SG 22

Chapter5
MonitoringJobsandInflation
1EmploymentandUnemployment
1) Theworking-agepopulationisdefinedasthenumberof
A) peopleovertheageof16whoarenotinjail,hospital,orotherinstitution.
B) peoplewhohaveajob.
C) peopleworkingfull-timejobswhoareovertheageof16.
D) peoplelookingforwork.
Answer: A
Topic: PopulationSurvey
Skill: Recognition
Questionhistory: Previousedition,Chapter5
AACSB: ReflectiveThinking
2) Theworking-agepopulationcanbedividedintotwogroups,
A) peopleinthelaborforceandpeoplelookingforwork.
B) peopleinthelaborforceandpeoplewithajob.
C) peoplelookingforworkandthoseinthearmedforces.
D) peopleinthelaborforceandpeoplewhoarenotinthelaborforce.
Answer: D
Skill: Recognition
3) Thetotalnumberofpeopleaged16yearsandoverwhoarenotinstitutionalized________.
A) equalsthenumberofemployedplusunemployed
B) istheworking-agepopulation
C) doesnotincludestudents
D) isthelaborforce
Answer: B
Topic: WorkingAgePopulation
Skill: Recognition
Copyright2012PearsonEducation,Inc.
606ParkinMacroeconomics,TenthEdition
4) Whichofthefollowingstatementsisincorrect?
A) Thelaborforceisequaltothenumberofpeopleemployedplusthenumberofpeople
unemployed.
B) Theworkingagepopulationincludeseveryoneovertheageof16.
C) Theunemploymentrateisthenumberofpersonswhoareunemployeddividedbythe
laborforcethentimes100.
D) Thelabor-forceparticipationrateisthelaborforcedividedbytheworking-age
populationthentimes100.
Answer: B
Skill: Recognition
5) WhichofthefollowingisNOTincludedintheworking-agepopulation?
A) discouragedworkers
B) peoplewaitingtobecalledbacktoajobafterbeinglaidoff
C) retireesundertheageof55
D) peopleinprison
Answer: D
Skill: Recognition
6) Allpeopleintheworking-agepopulationcanbedividedinto
A) laborforceparticipants.
B) employed,unemployed,ornotinthelaborforce.
C) eitherover-employedorunder-employed.
D) potentialemployees.
Answer: B
Skill: Recognition
7) SupposetheworkingagepopulationinTinyTownis100people.If25ofthesepeopleareNOT
inthelaborforce,the________equals________.
A) unemploymentrate;25/100100
B) unemploymentrate;25/75100
C) laborforce;75
D) laborforce;25/100100
Answer: C
Skill: Conceptual
AACSB: AnalyticalSkills
Chapter5MonitoringJobsandInflation607
8) Thelaborforceisthesumofthe
A) working-agepopulationandthenumberofunemployedpeople.
B) numberofemployedpeopleandtheworking-agepopulation.
C) numberofemployedpeopleandthenumberofunemployedpeople.
D) totalpopulationandthenumberofunemployedpeople.
Answer: C
Topic: LaborForce
Skill: Recognition
9) Thelaborforceisdefinedas
A) peoplewithfulltimejobs.
B) workerswithjobsandunemployedworkers.
C) allpeoplecapableofwork.
D) Alloftheaboveanswersarecorrect.
Answer: B
Topic: LaborForce
Skill: Recognition
10) The________equalsthenumberof________.
A) laborforce;personsover16yearsold
B) laborforce;unemployedandemployedpersons
C) workingagepopulation;employedpersons
D) unemploymentrate;peopleunemployed
Answer: B
Topic: LaborForce
Skill: Recognition
11) Thelaborforceisdefinedaspeople
A) whohaveajoborarelookingforajob.
B) intheworking-agepopulationwhohaveajob.
C) intheworking-agepopulationwhohaveafulltimejob.
D) whoare16yearsofageorolder.
Answer: A
Topic: LaborForce
Skill: Recognition
12) Whichpopulationcategoryequalsthesumofemployedandunemployedpeople?
A) working-agepopulation
B) laborforce
C) youngandinstitutionalized
D) notinthelaborforce
Answer: B
Topic: LaborForce
Skill: Recognition
13) The________isthetotalnumberofpeopleaged16yearsandolder(andnotinjail,hospitalor
institutionalcare)whilethe________isthenumberofpeopleemployedandtheunemployed.
A) laborforce;working-agepopulation
B) laborforceparticipationrate;laborforce
C) working-agepopulation;laborforce
D) working-agepopulation;laborforceparticipationrate
Answer: C
Topic: LaborForce
Skill: Recognition
14) Thelaborforceisdefinedasthenumberof
A) people16andover.
B) unemployedpeople.
C) peoplewithjobs,bothpart-timeandfull-time.
D) peoplewhoareemployedandunemployed.
Answer: D
Topic: LaborForce
Skill: Recognition
15) Thelaborforceisdefinedasthe
A) numberofpeopleover16yearsofage.
B) numberofpeoplewhoareworking.
C) sumofemployedandunemployedpeople.
D) numberofpeopleinblue-collarjobs.
Answer: C
Topic: LaborForce
Skill: Recognition
16) Thelaborforceisdefinedasthe
A) numberofemployedpeopleplusthenumberofunemployedpeople.
B) numberofpeoplewhoareworking.
C) numberofpeoplewhoareworkinginlabor-typejobs.
D) numberofunionmemberswhoareworking.
Answer: A
Topic: LaborForce
Skill: Recognition
17) Thelaborforceincludes
A) onlythenumberofpeopleemployed.
B) discouragedworkers.
C) onlythenumberofpeopleunemployed.
D) bothemployedandunemployedworkers.
Answer: D
Topic: LaborForce
Skill: Recognition
18) Thelaborforceisdefinedasthenumberofpeoplewho
A) areemployedplusthenumberofpeoplewhoareunemployed.
B) areavailableandlookingforworkbutareunabletofindemployment.
C) wouldliketohaveajobbuthavestoppedseekingwork.
D) wouldliketohaveafull-timejobbutareworkingpart-time.
Answer: A
Topic: LaborForce
Skill: Recognition
19) Full-timestudentsandprisonersare________.
A) notinthelaborforce
B) inthelaborforce
C) countedasdiscouragedworkers
D) countedasunemployed
Answer: A
Topic: LaborForce
Skill: Recognition
20) WhichofthefollowingisNOTconsideredtobeinthelaborforce?
A) astudentwhoworkspart-time
B) apersonwhoisnotworkingbutwhohastriedtofindajobinthepastweek
C) apersonwhoiswaitingtostartanewjobinthenext30days
D) apersonwhoisnotworkingandwhohasnottriedtofindajob
Answer: D
Topic: LaborForce
Skill: Conceptual
21) Inaneconomy,42millionpeopleareinthelaborforce,38millionareemployed,and47million
areofworkingage.Howmanypeoplearenotinthelaborforce?
A) 19percent
B) 9million
C) 5million
D) 4million
Answer: C
Topic: LaborForce
Skill: Analytical
22) Ifthenumberofpeopleunemployedis100,thenumberofpeopleemployedis1000,andthe
working-agepopulationis1400,thenthelaborforceis
A) 1000.
B) 1100.
C) 1400.
D) 1500.
Answer: B
Topic: LaborForce
Skill: Analytical
23) TheofficialU-3unemploymentrate
A) includespersonswithoutajobwhohavemadeeffortsinthelastweektofindajob.
B) includespersonswithoutajob,whethertheyareactivelysearchingforworkornot.
C) countsdiscouragedworkersasunemployed.
D) countspeoplewithpart-timejobswhowantfull-timejobsasunemployed.
Answer: A
Topic: Unemployment
Skill: Recognition
Questionhistory: Modified10thedition
24) TheofficialU-3unemploymentrateincludesthetotalnumberofpeoplewho
A) havejobsorarecurrentlylookingforjobs.
B) areavailableandlookingforworkbutunabletofindemployment.
C) wouldliketohaveajobbuthavestoppedseekingwork.
D) wouldliketohaveafull-timejobbutareworkingpart-time.
Answer: B
Topic: Unemployment
Skill: Analytical
25) WhichofthefollowingpeoplewouldbecountedasisemployedintheCurrentPopulation
Survey?
A) Rich,whoisworking20hoursaweekbutwantsafull-timejob
B) Misty,whojustquitherjobtoreturnfull-timetoschool
C) April,whojustgraduatedfromcollegeandislookingforwork
D) Jason,whowaslaidofffromworklessthan6monthsagobutwhohasstoppedlooking
forwork
Answer: A
Topic: Unemployment
Skill: Conceptual
26) Whichofthefollowingbestfitsthedefinitionofunemployed?
A) retiredandnotworking
B) workinglessthanafullworkweek
C) notworkingbutlookingforajob
D) notworkingandnotlookingforwork
Answer: C
Topic: Unemployment
Skill: Conceptual
27) Usingthedefinitionofunemployment,whichofthefollowingindividualswouldbe
unemployed?
A) Afull-timestudentquitsschool,entersthelabormarketforthefirsttime,andsearchesfor
employment.
B) Becauseoftheincreasedlevelofautomobileimports,anemployeeofGeneralMotorsis
laidoffbutexpectstobecalledbacktoworksoon.
C) Becauseofareductioninthemilitarybudget,yournextdoorneighborlosesherjobina
plantwherenuclearwarheadsaremadeandmustlookforanewjob.
D) Alloftheseindividualsareunemployed.
Answer: D
Skill: Conceptual
28) WhichofthefollowingpeoplewouldbeconsideredunemployedbytheBureauofLabor
Statistics?
I. Mrs.Xretiresfromherjobattheageof55anddoesnotlookforanotherjob.
II. Mr.Ywaslaidofffromhisjobasawelder,butexpectstoberehiredin8months.
A) Ionly
B) IIonly
C) bothIandII
D) neitherInorII
Answer: B
Topic: Unemployment
Skill: Conceptual
29) Usingtheofficialmeasureofunemployment,whichofthefollowingpeopleisconsidered
unemployed?
A) apart-timeworkerwhowishestoworkfulltime
B) apersonwhogaveuplookingforjobsbecauseheorshewasdiscouragedabouthisorher
jobprospects
C) apersonwhohasbeensearchingforwork,butturnsdownajobpayingalowerwagerate
thandesired
D) apersonwhoisworkingbutexpectstobelaidoffattheendofthemonth
Answer: C
Topic: Unemployment
Skill: Conceptual
30) Usingtheofficialmeasureofunemployment,whichofthefollowingwould NOTbecountedas

unemployed?
