 

52. In year 1, inventories rose by $25 billion. In year 2, inventories fell by $20 billion. In calculating total investment, national income accountants would have:
    1. decreased it by $25 billion in year 1 and increased it by $20 billion in year 2.
    2. decreased it by $25 billion in year 1 and increased it by $5 billion in year 2.
    3. increased it by $25 billion in year 1 and decreased it by $5 billion in year 2.
    4. increased it by $25 billion in year 1 and decreased it by $20 billion in year 2.

 

53. Net exports is a positive number when:
    1. gross private domestic investment is greater than depreciation.
    2. depreciation is greater than gross private domestic investment.
    3. a nation's exports of goods and services exceed its imports.
    4. a nation's imports of goods and services exceed its exports.

 

54. Which would be considered an investment according to economists?
    1. Public transfer payments
    2. The construction of a new plant by Ford
    3. The purchase of newly issued shares of stock in Dell
    4. The sale of a retail department store building by Sears to JCPenney

 

55. The consumption of fixed capital from each year's production activities is called:
    1. indirect business taxes.
    2. inventory reduction.
    3. depreciation.
    4. investment.

 

56. Disinvestment occurs when:
    1. businesses sell machinery and equipment to one another.
    2. the prices of investment goods rise faster than the prices of consumer goods.
    3. businesses have larger inventories at the end of the year than they had at the start.
    4. the consumption of private fixed capital exceeds private domestic investment.

 

57. Gross domestic product (GDP) is equal to personal consumption expenditures:
    1. plus gross private domestic investment, minus government spending, and plus net exports.
    2. plus gross private domestic investment, plus government spending, and minus net exports.
    3. minus gross private domestic investment, plus government spending, and plus net exports.
    4. plus gross private domestic investment, plus government spending, and plus net exports.

58. The following data about a hypothetical economy are in billions of dollars.

 

 

Refer to the above data. Personal consumption expenditures are approximately what percent of GDP in this economy?

1. 1. 67 percent.
   2. 70 percent.
   3. 72 percent.
   4. 75 percent.

 

59. If the price index is 130, this means that:
    1. prices are 130 percent higher than in the base year.
    2. prices are .13 times higher than in the base year.
    3. prices are 30 percent higher than in the base year.
    4. nominal GDP must be inflated to determine the real GDP.

 

60. 
    (GDP figures are in billions of dollars.)

Refer to the above table. What is the GDP price index in year 1? A. 113.2.

B. 108.3.

C. 109.6.

D. 111.5.

 

61. 
    Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year.

If year 2 is the base year, real GDP in year 5 is:

A. $120.

B. $90.

C. $60.

D. $30.

 

62. 
    Assume an economy is producing only one product. Year 2 is the base year. Output and price data for a five-year period are given.

Refer to the above data. If year 2 is the base year, then real GDP for year 5 is:

A. $41.

B. $50.

C. $56.

D. $100.

63. Gordon James is a person who sells narcotics "on the street." This type of illegal activity:
    1. would be considered double counting in calculating GDP.
    2. is estimated and included in GDP figures.
    3. is excluded from GDP figures.
    4. causes GDP to be overstated.

 

64. Which is not a supply factor in economic growth?
    1. An efficient allocation of resources.
    2. Natural resources.
    3. The quantity and quality of labor.
    4. Technological knowledge.

 

65. 

    265.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the above diagram. If the production possibilities curve of an economy shifts from AB to EF, it is most likely the result of what factor affecting economic growth?

1. 1. A supply factor.
   2. A demand factor.
   3. An efficiency factor.
   4. An allocation factor.

 

66. Economic growth can best be portrayed as a:
    1. leftward shift of the production possibilities curve.
    2. movement from a point inside to a point outside of the production possibilities curve.
    3. movement from a point near the vertical axis to a point near the horizontal axis on the production possibilities curve.
    4. rightward shift of the production possibilities curve.

 

67. Assume that an economy has 2000 workers, each working 4000 hours per year. If the average real output per worker-hour is

$10, then total output or real GDP will be:

1. 1. $20 million.
   2. $40 million.
   3. $80 million.
   4. $100 million.

 

68. If there is an increase in labor productivity:
    1. the production possibilities curve would shift outward and the long-run aggregate supply curve would shift rightward.
    2. the production possibilities curve would shift inward and the long-run aggregate supply curve would shift leftward.
    3. the production possibilities curve would shift outward and the long-run aggregate supply curve would shift leftward.
    4. the production possibilities curve would shift inward and the long-run aggregate supply curve would shift rightward.

 

69. The shift of labor out of agriculture to industry in the United States has tended to:
    1. reduce the rate of productivity growth.
    2. increase unemployment in the agriculture sector.
    3. reduce unemployment in the industrial sector.
    4. increase labor productivity.

 

70. One major aspect of the sociocultural-political environment of the United States that has generally been conducive to economic growth is the:
    1. enforcement of contracts by the market.
    2. denial of the rights of property ownership.
    3. favorable attitude toward work and risk-taking.
    4. strict social regulation of production and progress.

71. An antigrowth view states that there may be a significant trade-off between productivity and:
    1. education.
    2. employment.
    3. economies of scale.
    4. the quality of life.

 

72. More than half the growth of real GDP in the United States is caused by:
    1. a falling price level.
    2. the reallocation of labor from manufacturing to agriculture.
    3. increases in the productivity of labor.
    4. the use of fewer inputs of labor.

 

73. Human capital refers to:
    1. the skills and knowledge that enable a worker to be productive.
    2. machinery used by labor in production.
    3. the accumulated financial wealth of households.
    4. physical capital owned by households rather than businesses.