A) apersonwhoisnotworkingbutwhohastriedtofindajobinthepastweek
B) apersonwhoiswaitingtobecalledbacktoajobafterhavingbeenlaidoff
C) apersonwhoperformstraditionalhouseworkanddoesnotworkoutsidethehomefor
pay
D) apersonwhoiswaitingtostartanewjobinthenext30days
Answer: C
Topic: Unemployment
Skill: Conceptual
31) Theunemploymentrateisthe________whoareunemployed.
A) numberofpeopleinthelaborforce
B) percentageofpeopleinthelaborforce
C) percentageofpeopleinthecountry
D) percentageoftheworking-agepopulation
Answer: B
Topic: UnemploymentRate
Skill: Recognition
32) Theunemploymentrateiscalculatedas
A) [(laborforce)(population)] 100.
B) [(unemployment)(population)] 100.
C) [(unemployment)(laborforce)] 100.
D) [(laborforce)(unemployment)] 100.
Answer: C
Skill: Recognition
Questionhistory: New10thedition
33) Theunemploymentrateequals
A) (numberofpeopleemployed/workingagepopulation) 100.
B) (numberofpeopleunemployed/laborforce) 100.
C) (laborforce/workingagepopulation) 100.
D) (numberofpeopleemployed/numberofpeopleage16andover) 100.
Answer: B
Skill: Recognition
34) Theunemploymentrateequalsthenumberof
A) unemployedworkersmultipliedby100.
B) unemployedworkersdividedbythepopulationthenmultipliedby100.
C) unemployedworkersdividedbythenumberofemployedworkersthenmultipliedby100.
D) unemployedworkersdividedbythelaborforcethenmultipliedby100.
Answer: D
Skill: Recognition
A) (thenumberofunemployedworkers)/(thenumberofemployed+unemployedworkers)
100.
B) (thenumberofunemployedworkers)/(thecivilianpopulation)100.
C) (thenumberofunemployedworkers)/(theU.S.populationolderthan16yearsofage)
100.
D) (thenumberofunemployed+ employedworkers)/(U.S.populationolderthan16yearsof
age)100.
Answer: A
Skill: Recognition
A) thetotalnumberofpeoplewithoutjobsinagivenperiod.
B) thepercentageofthepopulationnotcurrentlyemployed.
C) therateofchangeinunemploymentfiguresfromoneperiodtoanother.
D) thepercentageofthelaborforcecurrentlyunemployed.
Answer: D
Skill: Recognition
37) Theunemploymentrateisfoundbydividingthenumberofunemployedpeoplebythe
A) numberofworkingindividuals,andmultiplyingby100.
B) numberoftheworking-agepopulation,andmultiplyingby100.
C) sumofworkingindividualsplusunemployedworkers,andmultiplyingby100.
D) numberinthelaborforce,anddividingby100.
Answer: C
Skill: Recognition
38) The________iscalculatedasthenumberofpeople________dividedbythelaborforce
multipliedby100.
A) unemploymentrate;unemployed
B) employment-to-populationratio;unemployed
C) employmentrate;employed
D) employment-to-populationratio;intheworkingagepopulation
Answer: A
Skill: Recognition
39) Theunemploymentrateisdefinedasthe
A) numberofpeoplenotworking.
B) percentageofthepopulationnotworking.
C) percentageofthelaborforcenotworking.
D) percentageoftheworking-agepopulationnotworking.
Answer: C
Skill: Recognition
40) Theunemploymentrateismeasuredas
A) thenumberofpeoplethatwanttoworkbutcannotfindjobsoutoftheentirepopulation.
B) thepercentageofpeopleinthelaborforcewhoareunemployed.
C) anindicatortodeterminelong-termeconomicgrowth.
D) anindicatorforpotentialinflation.
Answer: B
Topic: Unemployment
Skill: Recognition
41) Tocalculatetheunemploymentrate,whichofthefollowingarenecessarypiecesofinformation?
I. thenumberofunemployedpersons
II. thepopulation
III. thenumberofpeopleinthelaborforce
IV. theworkingagepopulation
A) I,IIIIIandIV
B) IandII
C) IandIII
D) IandIV
Answer: C
Skill: Recognition
42) Theunemploymentratemeasuresthepercentageof
A) peoplewhowantfull-timejobs,butcantfindthem.
B) theworking-agepopulationwhocantfindajob.
C) peopleinthelaborforcewhocantfindajob.
D) theworkingagepopulationthatcantfindafull -timejob.
Answer: C
Skill: Conceptual
43) Whichlabormarketstatistictendsriseduringrecessionsandfallduringexpansions?
A) theunemploymentrate
B) thelabor-forceparticipationrate
C) theemployment-to-populationratio
D) aggregatehours
Answer: A
Skill: Conceptual
44) SupposethepopulationofTinyTownis100peopleandtheworkingagepopulationis70.If10
ofthesepeopleareunemployed,theunemploymentrateinTinyTownis
A) 10percent.
B) 10/70100.
C) 10/80100.
D) Thereisnotenoughinformationprovidedtocalculatetheunemploymentrate.
Answer: D
Skill: Analytical
45) ThepopulationofTinyTownis100peopleandthelaborforceismadeupof75people.If5of
thesepeopleareunemployed,theunemploymentrateis
A) 5/100100.
B) 5/80100.
C) 5/75100.
D) Thereisnotenoughinformationprovidedtocalculatetheunemploymentrate.
Answer: C
Skill: Analytical
46) BasedonthefollowingdataforthecountryofTinyTown,theunemploymentrateequals:
Population=100
Laborforce=80
Numberofemployedpersons=70
Numberofdiscouragedworkers=5
A) 10/100100.
B) 10/80100.
C) 15/80100.
D) 5/70100.
Answer: B
Skill: Analytical
47) Inaneconomy,23millionpeopleareemployedand2millionareunemployed,but5million
part-timeworkerswouldpreferfull-timework.Whatistheunemploymentrate?
A) 23.2percent
B) 6.7percent
C) 8percent
D) 25percent
Answer: C
Skill: Analytical
48) Assumethatthetotallaborforceis100individualswith10unemployed.Theunemployment
rateis________.Nowassumethat10peopledropoutofthelaborforceandthat10remain
unemployed.Thenewunemploymentrateis________.
A) 9percent,10percent
B) 10percent,9percent
C) 10percent,11percent
D) 11percent,10percent
Answer: C
Topic: Unemployment
Skill: Analytical
49) WhichofthefollowingdecreasestheofficialU-3unemploymentrate?
A) Workersleavethelaborforce.
B) Morewomenenterthelaborforceandseekjobs.
C) Youngpeoplegraduatefromcollegeandstarttolookfortheirfirstfull -timejob.
D) Noneoftheabovebecausetheyallincreaseordonotchangetheunemploymentrate.
Answer: A
Skill: Analytical
50) Duringarecession,peopledropoutofthelaborforcebecausetheyareunabletofindajob.All
elsethesame,this
A) increasestheofficialU-3unemploymentrate.
B) decreasestheofficialU-3unemploymentrate.
C) doesnotchangetheofficialU-3unemploymentrate.
D) increasestheofficialU-3unemploymentrateandthelaborforceparticipationrate.
Answer: B
Skill: Conceptual
51) IntheUnitedStatesin1996,thepopulationwas265.5millionandtheworkingagepopulation
was200.6million.Therewere133.9millionpeopleinthelaborforceand126.7ofthemwere
employed.Theunemploymentrateequaled________.
A) 7.2percent
B) 5.4percent
C) 3.6percent
D) 33percent
Answer: B
Skill: Analytical
52) Supposethereare100millioninthelaborforce,and6millionunemployedpeople.Duringthe
nextmonth,200,000peoplelosetheirjobsand300,000findjobs.Thenewtotalofemployed
personsis________andthenewunemploymentrateis________.
A) 100.1million;5.8percent
B) 100million;6.1percent
C) 94.1million;5.9percent
D) 93.9million;6.1percent
Answer: C
Skill: Analytical
53) Supposetheworking-agepopulationis220million,thelaborforceis150million,andthe
unemploymentrateis10percent.Thenumberofunemployedpeopleis
A) 15million.
B) 22million.
C) 37million.
D) 7million.
Answer: A
Skill: Analytical
54) Supposeinitiallythattheworking-agepopulationis220million,thelaborforceis150million,
andtheofficialU-3unemploymentrateis10percent.5millionnewjobsarecreatedandfilled
by5millionpeoplewhohadpreviouslybeendiscouragedworkers.WhatisthenewU -3
unemploymentrate?
A) 6.25percent
B) 6.7percent
C) 9.7percent
D) 8.7percent
Answer: C
Skill: Analytical
working-agepopulationis1400,thentheunemploymentrateis
A) 6.6percent.
B) 10percent.
C) 9.1percent.
D) 7.1percent.
Answer: C
Skill: Analytical
56) Supposethepopulationis220millionpeople,thelaborforceis150millionpeople,thenumber
ofpeopleemployedis130millionandtheworking-agepopulationis175millionpeople.What
istheunemploymentrate?
A) 9.0percent
B) 13.3percent
C) 11.4percent
D) 15.4percent
Answer: B
Skill: Analytical
57) Supposetherearecurrently100peopleunemployed,1500peopleemployed,1600peopleinthe
laborforce,and2000peopleintheworkingagepopulation.Theunemploymentrateequals100
times
A) 100/1500.
B) 100/1600.
C) 100/2000.
D) 1500/2000.
Answer: B
Skill: Analytical
58) Ifthepopulationis300million,with70millionundertheageof16andinstitutionalized,
another70millionnotinthelaborforce,10millionunemployedand150millionemployed,the
unemploymentrateis
A) 23.3percent.
B) 6.7percent.
C) 6.25percent.
D) 26.7percent.
Answer: C
Skill: Analytical
59) Supposethecurrentunemploymentrateis5percent,thelaborforceis400millionpeople,the
laborforceparticipationrateis80percentandtheworking-agepopulationis500million
people.Whatnumberofpeopleareunemployed?
A) 100millionpeople
B) 25millionpeople
C) 20millionpeople
D) 5millionpeople
Answer: C
Skill: Analytical
PersonA
PersonB
PersonC
PersonD
Nowthatthekidsareinschoolforafullday,thisperson
islookingforworkandhasinterviewedforthreejobs
duringthepasttwoweeks.
Thispersonhasbeenlaidofffromajobbutexpectstobe
calledbackassoonastheeconomyimproves.
Thispersonhasjustgraduatedfromcollegeandwill
startanewjobinthreeweeks.Inthemeantimethis
personwilltourthegreatAmericanbeaches.
Thispersonwaslaidofflastyearwhennewequipment
wasinstalledattheplant,reducingthenumberof
workersneeded.Shortlyafterbeinglaidoff,thisperson
lookedforanewjob,wasunabletofindoneandthen
stoppedlooking,eventhoughthispersonstillwantsa
jobandisavailableforwork.
60) Theabovetableshowsanswersgivenbypeopleinterviewedinagovernmentsurveyof
households.Whichindividualsareconsideredtobeapartofthelaborforce?
A) CandD
B) B,C,andD
C) A,C,andD
D) A,B,andC
Answer: D
Skill: Conceptual
households.WhichindividualsareconsideredunemployedusingtheofficialU-3
unemploymentrate?
A) A,B,andC
B) B,C,andD
C) A,C,andD
D) CandD
Answer: A
Skill: Conceptual
households.Whichindividualorindividualsareconsideredmarginallyattached?
A) A
B) B,C,andD
C) AandD
D) AandD
Answer: A
Topic: MarginallyAttachedWorkers
Skill: Conceptual
Wanttoworkbut
Total
Currently Notworking
nolongerlooking
population employed andlookingfor
forwork
(millions) (millions) work(millions)
(millions)
80
40
2
4
63) Inthetableabove,thesizeofthelaborforceis
A) 80million.
B) 46million.
C) 42million.
D) 40million.
Answer: C
Topic: LaborForce
Skill: Analytical
64) Inthetableabove,thenumberofpeopleofficiallyunemployedis________.
A) 40million
B) 6million
C) 4million
D) 2million
Answer: D
Skill: Analytical
65) Inthetableabove,theofficialU-3unemploymentrateis
A) 50percent.
B) 15percent.
C) 10percent.
D) 5percent.
Answer: D
Skill: Analytical
66) Inthetableabove,thenumberofmarginallyattachedworkersis________.
A) 40million
B) 6million
C) 2million
D) 4million
Answer: D
Skill: Analytical
67) Theemployment-to-populationratioequals
A) (laborforce)/(working-agepopulation) 100.
B) (numberofpeopleemployed)/(laborforce) 100.
C) (numberofpeoplewithfull-timejobs)/(laborforce) 100.
D) (numberofpeopleemployed)/(working-agepopulation) 100.
Answer: D
Topic: Employment-to-PopulationRatio
Skill: Recognition
68) Theemployment-to-populationratioisdefinedas
A) totalemploymentdividedbylaborhoursthenmultipliedby100.
B) thelaborforcedividedbytheworking-agepopulationthenmultipliedby100.
C) totalemploymentdividedbythelaborforcethenmultipliedby100.
D) totalemploymentdividedbytheworking-agepopulationthenmultipliedby100.
Answer: D
Skill: Recognition
69) Theemployment-to-populationratioisequaltothenumberof
A) unemployedpeopledividedbythetotalpopulationthenmultipliedby100.
B) employedpeopledividedbytheworking-agepopulationthenmultipliedby100.
C) employedpeopledividedbythetotalpopulationthenmultipliedby100.
D) unemployedpeopledividedbytheworkingagepopulationthenmultipliedby100.
Answer: B
Skill: Recognition
70) Thepercentageofpeopleemployedaged16yearsandolderdividedbytheworking -age

populationisknownasthe
A) employmentrate.
B) employment-to-populationratio.
C) laborforceparticipationrate.
D) working-agepopulationratio.
Answer: B
Skill: Recognition
71) Thepercentageofthepeopleofworkingagewhohavejobsiscalledthe________.
A) laborforce
B) inverseoftheunemploymentrate
C) employment-to-populationratio
D) employment-to-working-age-populationratio
Answer: C
Skill: Recognition
72) Inaneconomy,43millionpeopleareemployed,3millionareunemployed,and4millionare
notinthelaborforce.Whatistheemployment-to-populationratio?
A) 86percent
B) 92percent
C) 93percent
D) 6.5percent
Answer: B
Skill: Analytical
73) Supposethenumberofpeopleemployedis25millionandthenumberofpeopleinthelabor
forceis75million.Whatistheemployment-to-populationratio?
A) 33percent
B) 25percent
C) 75percent
D) Thereisnotenoughinformationgiventoanswerthequestion.
Answer: D
Skill: Analytical
working-agepopulationis1400,thentheemployment-to-populationratiois
A) 78.6percent.
B) 75percent.
C) 71.4percent.
D) 66.6percent.
Answer: C
Skill: Analytical
another70millionnotinthelaborforce,10millionunemployed,and150millionemployed,the
employment-to-populationrateis
A) 53.3percent.
B) 65.2percent.
C) 46.7percent.
D) 87.5percent.
Answer: B
Skill: Analytical
76) BasedonthefollowingdataforthecountryofTinyTown,theemployment-to-populationratio
equals________multipliedby100.
Population=200
Workingagepopulation=100
LaborForce=90
Numberofemployedpersons=75
A) 90/100.
B) 75/200
C) 90/200.
D) 75/100.
Answer: D
Skill: Analytical
77) From1980to2000thetrendintheemployment-to-populationratiowas________andfrom
2000to2010thetrendwas________.
A) upward;downward
B) downward;downward
C) upward;upward
D) downward;upward
Answer: A
Skill: Recognition
Wanttoworkbut
Total
Currently Notworking
nolongerlooking
population employed andlookingfor
forwork
(millions) (millions) work(millions)
(millions)
80
40
2
4
78) Thelaborforceparticipationrateistheratioof
A) (thelaborforcedividedbytheworking-agepopulation)multipliedby100.
B) (thenumberofunemployeddividedbytheworking-agepopulation)multipliedby100.
C) (thelaborforcedividedbythetotalpopulation)multipliedby100.
D) (thenumberofunemployeddividedbythelaborforce)multipliedby100.
Answer: A
Topic: LaborForceParticipationRate
Skill: Recognition
79) Thelaborforceparticipationrateiscalculatedasthe
A) laborforcedividedbythenumberofpersonsemployedthenmultipliedby100.
B) numberofpersonsunemployeddividedbythelaborforcethenmultipliedby100.
C) laborforcedividedbytheunemploymentratethenmultipliedby100.
D) laborforcedividedbytheworkingagepopulationthenmultipliedby100.
Answer: D
Skill: Recognition
80) Thelaborforceparticipationrateispercentageofthe________whoareinthelaborforce.
A) peopleunderage65
B) working-agepopulation
C) peopleoverage16
D) population
Answer: B
Skill: Recognition
81) Thelaborforceparticipationrateshowsthepercentageof
A) peoplenotworking,butwhowanttowork.
B) peoplewhoarenotactivelyparticipatinginmeaningfuleconomicactivity.
C) newentrantsintothelaborforce.
D) non-institutionalizedworking-agepeoplewhoareactuallyworkingorseeking
employment.
Answer: D
Skill: Recognition
82) From1980to2000thetrendinthelaborforceparticipationratewas________andfrom2000to
2010thetrendwas________.
A) upward;downward
B) downward;downward
C) upward;upward
D) downward;upward
Answer: A
Skill: Recognition
83) Whichofthefollowingpiecesofinformationdoyouneedtocalculatethelaborforce
participationrate?
I. thenumberofemployedpersons
II. thenumberofunemployedpersons
III. thepopulation
IV. theworkingagepopulation
A) IandII
B) IandIII
C) I,IIandIII
D) I,IIandIV
Answer: D
Skill: Recognition
84) Ifthepeoplewhotakeearlyretirementarenotcountedintheworking -agepopulation,then

A) theunemploymentratewouldbelower.
B) thelaborforceparticipationratewouldbeless.
C) theunemploymentratewouldbehigher.
D) thelaborforceparticipationratewouldbehigher.
Answer: D
Skill: Conceptual
85) Inaneconomy,40millionpeopleareemployed,2millionareunemployed,and8millionare
notinthelaborforce.Whatisthelaborforceparticipationrate?
A) 83percent
B) 84percent
C) 80percent
D) 87.5percent
Answer: B
Skill: Analytical
86) Ifthelaborforceparticipationrateisrisingandtheworking-agepopulationisnotchanging,
thenthe
A) sizeofthelaborforceisrising.
B) numberofunemployedpeopleisrisingandthesizeofthelaborforceisfalling.
C) sizeofthelaborforceisfalling.
D) numberofunemployedpeopleisfallingandthesizeofthelaborforceisrising.
Answer: A
Skill: Analytical
87) SupposethelaborforceinTinyTownis100people.Ifthe________inTinyTownis150people,
thelaborforceparticipationrateequals________multipliedby100.
A) workingagepopulation;100/150
B) workingagepopulation;100/250
C) numberofemployedpersons;100/250
D) numberofemployedpersons;100/150
Answer: A
Skill: Conceptual
88) Supposetherearecurrently100peopleunemployed,1500peopleemployed,and2000peoplein
theworkingagepopulation.Thelaborforceparticipationrateequals100times
A) 100/1500.
B) 100/1600.
C) 1500/2000.
D) 1600/2000.
Answer: D
Skill: Analytical
working-agepopulationis1400,thenthelaborforceparticipationrateis
A) 78.6percent.
B) 71.4percent.
C) 64.3percent.
D) 66.6percent.
Answer: A
Skill: Analytical
isthelaborforceparticipationrate?
A) 0.68percent
B) 68percent
C) 85.7percent
D) 86.7percent
Answer: C
Skill: Analytical
another70millionnotinthelaborforce,10millionunemployedand150millionemployed,the
laborforceparticipationrateis
A) 69.6percent.
B) 23.3percent.
C) 6.67percent.
D) 50percent.
Answer: A
Skill: Analytical
Category
Discouragedworkers
Unemployedworkers
Employedworkers
Population(16yearsandover)
Number(millions)
15
40
100
225
92) Intheabovetable,theworkingagepopulationis
A) 225million.
B) 100million.
C) 140million.
D) 155million.
Answer: A
Skill: Analytical
93) Intheabovetable,thesizeofthelaborforceis
A) 210million.
B) 155million.
C) 140million.
D) 100million.
Answer: C
Skill: Analytical
94) Intheabovetable,theunemploymentrateis
A) 6percent.
B) 24percent.
C) 18percent.
D) 29percent.
Answer: D
Skill: Analytical
95) Intheabovetable,thelaborforceparticipationrateis
A) 55percent.
B) 44percent.
C) 62percent.