 

74. All of the following are sources of increasing returns and economies of scale except:
    1. network effects.
    2. spreading of development costs.
    3. more specialized inputs.
    4. coordination problems in large organizations.

 

75. Which of the following is a true statement?
    1. Economists who support economic growth say that it is the most practical route to the higher standards of living the vast majority of people desire.
    2. Most economists believe that the recent productivity acceleration implies an end to the business cycle.
    3. Most economists believe that increases in real GDP actually produce decreases in overall economic well-being because of spillover costs.
    4. Mainstream economists disagree as to whether the rate or productivity growth was higher between 1995 and 2009 than between 1973 and 1995.

 

76. The recurrent ups and downs in the level of economic activity extending over several years are a description of a:
    1. recession.
    2. business trough.
    3. business cycle.
    4. noncyclical fluctuation.

 

77. Which phase of the business cycle would be most closely associated with an economic contraction?
    1. Peak
    2. Recession
    3. Trough
    4. Recovery

 

78. A recession is defined as:
    1. a fall in the natural rate of unemployment.
    2. a rise in the natural rate of unemployment.
    3. a fall in real GDP that lasts six months or longer.
    4. the minimum point in the business cycle before the recovery phase.

 

79. The level of total spending is the immediate determinant of the:
    1. ratio of private to public goods production.
    2. level of real output and employment.
    3. size of the labor force.
    4. inflation rate.

 

80. Assuming the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, the unemployment rate is:
    1. 4 percent.
    2. 6 percent.
    3. 8 percent.
    4. 10 percent.

81. The unemployment rate in an economy is 12 percent. The civilian labor force is 50 million. The number of employed workers in the economy is:
    1. 6 million.
    2. 24 million.
    3. 42 million.
    4. 44 million.

 

82. Official unemployment rate statistics may:
    1. overstate the amount of unemployment by including part-time workers in the calculations.
    2. understate the amount of unemployment by excluding part-time workers from the calculations.
    3. overstate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment.
    4. understate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment.

 

83. A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment?
    1. Structural
    2. Cyclical
    3. Frictional
    4. Natural

 

84. A mismatch between the geographic location of workers and the location of job openings would result in what type of unemployment?
    1. Wait
    2. Cyclical
    3. Frictional
    4. Structural

 

85. The descriptions give the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.

1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month.
2. George works in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in several months when national economic conditions improve.
3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defense spending. She has been looking for similar work for a year, but no company seems interested in her aircraft design skills.
4. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work.

Refer to the above information. Which individual is cyclically unemployed?

1. 1. 1
   2. 2
   3. 3
   4. 4

 

86. The rate of unemployment when the economy is at its potential output is called the:
    1. full-employment rate of unemployment.
    2. natural rate of unemployment.
    3. structural rate of unemployment.
    4. frictional rate of unemployment.

 

87. If the GDP gap is positive, then:
    1. the inflation rate is falling.
    2. the unemployment rate is rising.
    3. potential GDP is greater than actual GDP.
    4. actual GDP is greater than potential GDP.

 

88. Inflation is a:
    1. sustained decline in the general level of prices.
    2. sustained rise in the general level of prices.
    3. one-time change in the general level of prices.
    4. movement of the economy toward full employment.

 

89. Which measures the changes in the prices of a "market basket" of some 300 goods and services purchased by typical urban consumers?
    1. The GDP price index.
    2. The Consumer Price Index.
    3. The Retail Trade survey.
    4. The Survey of Manufactures.

90. The price level has doubled in 35 years. The approximate annual percentage rate of increase in the price level over this period has been:
    1. 50 percent.
    2. 20 percent.
    3. 5 percent.
    4. 2 percent.

 

91. A statement that is often used to describe demand-pull inflation is:
    1. "A rising tide lifts all boats."
    2. "Money is easily earned, but not easily saved."
    3. "Too much money chasing too few goods."
    4. "It's important to have some skin in the game."

 

92. If the average level of nominal income in a nation is $45,000 and the price level index is 180, the average real income would be about:

A. $15,000.

B. $20,000.

C. $25,000.

D. $30,000.

 

93. When unanticipated inflation occurs:
    1. both creditors and debtors benefit.
    2. creditors are hurt, but debtors benefit.
    3. debtors are hurt, but creditors benefit.
    4. both creditors and debtors are hurt.

 

94. With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6 percent. But, if the rate of inflation was anticipated to be 4 percent, the bank would most likely charge the firm an annual interest rate of:
    1. 2 percent.
    2. 4 percent.
    3. 6 percent.
    4. 10 percent.

 

95. What are the primary effects of cost-push inflation?
    1. It raises real output and redistributes an increased level of real income.
    2. It reduces real output and redistributes a decreased level of real income.
    3. It raises real output but redistributes a decreased level of real income.
    4. It reduces real output but redistributes an increased level of real income.

 

96. Which of the following formulas is correct? Percentage change in:
    1. price level approximates percentage change in real income minus percentage change in nominal income.
    2. real income approximates percentage change in nominal income minus percentage change in price level.
    3. nominal income approximates percentage change in price level minus percentage change in real income.
    4. real income approximates percentage change in price level minus percentage change in nominal income.

 

97. Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon, where she anticipates that a new job will be available. We can say that Susie is faced with:
    1. secular unemployment.
    2. cyclical unemployment.
    3. structural unemployment.
    4. frictional unemployment.

 

98. Suppose that lenders want to receive a real rate of interest of 5 percent and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of:
    1. 2 percent.
    2. 3 percent.
    3. 5 percent.
    4. 7 percent.

 

99. Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, the official unemployment rate would:
    1. decline.
    2. increase.
    3. increase in the short run but eventually decline.
    4. be unchanged.