D) 69percent.
Answer: C
Skill: Analytical
96) Intheabovetable,theemployment-to-populationratiois
A) 51percent.
B) 42percent.
C) 62percent.
D) 44percent.
Answer: D
Skill: Analytical
97) Intheabovetable,thenumberofmarginallyattachedworkersis
A) 40million.
B) 55million.
C) 15million.
D) 100million.
Answer: C
Skill: Analytical
Component
Under16
Workingfull-time
Workingpart-time
Retired
Unemployed
Numberofpeople
(millions)
50
90
30
40
5
98) Usingthedataintheabovetable,theunemploymentrateis
A) 4.0percent.
B) 4.16percent.
C) 5.55percent.
D) 28.0percent.
Answer: A
Skill: Analytical
99) Usingthedataintheabovetable,thelaborforceis________million.
A) 215
B) 120
C) 125
D) 165
Answer: C
Topic: LaborForce
Skill: Analytical
100) Usingthedataintheabovetable,thelaborforceparticipationrateis
A) 66percent.
B) 58.1percent.
C) 75.7percent.
D) 96.0percent.
Answer: C
Skill: Analytical
Component
Totalpopulation
Working-agepopulation
Notinlaborforce
Employed
Numberof
people
2600
2000
500
1300
101) Usingtheinformationinthetableabove,calculatethenumberofpeopleinthelaborforce.
A) 2500
B) 2100
C) 1500
D) 800
Answer: C
Topic: LaborForce
Skill: Analytical
102) Usingtheinformationinthetableabove,calculatetheunemploymentrate.
A) 53.3percent
B) 30.8percent
C) 13.3percent
D) 7.7percent
Answer: C
Skill: Analytical
103) Usingtheinformationinthetableabove,calculatetheemployment -to-populationratio.

A) 75percent
B) 65percent
C) 50percent
D) 23.2percent
Answer: B
Skill: Analytical
Component
Totalpopulation
Laborforce
Employed
Unemployed
Numberofpeople
(millions)
246
207
139
133
6
104) Usingtheinformationintheabovetable,theunemploymentrateis
A) 4.5percent.
B) 4.3percent.
C) 2.8percent.
D) 6.0percent.
Answer: B
Skill: Analytical
105) Thelaborforceparticipationrateis
A) 67.1percent.
B) 64.0percent.
C) 95.7percent.
D) 56percent.
Answer: A
Skill: Analytical
106) Theemployment-to-populationratiois
A) 67percent.
B) 64percent.
C) 50percent.
D) 62percent.
Answer: B
Skill: Analytical
107) Anindividualwhohasstoppedlookingforajobbuthaslookedinthepastandstillwantsajob
isreferredtoas
A) acontingentworker.
B) aproductiveworker.
C) amarginallyattachedworker.
D) anunemployedworker.
Answer: C
Skill: Recognition
108) Anindividualwhohasstoppedlookingforajobbecauseheisconvincedthathecannotfinda
jobisreferredtoas
A) acontingentworker.
B) aproductiveworker.
C) adiscouragedworker.
D) anunemployedworker.
Answer: C
Topic: DiscouragedWorkers
Skill: Recognition
109) Adiscouragedworker________countedasofficiallyunemployedand________countedasin
thelaborforce.
A) is;is
B) is;isnot
C) isnot;is
D) isnot;isnot
Answer: D
Skill: Recognition
110) Discouragedworkers________countedasofficiallyunemployedbecausethey________.
A) are;arenotworking
B) are;arestillinthelaborforce
C) arenot;arenotqualifiedtowork
D) arenot;arenotactivelyseekingwork
Answer: D
Skill: Conceptual
111) Duringarecession,the________.
A) numberofdiscouragedworkersdecreases
B) unemploymentratedecreases
C) employment-to-populationratioincreases
D) numberofmarginallyattachedworkersincreases
Answer: D
Skill: Conceptual
112) Includingmarginallyattachedworkersinthecalculationoftheunemploymentratewould
A) increasethereportedrate.
B) lowerthereportedrate.
C) notchangethereportedrate.
D) changethereportedrate,butinanunpredictablemanner.
Answer: A
Skill: Conceptual
113) Whenanindividualwhohasnotbeenworkingbuthasbeenlookingforworkdecidesto
terminatethesearchprocess,theofficialunemploymentrate
A) willfall.
B) willrise.
C) willremainunchanged.
D) mayfallorrisedependingonwhetherornottheindividualresumeshiseducation.
Answer: A
Skill: Conceptual
114) Marginallyattachedworkersfallintowhichofthefollowingpopulationcategories?
A) employed
B) unemployed
C) laborforce
D) notinthelaborforce
Answer: D
Skill: Conceptual
115) Whoofthefollowingiscountedasunemployed?
A) Rene,aretiredchemist
B) Homer,afull-timestudentatavocationalschool
C) Kim,aworkeronstrikefromhercompanyforaweek
D) Glenn,astudentwhojustgraduatedfromcollegelast weekandiscurrentlylookingfora
job
Answer: D
Topic: StudyGuideQuestion,PopulationSurvey
Skill: Recognition
116) Inacountrywithaworking-agepopulationof150million,120millionworkersareemployed
and10millionworkersareunemployed.Whatisthesizeofthelaborforce?
A) 150million
B) 130million
C) 120million
D) 10million
Answer: B
Skill: Conceptual
and40millionworkersareunemployed.Whatisthelaborforceparticipationrate?
A) 100percent
B) 90percent
C) 65percent
D) 5percent
Answer: B
Skill: Conceptual
and5millionworkersareunemployed.Whatisthelaborforceparticipationrate?
A) 70percent
B) 5percent
C) 75percent
D) 7percent
Answer: C
Topic: StudyGuideQuestion,LaborForceParticipationRate
Skill: Conceptual
and10millionworkersareunemployed.Whatistheunemploymentrate?
A) 5.0percent
B) 7.1percent
C) 7.7percent
D) 10.0percent
Answer: D
Topic: StudyGuideQuestion,UnemploymentRate
Skill: Conceptual
2UnemploymentandFullEmployment
1) Bobinheritsalargesumofmoneyfromhisdeadunclesestate.Bobdecidestoretireyoung,so
hequitshisjobandheadstotheBahamas.Bobisanexampleof
A) frictionalunemployment.
B) structuralunemployment.
C) cyclicalunemployment.
D) Noneoftheaboveiscorrect.
Answer: D
Topic: Unemployment
Skill: Conceptual
2) Thethreetypesofunemploymentare
A) voluntary,involuntary,andstructural.
B) voluntary,part-time,andcyclical.
C) frictional,part-time,andinvoluntary.
D) frictional,structural,andcyclical.
Answer: D
Topic: Unemployment
Skill: Recognition
3) Frictionalunemployment
A) includesdiscouragedworkers.
B) isvoluntarypart-timeunemployment.
C) isunemploymentassociatednormallaborturnover.
D) isunemploymentassociatedwithdecliningindustries.
Answer: C
Topic: FrictionalUnemployment
Skill: Recognition
4) Frictionalunemploymentis
A) unemploymentassociatedwithbusinesscyclerecessions.
B) unemploymentassociatedwiththechangingofjobsinachangingeconomy.
C) long-termunemployment.
D) unemploymentassociatedwithdecliningindustries.
Answer: B
Skill: Recognition
5) Thistypeofunemploymentreflectsthenormalamountofunemployedworkerswhopossess
skillsthatwillenablethemtofindanotherjob.
A) cyclicalunemployment
B) frictionalunemployment
C) structuralunemployment
D) Noneoftheaboveanswersiscorrect.
Answer: B
Skill: Recognition
6) Frictionalunemploymentincludes
A) unemploymentcausedbynormallaborturnoverassociatedwithpeopleleavingand
enteringthelaborforce.
B) unemploymentcausedbyindustriesmovingoverseastobettermeetforeigncompetition.
C) unemploymentcausedbyalackofeducationsothatworkersdonotpossessnecessaryjob
skills.
D) unemploymentcausedbyautomationoftheworkplacethatdisplacesunskilledworkers.
Answer: A
Skill: Recognition
7) Unemploymentcausedbythenormallaborturnoveriscalled________unemployment.
A) part-time
B) frictional
C) involuntary
D) cyclical
Answer: B
Topic: UnemploymentTypes
Skill: Recognition
8) Frictionalunemploymentistheresultof
A) technologicalchangeorforeigncompetition.
B) normallabormarketturnover.
C) aslowdownintherateofeconomicexpansion.
D) irresponsibleworkerswithpoorworkhabits.
Answer: B
Skill: Recognition
9) Whichofthefollowingcorrectlydescribesfrictionalunemployment?
A) Frictionalunemploymentisduemainlytojoblosers.
B) Frictionalunemploymentisduemainlytojobleavers.
C) Frictionalunemploymentoccursmainlyduringrecessions.
D) Frictionalunemploymentisanormaloccurrenceinagrowingeconomy.
Answer: D
Skill: Recognition
10) Frictionalunemploymentcomesaboutbecauseof
A) frictionbetweenlaborandmanagement.
B) amismatchbetweenskillsandavailablejobs.
C) normallabormarketturnover.
D) ageneraleconomicslowdown.
Answer: C
Skill: Recognition
11) Thetypeofunemploymentcreatedbythenormalrateofreentryandentryintothelaborforceis
D) seasonalunemployment.
Answer: A
Skill: Recognition
12) Unemploymentcausedbypeoplevoluntarilyleavingtheirjobsisclassifiedas
A) part-timeunemployment.
B) cyclicalunemployment.
C) frictionalunemployment.
D) seasonalunemployment.
Answer: C
Skill: Recognition
13) SupposethecountryofTinyTownexperiencedfrictionalunemployment.Thisfrictional
unemploymentwould
A) definitelysignalthatthecountryisinarecession.
B) beconsideredanaturaloccurrenceinagrowingeconomy.
C) signalthattherearemorejobleaversthanjoblosers.
D) signalthatthenumberofdiscouragedworkersisgrowing.
Answer: B
Skill: Conceptual
14) Whenanindividualisfrictionallyunemployed,theunemploymentarisesinpartfrom
A) ashort-termeliminationofjobsbecauseofaslowdowninbusinessactivity.
B) individualssearchingforappropriateemployment.
C) thepermanenteliminationofjobsbecauseofachangeinthestructureoftheeconomy.
D) areductionintheoveralldemandforworkersskills.
Answer: B
Skill: Conceptual
15) Frictionalunemploymentincreaseswhen
A) realGDPdecreasesandtheunemploymentraterises.
B) thenumberofworkerswhoquitonejobtofindanotherincreases.
C) discouragedworkersdropoutoftheworkforce.
D) workersarereplacedbymachinesandtheunemployedworkersdonothavetheskillsto
performnewjobs.
Answer: B
Skill: Conceptual
16) Topreventfrictionalunemployment,wewouldhaveto
A) eliminaterecessions.
B) eliminatethebusinesscycle.
C) preventpeoplefromleavingtheirjobs.
D) makesureeveryonegoestocollege.
Answer: C
Skill: Conceptual
17) Apersonquitsherjobinordertospendtimelookingforabetter -payingjob.Thistypeof

unemploymentisanexampleof
C) seasonalunemployment.
D) structuralunemployment.
Answer: A
Skill: Conceptual
18) Anindividualwithgoodjobprospectswhoisbetweenjobsisbestconsideredas
A) structurallyunemployed.
B) cyclicallyunemployed.
C) notinthelaborforce.
D) frictionallyunemployed.
Answer: D
Skill: Conceptual
19) Arecentaccountinggraduatefromamajorbusinessschoolissearchingforaplacetobeginhis
careerasanaccountant.Thisindividualisbestconsideredas
A) structurallyunemployed.
B) seasonallyunemployed.
C) cyclicallyunemployed.
D) frictionallyunemployed.
Answer: D
Skill: Conceptual
20) Whenaworkerquitsajobtolookforabetterjob,
A) structuralandcyclicalunemploymentincrease.
B) structuralunemploymentdecreases.
C) cyclicalunemploymentincreases.
D) frictionalunemploymentincreases.
Answer: D
Skill: Conceptual
21) Whenawomanreentersthelaborforceandlooksforajobafterspendingtimeathomeraisinga
child,
A) cyclicalunemploymentincreases.
C) frictionalandcyclicalunemploymentincrease.
D) frictionalunemploymentincreases.
Answer: D
Skill: Conceptual
22) Studentswholeaveschoolinthespringandlookforworkareonesourceof________.
A) structuralunemployment
B) cyclicalunemployment
C) frictionalunemployment
D) business-cyclefluctuations
Answer: C
Skill: Conceptual
23) Whenastudentfinishescollegeandbeginslookingforwork,
B) structuralunemploymentincreases.
C) frictionalunemploymentincreases.
D) frictionalandcyclicalunemploymentincrease.
Answer: C
Skill: Conceptual
24) Whichofthefollowingmostlikelywoulddecreasefrictionalunemployment?
A) anincreaseinthenumberofhighschoolandcollegegraduates
B) effectiveInternet-basedemploymentservicesandjobregistries
C) anexpansionofunemploymentcompensationbenefits
D) Alloftheabovewoulddecreasefrictionalunemployment.
Answer: B
Skill: Conceptual
25) SupposethatMattquitsajobwiththeXYZCorporationinordertolookformorerewarding
employment.Mattwouldbebestbeconsideredas
A) stillbeingemployed.
B) includedintheeconomyshiddenemployment.
C) frictionallyunemployed.
D) cyclicallyunemployed.
Answer: C
Skill: Conceptual
26) Catherinequitherjobinordertolookforanewone;therefore,sheisbestconsideredas
A) frictionallyunemployed.
B) structurallyunemployed.
D) seasonallyunemployed.
Answer: A
Skill: Conceptual
27) Becauseofabankmerger,Ms.DavislostherpositionasVicePresidentandhadtoseekwork
withotherbanks.Ms.Davishastheskillsnecessarytofindanewjob,thussheisbest
consideredas
B) cyclicallyunemployed.
C) structurallyunemployed.
D) naturallyunemployed.
Answer: A
Skill: Conceptual
28) Billloseshisjobasaloanofficerwhenthebankheworksforisboughtupbyalargerfinancial
institution.Billhastheskillsnecessarytofindanewjob,soasBillsearchesforworkheisbest
consideredanexampleof
D) adiscouragedworker.
Answer: A
Skill: Conceptual
29) Thebestexampleofafrictionallyunemployedindividualis
A) Charleswhohaslosthisjobasanautoworkerbecauseofincreasedimportsandcantfind
agoodjobthatutilizeshisskills.
B) Marywhoquitherjobtofindworkclosertoherhome.
C) Samwholosthisjobasarealestatesalespersonwhenthehousingmarketwentsoft
becauseofarecession.
D) Sandywhohasfewskillsandisnolongerlookingforwork.
Answer: B
Skill: Conceptual
30) Structuralunemploymentis
A) associatedwiththenormalchangingofjobsinadynamiceconomy.
B) associatedwiththegeneraldownturnsintheeconomy.
C) associatedwiththegeneraldeclineofspecificindustries.
D) almostalwaysshort-terminnature.
Answer: C
Topic: StructuralUnemployment
Skill: Recognition
31) Structuralunemploymentistheresultof
C) aslowdownintherateofeconomicexpansion.
Answer: A
Skill: Recognition
32) Structuralunemploymentis
A) associatedwiththechangingofjobsinadynamiceconomy.
B) associatedwithgeneraldownturnsintheeconomy.
C) associatedwithchangesintechnologythatchangerequiredjobskills.
D) veryshort-termunemployment.
Answer: C
Skill: Recognition
33) SupposethatoveraperiodofyearsthecountryofQuasilandswitchedfrombeingan
agriculturally-basedeconomytoatechnologically-basedeconomy.Asaresult,manypeople
lostjobsbecausetheylackedthecorrectskills.Astheysearchfornewjobs,thesepeoplearepart
of
D) discouragedworkers.
Answer: B
Skill: Recognition
34) Anindividualisstructurallyunemployedif
A) thereisarecessionandtheindividualislaidoff.
B) theindividualwantstoworkjustduringcertainmonthsoftheyear.
C) theindividualquitsajobinordertosearchforabetterone.
D) theindividuallacksmarketablejobskillsbecausetechnologyhaschanged.
Answer: D
Skill: Recognition
35) Whichstatementcorrectlydescribesstructuralunemployment?
A) Structuralunemploymentoccursmainlyduringrecessions.
B) Structuralunemploymentisalsocalledfrictionalunemployment.
C) Structuralunemploymentoccursevenwhentheeconomyisatthenaturalunemployment
rate.
D) Theamountofstructuralunemploymentdependsonnormallaborturnover.
Answer: C
Skill: Recognition
36) Unemploymentcausedbychangesintechnologyiscalled________unemployment.
A) structural
B) frictional
C) techno
D) cyclical
Answer: A
Skill: Recognition
37) Structuralunemployment
A) fallsduringtheexpansionphaseofthebusinesscycle.
B) fallsasthepaceoftechnologicalprogressincreases.
C) generallylastslongerthanfrictionalunemployment.
D) fallswhenthegovernmentprovidesmoregenerousunemploymentcompensation
benefits.
Answer: C
Skill: Recognition
38) Supposethatthenumberofjobsinthefishingindustrydecreasesbutthenumberofjobsinthe
travelindustryincreases.Initially,________.
A) theeconomyremainsatfullemployment
B) structuralunemploymentincreases
C) thereisashortageofworkersinbothsectors
D) cyclicalunemploymentincreases
Answer: B
Skill: Conceptual
39) Whentheautomobilereplacedhorse-drawncarriagesastheprincipalmeansoftransportation,
firmsproducinghorse-drawncarriageswentbankruptandpermanentlylaidoffalltheir
workers,therebyincreasing
C) frictionalandcyclicalunemployment.
D) cyclicalunemployment.
Answer: B
Skill: Conceptual
40) Thenationsstructuralunemploymentwillincreasewhen
A) badeconomicpoliciessendtheeconomyintoarecession.
B) thereisinfluxintothelabormarketofnewcollegegraduates.
C) thereisanincreaseinpost-Christmaslayoffsofworkers.
D) anincreaseintextileimportsdisplacesoldertextileworkerswhodonothavetheskills
necessarytofindnewjobs.
Answer: D
Skill: Conceptual
41) Amajorcharacteristicofstructuralunemploymentthatdifferentiatesitfromfrictional
unemploymentisthatstructuralunemployment
A) existsonlyduringarecession.
B) existsinanexpansionwhereasthereisnofrictionalunemploymentinanexpansion.
C) isashort-termproblem.
D) usuallylastslongerthanfrictionalunemployment.
Answer: D
Skill: Conceptual
42) Whentheeconomyswitchesproductiontowardservicesandawayfrommanufacturingand
workersinthemanufacturingindustryarepermanentlylaidoff,
A) frictionalunemploymentdecreases.
D) frictionalandcyclicalunemploymentincrease.
Answer: B
Skill: Conceptual
43) SupposethecountryofTinyTowndecidedtoopenitsborderstofreetrade.Asaresult,a
numberofitsworkerslosttheirjobstointernationalcompetitionandcantfindnewjobs
becausetheirskillsdontmatchwhatisrequiredforjobopenings.Theworkerswholosttheir
jobsandsearchedfornewonesarebestbeconsideredpartof
B) structuralunemployment
Answer: B
Skill: Conceptual
44) Inthe1990s,videorecordingsweremadeprimarilyontapes.However,inthe2000sDVDs
becameincreasinglypopular,leadingtoasharpdeclineinvideotapes.Asaresult,manypeople
whomanufacturedtapeslosttheirjobsanddidnthavetheskillsnecessarytoworkmaking
DVDs.Thisoccurrenceisbestconsideranexampleof
D) underemployment.
Answer: B
Skill: Conceptual
45) Howwouldyoubestdescribeamanufacturingemployeewhohasbeenfiredbecausehewas
replacedbyarobot(newtechnology)anddoesnothavetheskillsnecessarytohelpoperatethe
robot?
A) jobleaver
B) entrant/reentrant
C) cyclicallyunemployed
D) structurallyunemployed
Answer: D
Skill: Conceptual
46) Whichofthefollowingindividualsisthebestexampleofastructurallyunemployedworker?
A) arecentcollegegraduatewhohasenteredthelaborforce
B) anindividualwhohasbeenlaidofffromhisjobbecauseofabusinesscyclerecession
C) anautomobileworkerwhohaslostherjobbecauseofanincreaseinautomobileimports
anddoesnothavetheskillscurrentlyneededbybusinesses
D) anindividualwhoquitsonejobinthehopeoffindingabetterjob
Answer: C
Skill: Conceptual
47) Ms.Krupskyhasshorthandandtypingskillsandstillfindsherselfunemployed.Intodays
economy,Ms.Krupskyisanexampleofwhattypeofunemployment?
Answer: C
Skill: Conceptual
48) Andrewjustlosthisjobasacorkscrewoperatorsincehiscompanyhasfoundamachineto
performhisworktasks.Andrewdidnothavetheskillsneededtooperatethemachine.Andrew
hassearchedforanewjobfor6monthsandcontinuestosearch.Therefore,Andrewis
consideredtobe
B) adiscouragedworker.
D) structurallyunemployed.
Answer: D
Skill: Conceptual
49) Nicholasdoesnotpossessmarketablejobskills;therefore,heis
B) structurallyunemployed.
D) seasonallyunemployed.
Answer: B
Skill: Conceptual
PersonA
PersonB
PersonC
PersonD
Thispersonhasjustgraduatedfromhighschoolandis
workingatapart-timejobbutwantsafull-timejob.
Attheageof45,thispersonwaslaidofffromthe
automobileindustrywhennewequipmentwasinstalled
andthepersondidnothavetheskillsnecessarytouse
theequipment.Thispersonnowissearchingtofinda
newjob.
Asaresultofthispersonsspousebeingtransferredtoa
jobinanewcity,thispersonislookingforanewjob.
Thispersonjustgraduatedfromcollegeandislooking
foranengineeringjob.Inthemeantime,thispersonis
workingfull-timewaitingtables.
50) TheabovetableshowsanswersgivenbypeopleinterviewedintheCurrentPopulationSurvey.
Whichpeoplearestructurallyunemployed?
A) A,B,C,andD
B) A,B,andC
C) BandC.
D) A,B,andD
Answer: C
Skill: Conceptual
51) TheabovetableshowsanswersgivenbypeopleinterviewedintheCurrentPopulationSurvey.
Whichpersoniscyclicallyunemployed?
A) A
B) B
C) C
D) Noneofthepeople
Answer: D
Skill: Conceptual
52) Cyclicalunemployment
A) isduemainlytojobleavers.
B) mayincreaseordecreaseduringanexpansion.
C) occurswhentechnologyimprovementschangejobrequirements.
D) fluctuatesoverthebusinesscycle.
Answer: D
Topic: CyclicalUnemployment
Skill: Recognition
53) Whichtypeofunemploymentincreasesduringarecession?
D) thenaturalunemploymentrate
Answer: A
Skill: Recognition
A) isalwayspresentinaneconomy.
B) ishigherduringanexpansion.
C) decreasesduringarecession.
D) fluctuatesoverthebusinesscycle.
Answer: D
Skill: Recognition
55) Cyclicalunemploymentistheresultof
C) thebusinesscycle.
Answer: C
Skill: Recognition
56) Cyclicalunemploymentoccurswhen
A) individualsenterintothelabormarketmakingtheroundsofpotentialemployers.
B) individualswithskillsnolongervaluedinthelabormarketcannotfindemployment.
C) individualsgiveupthesearchforemployment.
D) abusinesscyclerecessiondecreasesemployment.
Answer: D
Skill: Recognition
57) Unemploymentcausedbythefluctuationofthebusinesscycleiscalled________
unemployment.
A) structural
B) recession-related
C) frictional
D) cyclical
Answer: D
Skill: Recognition
58) Unemploymentthatistheresultofrecessionsiscalled
C) downtimeunemployment.
D) structuralunemployment.
Answer: B
Skill: Recognition
59) SupposethecountryofQuasilandexperiencedadecreaseinrealGDPandpeoplewerelaidoff
fromtheirjobs.Thepeoplewouldbeconsideredpartof
Answer: C
Skill: Recognition
60) Theprimaryfactorleadingtocyclicalunemploymentiswhen
A) businessesoftendiscriminateintheirhiringpracticesonthebasisofage,sex,andrace.
B) thelevelofoveralleconomicactivityfluctuates.
C) workersquittheirjobsinordertolookforhigherpayingemployment.
D) someworkersdonothavemarketablejobskills.
Answer: B
Skill: Recognition
61) Ifaworkeristemporarilylaidoffbecausetheeconomyisinarecession,
A) frictionalunemploymentincreases.
C) thesizeofthelaborforcerises.
D) cyclicalunemploymentincreases.
Answer: D
Skill: Conceptual
62) Arecessioncausesadecreaseinthedemandforhousing,resultinginsubstantiallayoffsinthe
constructionindustry.Thepeoplelaidoffareconsidered
A) cyclicallyunemployment.
B) frictionallyunemployment.
C) seasonallyunemployment.
D) structurallyunemployment.
Answer: A
Skill: Conceptual
63) Iftheeconomyentersanexpansion,
C) cyclicalunemploymentdecreases.
D) structuralunemploymentdecreases.
Answer: C
Skill: Conceptual
A) isthemajorpartofthenaturalunemploymentrate.
B) decreasesduringeconomicexpansions.
C) risesasaresultofincreasedinternationalcompetition.
D) fallswhenunemploymentcompensationpaymentsareincreased.
Answer: B
Skill: Conceptual
65) Duringaneconomicexpansion,realGDP________andunemployment________.
A) increases;increases
B) increases;decreases
C) decreases;increases
D) decreases;decreases
Answer: B
Skill: Conceptual
66) Anobserveroftheeconomynoticesthatoverthepast12monthstheunemploymentratehas
fallenfrom7.0percentto6.5percent.Duringthesametime,therateofgrowthinrealGDPhas
beenpositive.Fromthisinformationwemightconcludethat
A) inflationisnotoccurring.
B) anexpansionisoccurringintheeconomy.
C) arecessionisinprogress.
D) atroughinthebusinesscyclewillsoonbereached.
Answer: B
Skill: Conceptual
67) Cyclicalunemployment________.
A) decreasesduringanexpansion
B) growsatthesamerateaspotentialGDP
C) iszeroatabusiness-cycletrough
D) decreasesduringarecession
Answer: A
Skill: Recognition
68) Cyclicalunemployment________duringexpansionsand________duringrecessions.
A) increases;increases
B) increases;decreases
C) decreases;increases
D) decreases;decreases
Answer: C
Skill: Recognition
69) Autoandsteelworkerscommonlyexperiencethistypeofunemploymentinarecession.
A) frictionalunemployment
B) cyclicalunemployment
D) naturalunemploymentrate
Answer: B
Skill: Conceptual
70) Iftheeconomyentersarecession,
A) frictionalunemploymentincreases.
D) thenumberofworkersonlayoffdecreases.
Answer: C
Skill: Conceptual
71) Recessionsandexpansionsaffectmoststronglywhichtypeofunemployment?
A) frictionalunemployment
B) structuralunemployment
C) cyclicalunemployment
D) seasonalunemployment
Answer: C
Skill: Conceptual
72) Mikehasjustbeenlaidofffromhisconstructionjobbecauseconsumersarenotpurchasingnew
homesbecauseoftherecession.Mikewouldbeconsideredtobepartof
A) structuralunemployment.
C) seasonalunemployment.
D) frictionalunemployment.
Answer: B
Skill: Conceptual
73) Billisahigh-schooldropoutwholosthisjobinafastfoodrestaurantwhentheeconomy
plungedintoarecession.After8months,Billisstilllookingforwork.Heisanexampleof
D) thenaturalunemploymentrate
Answer: C
Skill: Conceptual
74) Thebestexampleofacyclicallyunemployedindividualis
A) Charleswholosthisjobasarealestatesalespersonwhenthehousingmarketwentsoft
becauseofarecession.
B) Alicewhoquitherjobtoentercollege.
C) Marywholostherjobinthetextileindustryfollowingadecreaseinthetariffontextiles.
D) Bobwhohasjustgraduatedfromcollegeandisenteringthelabormarket.
Answer: A
Skill: Conceptual
75) Whichofthefollowingsituationsbestdescribesanindividualwhoiscyclicallyunemployed?
A) Catherineisaskiinstructorwhoisnotworkingbecauseitissummer.
B) Matthewwasanartilleryman,buthehasbeenunabletofindworksinceheleftthearmy.
C) Nicholaswaslaid-offwhenordersforGeneralMotorscarsfellduringarecession.
D) Susanquitherjobasapreschoolteachertotrytofindabetterpayingjob.
Answer: C
Skill: Conceptual
76) Fullemploymentoccurswhen
A) structuralunemploymentiszero.
B) cyclicalunemploymentiszero.
C) frictionalunemploymentiszero.
D) cyclicalandfrictionalunemploymentarezero.
Answer: B
Topic: FullEmployment
Skill: Recognition
77) Fullemploymentoccurswhen
A) thereisnocyclicalunemployment.
B) thereisnounemployment.
C) thereisnofrictionalunemployment.
D) theunemploymentrateislessthan5percent.
Answer: A
Skill: Recognition
78) Fullemploymentmeansthat
A) nooneisunemployed.
B) thereisnocyclicalunemployment.
C) thereisnocyclicalorfrictionalunemployment.
D) thereisnostructuralorfrictionalunemployment.
Answer: B
Skill: Recognition
79) Theeconomyisatfullemploymentwhen
A) therearenounemployedworkers.
B) allunemploymentisfrictionalorstructural.
C) therearefewerunemployedworkersthanavailablejobs.
D) allunemploymentiscyclical.
Answer: B
Skill: Recognition
80) Fullemploymentoccurswhenthe
A) unemploymentrateequalsthenaturalunemploymentrate.
B) structuralunemploymentrateequalsthefrictionalunemploymentrate.
C) naturalunemploymentrateequalsthefrictionalunemploymentrate.
D) cyclicalunemploymentrateequalsthenaturalunemploymentrate.
Answer: A
Skill: Recognition
81) Fullemploymentoccurs
A) onlyiftheunemploymentrateiszero.
B) onlyiftheunemploymentrateisequaltothenaturalunemploymentrate.
C) onlyifunemploymentisequaltostructuralunemploymentpluscyclicalunemployment.
D) Noneoftheaboveanswersarecorrect.
Answer: B
Skill: Recognition
82) Whentheeconomyisatfullemploymentthe
A) naturalunemploymentrateisequalto0percent.
B) naturalunemploymentrateequalstheunemploymentrate.
C) naturalunemploymentrateisequalto10percent.
D) unemploymentrateisequalto0percent.
Answer: B
Skill: Recognition
83) Aneconomyisatfullemploymentwhen________.
A) theunemploymentrateiszero
B) thereisnofrictionalunemployment
C) theunemploymentrateequalsthenaturalunemploymentrate
D) thereisnostructuralunemployment
Answer: C
Skill: Recognition
84) Supposethenaturalunemploymentrateequals6percentandthecurrentunemploymentrateis
8percent.Wecanconcludethat
A) thereisnostructuralunemployment.
B) thereisnofrictionalunemployment.
C) thereisnocyclicalunemployment.
D) fullemploymentisnotoccurring.
Answer: D
Skill: Conceptual
85) Fullemploymentmeans
A) zerounemployment.
B) onlycyclicalunemploymentexists.
C) onlyfrictionalandstructuralunemploymentexists.
Answer: C
Skill: Conceptual
86) Wheneconomistsspeakoffullemployment,theyrefertothecaseinwhichthesumoffrictional
andstructuralunemploymentis
A) fallingovertime.
B) equaltozero.
C) equaltotheactualamountofunemployment.
D) greaterthanthelevelofdeficientdemandunemployment.
Answer: C
Skill: Conceptual
87) Whentheeconomyisoperatingatfullemployment,thenaturalunemploymentrateconsistsof
only
A) cyclicalunemployment.
B) frictionalandstructuralunemployment.
C) frictionalandcyclicalunemployment.
D) structuralandcyclicalunemployment.
Answer: B
Skill: Conceptual
88) Anunemploymentrateofzeropercentcannotbeexpectedbecause
A) therearesomepeoplewhodonotwanttowork.
B) therewillalwaysbediscouragedworkers.
C) someportionofthelaborforcewillalwaysbebetweenjobs.
D) cyclicalunemploymentwillalwaysexist.
Answer: C
Topic: NaturalUnemploymentRate
Skill: Conceptual
89) Thenaturalunemploymentrate
i) occurswhenonlythereisnocyclicalunemploymentpresent.
ii) istheunemploymentratewhentheeconomyisatpotentialGDP.
A) ionly.
B) iionly
C) neitherinorii.
D) iandii
Answer: D
Skill: Recognition
A) fallswithanincreaseincyclicalunemployment.
B) riseswithanincreaseinstructuralunemployment.
C) riseswithanincreaseincyclicalunemployment.
D) riseswithadecreaseinfrictionalunemployment.
Answer: B
Skill: Recognition
91) Theunemploymentrateisatthenaturalunemploymentratewhen
A) frictionalunemploymentequalszero.
B) structuralunemploymentequalszero.
C) cyclicalunemploymentequalszero.
D) alltypesofunemploymentequalzero.
Answer: C
Skill: Recognition
92) Thenaturalunemploymentrateistheunemploymentratethatexistswhenthereisno
A) structuralunemployment.
B) frictionalunemployment.
D) cyclicalorstructuralunemployment.
Answer: C
Skill: Recognition
93) Whencyclicalunemploymentiszero,
A) frictionalunemploymentiszero.
B) cyclicalandfrictionalunemploymentarezero.
C) structuralunemploymentiszero.
D) theunemploymentrateequalsthenaturalunemploymentrate.
Answer: D
Skill: Recognition
A) isaconstantfigureofabout4percent.
B) fluctuateswiththerateofinflation.
C) istheunemploymentratethatoccurswhentheeconomyisatfullemployment.
D) isequaltocyclicalunemployment.
Answer: C
Skill: Recognition
95) Ifunemploymentisatthenaturalrate,thenthere
A) isnocyclicalunemployment.
B) isnofrictionalunemployment.
C) willbecyclicalandfrictionalunemploymentbutnotstructuralunemployment.
D) willbeonlycyclicalunemployment.
Answer: A
Skill: Recognition
96) Ifunemploymentequalsthenaturalunemploymentrate,thenthere
A) iszerounemployment.
B) isonlyfrictionalorstructuralunemployment.
C) arenojobopeningsexistingatthetime.
D) islessthanfullemployment.
Answer: B
Skill: Recognition
A) occurswhentheunemploymentrateis0percent.
B) istheunemploymentratewhenthereisnostructuralunemployment.
C) istheunemploymentrateatfullemployment.
D) istheunemploymentratewhenthereisonlycyclicalunemployment.
Answer: C
Skill: Recognition
98) Fullemploymentexistswhen
A) thereisonlyfrictionalandstructuralunemployment.
B) theeconomyisatthenaturalunemploymentrate.
C) thereisnocyclicalunemployment.
Answer: D
Skill: Recognition
99) Whentheeconomymovesintoandoutofrecessionsandexpansions,theunemploymentrate
fluctuatesaroundthe
A) naturalunemploymentrate.
B) structuralunemploymentrate.
D) frictionalunemploymentrate.
Answer: A
Skill: Recognition
100) Thenaturalunemploymentrate________.
A) isthesamefromyeartoyear
B) isgreaterthantheactualrateofunemployment
C) istheunemploymentratewhenthereisnocyclicalunemployment
D) equalszero
Answer: C
Skill: Recognition
101) Whencyclicalunemploymentincreasesandotherthingsremainthesame,________.
A) thenaturalunemploymentrateincreases
B) theamountoffrictionalunemploymentincreases
C) theamountofstructuralunemploymentdecreases
D) thenaturalunemploymentratedoesnotchange
Answer: D
Skill: Conceptual
102) Therelationshipbetweentheunemploymentrateandthenaturalunemploymentrateisthatthe
unemploymentrate
A) fluctuatesaboutthenaturalrate.
B) equalsthenaturalrate.
C) isalwaysbelowthenaturalrate.
D) isalwaysabovethenaturalrate.
Answer: A
Skill: Conceptual
103) Supposetheeconomyisexperiencingfrictionalunemploymentof1percent,structural
unemploymentof3percentandcyclicalunemploymentof4percent.Whatisthenatural
unemploymentrate?
A) 3percent.
B) 4percent.
C) 5percent.
D) 7percent.
Answer: B
Skill: Analytical
104) Supposethatthenaturalunemploymentrateis4.5percentandtheactualunemploymentrateis
3.5percent.Thencyclicalunemploymentis
A) 1percent.
B) -1percent.
C) 8percent.
D) 0percent.
Answer: B
Skill: Analytical
A) estimatedtobecloseto9percentinrecentyearsintheUnitedStates.
B) hasbeenestimatedtorangebetween4percentand6percentintheUnitedStatesinrecent
years.
C) isattainedwhenevertheunemploymentrateislessthan5percentbecause95percent
employmentisconsideredfullemployment.
D) occurswhen100percentofthelaborforceisemployed.
Answer: B
Skill: Conceptual
106) Cyclicalunemploymentexistswhen
A) frictionalandstructuralunemploymentiszero.
B) realnationalincomeexceedspotentialincome.
C) realGDPexceedspotentialGDP.
D) realGDPislessthanpotentialGDP.
Answer: D
Topic: PotentialGDPandUnemployment
Skill: Conceptual
107) WhenrealGDPis________potentialGDP,theunemploymentrateis________thenatural
unemploymentrate.
A) greaterthan;lessthan
B) lessthan;equalto
C) equalto;greaterthan
D) greaterthan;greaterthan
Answer: A
Skill: Conceptual
108) Supposethattheunemploymentrateequals4.5percentandthatthenaturalunemploymentrate
is5.5percent.Wecanconcludethat
A) theoutputgapisnegative.
B) theoutputgapequalszero.
C) theoutputgapispositive.
D) wehavemismeasuredthenaturalunemploymentrate.
Answer: C
Skill: Conceptual
109) Whentheunemploymentrateislessthanthenaturalunemploymentrate,
A) theoutputgapispositive.
B) theoutputgapequalszero.
C) theoutputgapisnegative.
D) Noneoftheaboveispossiblebecauseitisimpossiblefortheunemploymentratetobeless
thanthenaturalrate.
Answer: A
Skill: Conceptual
110) Whenmorelaborisunemployedthantheamountatthenaturalunemploymentrate,thenreal
GDP________potentialGDP.
A) isequalto
B) islessthan
C) isgreaterthan
D) cannotbecomparedto
Answer: B
Skill: Conceptual
111) Theunemploymentrategenerallyfallsduring________inthebusinesscycle.
A) apeak
B) arecession
C) atrough
D) anexpansion
Answer: D
Topic: StudyGuideQuestion,UnemploymentRate
Skill: Conceptual
112) Atthenaturalunemploymentrate,thereisno
D) unemployment.
Answer: C
Topic: StudyGuideQuestion,NaturalRateofUnemployment
Skill: Recognition
113) Iftheeconomyisatfullemployment,
A) theentirepopulationisemployed.
B) theentirelaborforceisemployed.
C) theonlyunemploymentisfrictionalunemploymentplusdiscouragedworkers.
D) realGDPequalspotentialGDP.
Answer: D
Topic: StudyGuideQuestion,FullEmployment
Skill: Recognition
3ThePriceLevel,Inflation,andDeflation
1) Anincreaseinthepricelevelisdefinedas
A) arecession.
B) agrowthboom.
C) inflation.
D) anexpansion.
Answer: C
Topic: Inflation
Skill: Recognition
2) Inflationisaproblemwhen
A) itisunpredictable.
B) itcausesthevalueofmoneytovaryunpredictably.
C) itcausesresourcestobedivertedfromproductiveuses.
Answer: D
Topic: WhyInflationIsaProblem
Skill: Conceptual
3) Unpredictablechangesinthevalueofmoney,whichbringsaboutgainsandlosses,area
consequenceofunpredictablechangesin
A) realGDP.
B) unemploymentrate.
C) inflation.
D) productivity.
Answer: C
Skill: Conceptual
4) Thecostofinflationtosocietyincludes
I. theopportunitycostsofresourcesusedbypeopletoprotectthemselvesagainstinflation.
II. thediversionofproductiveresourcestoforecastinginflation.
A) Ionly
B) IIonly
C) bothIandII
D) neitherInorII
Answer: C
Skill: Conceptual
5) Thecostofinflationtosocietyincludes
A) unpredictablechangesinthevalueofmoney.
B) higherinterestratespaidbyborrowers.
C) higherinterestratespaidbythegovernmentonitsdebt.
D) thelostspendingwhenpeopledonothaveenoughmoney.
Answer: A
Skill: Conceptual
6) Inaperiodofrapid,unexpectedinflation,resourcescanbelost
A) whenfirmsinvestinresearchanddevelopmentinsteadofforecastinginflation.
B) whenfirmsuseresourcestoforecastinflation.
C) becauserapidinflationalmostalwaysturnsintoahyperinflation.
D) BothanswersBandCarecorrect.
Answer: B
Skill: Conceptual
7) Hyperinflationisdefinedas
A) declininginflationrates.
B) risingbutlowinflationrates.
C) veryhighinflationrates.
D) verylowinflationrates.
Answer: C
Skill: Recognition
8) TheConsumerPriceIndexisameasureoftheaverageofthepricespaidby________forafixed
basketofconsumergoodsandservices.
A) urbanconsumers
B) allconsumers
C) urbanwageearnersandclericalworkers
D) consumerslivingincitieswithapopulationgreaterthan100,000
Answer: A
Topic: ConsumerPriceIndex
Skill: Recognition
9) ThefirststepinmeasuringtheCPIisto
A) selectthemarketbasket.
B) conductamonthlysurvey.
C) collectpricesforthebasketofgoodsandservices.
D) interviewbusinesses.
Answer: A
Skill: Recognition
10) Theconsumerpriceindex(CPI)
A) comparesthecostofthetypicalbasketofgoodsconsumedinperiod1tothecostofa
basketofgoodstypicallyconsumedinperiod2.
B) comparesthecostinthecurrentperiodtothecostinareferencebaseperiodofabasketof
goodstypicallyconsumedinthebaseperiod.
C) measurestheincreaseinthepricesofthegoodsincludedinGDP.
D) istheratiooftheaveragepriceofatypicalbasketofgoodstothecostofproducingthose
goods.
Answer: B
Skill: Conceptual
11) IfthebasketofgoodsandservicesusedtocalculatetheCPIcost$200inthereferencebase
periodand$450inalateryear,theCPIforthelatteryearequals
A) 200.
B) 225.
C) 325.
D) 450.
Answer: B
Skill: Analytical
12) IftheCPIbasketcosts$35inthebaseperiodbutcosts$42,whatistheCPIinthenextperiod?
A) 83.3
B) $42
C) 20percent
D) 120
Answer: D
Skill: Analytical
13) SupposetheConsumerPriceIndexis143.6.Whatdoesthatnumbermean?
A) Onaverage,goodscost$143.60.
B) Onaverage,goodscost$243.60.
C) Pricesrose143.6percentoverthereferencebaseperiod,onaverage.
D) Pricesrose43.6percentoverthereferencebaseperiod,onaverage.
Answer: D
Skill: Conceptual
14) IftheCPIis120,thismeansthat
A) pricesare120percenthigherthaninthereferencebaseperiod.
B) pricesare0.12timeshigherthaninthereferencebaseperiod.
C) pricesare20percenthigherthaninthereferencebaseperiod.
D) theinflationratemustbepositive.
Answer: C
Skill: Analytical
DVDs
Bottled
water
CPIbasket
quantity
10discs
200bottles
2003price
2011price
$16perdisc
$12perdisc
$1.00perbottle $1.25perbottle
15) If2003isthereferencebaseperiod,whatisthepriceindexfortheCPIbasketofgoodsfor2011
intheabovetable?
A) 97.3
B) 102.8
C) 128.0
D) zerobecausethepriceofCDsfellandthepriceofwaterincreased
Answer: B
Skill: Conceptual
2008
Item
Movietickets
Bagsof
popcorn
Drinksofsoda
Quantity
4
Price
$5.00
2009
Price
$7.50
$3.00
$3.00
$1.00
$1.50
16) Theinformationinthetableabovegivesthe2008referencebaseperiodCPIbasketandprices
usedtoconstructtheCPIforasmallnation.Italsohasthe2009prices.Whatisthevalueofthe
CPIforthereferencebaseperiod,2008?
A) 140
B) 133
C) 100
D) 75
Answer: C
Skill: Analytical
17) Theinformationinthetableabovegivesthe2008referencebaseperiodCPIbasketandprices
usedtoconstructtheCPIforasmallnation.Italsohasthe2009prices.Whatisthevalueofthe
CPIfor2009?
A) 140
B) 133
C) 100
D) 75
Answer: A
Skill: Analytical
18) TheCPIbasketcontains400orangesand800pens.Inthebaseyear,thepriceofanorangeis
$1.00andthepriceofapenis$0.75.Thisyear,urbanconsumerseachbuy300orangesat$2.00
eachand850pensat$1.00each.TheCPIthisyearis________.
A) 1.60
B) 62.5
C) 160
D) 140
Answer: C
Skill: Analytical
19) IftheCPIbasketofgoodscost$200inthereferencebaseperiodand$450inalateryear,theCPI
inthelateryearequals
A) 225.
B) 250.
C) 300.
D) 450.
Answer: A
Skill: Analytical
20) UsingthenotationPttodesignatethisperiodspricelevelandPt-1 todesignatelastperiods

pricelevel,theformulaformeasuringtheinflationratefromlastperiodtothisperiodis
A) [(Pt-Pt-1 )/Pt]100.
B) [(Pt-1 -Pt)/Pt-1 ]100.
C) [(Pt-Pt-1 )/Pt-1 ]100.
D) [(Pt-1 -Pt)/Pt]100.
Answer: C
Topic: InflationRate
Skill: Recognition
21) SupposetheCPIlastyearis121andtheCPIthisyearis137.Thecorrectmethodtocalculatethe
inflationrateis
A) (137-121)/100=0.16.
B) 137121=258.
C) [(137-121)/121]100= 13.2.
D) (137/121)100=113.2.
Answer: C
Skill: Analytical
22) IftheCPIwas132.5attheendoflastyearand140.2attheendofthisyear,theinflationrate
overthesetwoyearswas
A) 7.7percent.
B) 5.4percent.
C) 4.4percent.
D) 5.8percent.
Answer: D
Skill: Analytical
A) 10.2percent.
B) 13.8percent.
C) 12.2percent.
D) 16.8percent.
Answer: B
Skill: Analytical
A) 1.8percent.
B) 2.5percent.
C) 22.5percent.
D) 18.0percent.
Answer: A
Skill: Analytical
A) 3.6percent.
B) 3.8percent.
C) 5.0percent.
Answer: B
Skill: Analytical
26) AttheendoflastyeartheConsumerPriceIndexwasequalto163.8andattheendofthisyearit
wasequalto157.5.Whatistheinflationrateoverthistimeperiod?
A) 6.3percent
B) 4.0percent
C) 3.85percent
D) 10.1percent
Answer: B
Skill: Analytical
27) Ifthepricelevellastyearwas220andthisyearis250,whatistheinflationratebetweenthetwo
years?
A) 30percent
B) 13.6percent
C) 12.2percent
D) 20percent
Answer: B
Skill: Analytical
28) Ifthisyearthepricelevelis135andlastyearitwas125,theinflationrateis
A) 8percent.
B) 10percent.
C) 12percent.
D) noneoftheabove
Answer: A
Skill: Analytical
29) Supposethepricelevelthisyearis150andthepricelevellastyearwas125.Theinflationrate
betweenlastyearandthisyearwas
A) 20percent.
B) 2percent.
C) 16.6percent.
D) 1.6percent.
Answer: A
Skill: Analytical
30) SupposethatlastyeartheConsumerPriceIndexwas124;thisyearitis130.7.Whatwasthe
inflationratebetweentheseyears?
A) 30.7percent
B) 6.7percent
C) 5.4percent
D) 5.1percent
Answer: C
Skill: Analytical
31) IftheCPIthisyearis220andwas200inlastyear,theannualinflationratebetweenthetwo
yearsis
A) 5percent.
B) 10percent.
C) 20percent.
D) 2percent.
Answer: B
Topic: Inflation
Skill: Analytical
32) IftheConsumerPriceIndexlastyearwas110and115thisyear,theinflationrateis
approximately
A) 4.5percent.
B) 5.0percent.
C) 10.0percent.
D) 15.0percent.
Answer: A
Skill: Analytical
33) IftheCPIforthisyearis220andtheCPIforlastyearwas215,theinflationrateis
A) justover2percent.
B) 5percent.
C) justover5percent.
D) 10percent.
Answer: A
Skill: Analytical
34) Ifthisyearspricelevelis126andlastyearspricelevelwas120,theinflationrateis________.
A) 0.95percentayear
B) 5percentayear
C) 6percentayear
D) 1.05percentayear
Answer: B
Skill: Analytical
35) IftheCPIattheendoflastyearwas100andtheCPIattheendofthisyearwas115,the
inflationratewas
A) 1.5percent.
B) 15percent.
C) 100percent.
D) 115percent.
Answer: B
Skill: Analytical
36) Lastyearspricelevelwas120andsincethentherehasbeena5percentinflation.Thisyears
pricelevelis
A) 125.
B) 126.
C) 130.
D) noneoftheabove
Answer: B
Skill: Analytical
Year
2008
2009
2010
2011
Pricelevel
91
100
110
121
37) Intheabovetable,theinflationratebetween2008and2009isapproximately
A) 0.9percent.
B) 1percent.
C) 10percent.
D) 100percent.
Answer: C
Skill: Analytical
A) 9percent.
B) 10percent.
C) 100percent.
D) 110percent.
Answer: B
Skill: Analytical
A) 10percent.
B) 11percent.
C) 121percent.
Answer: A
Skill: Analytical
Year
Priceindex
1
2
3
4
5
6
100
117
125
120
D
150
Inflationrate
(percent)
A
B
C
8.3
E
40) Inthetableabove,whatinflationratebelongsinspaceA?
A) 17.0percent
B) 6.8percent
C) 8.3percent
D) -4.0percent
Answer: A
Skill: Analytical
41) Inthetableabove,whatinflationratebelongsinspaceB?
A) 17.0percent
B) 6.8percent
C) 8.3percent
D) -4.0percent
Answer: B
Skill: Analytical
42) Inthetableabove,whatinflationratebelongsinspaceC?
A) 17.0percent
B) 6.8percent
C) 8.3percent
D) -4.0percent
Answer: D
Skill: Analytical
43) Inthetableabove,whatpricelevelbelongsinspaceD?
A) 125
B) 130
C) 140
D) 145
Answer: B
Skill: Analytical
44) Inthetableabove,whatinflationratebelongsinspaceE?
A) 17.0percent
B) 6.8percent
C) 8.3percent
D) 15.4percent
Answer: D
Skill: Analytical
Item
Books
Pens
2010
Quantity
Price
10
$30
20
$1
2011
Quantity
Price
8
$50
15
$2
45) In2010,consumersinDexterconsumedonlybooksandpens.Thepricesandquantitiesfor2010
and2011arelistedinthetableabove.ThereferencebaseperiodforDextersCPIis2010.Whatis
thecostoftheCPIbasketin2010?
A) $430
B) $335
C) $320
D) $540
Answer: C
Topic: TheConsumerPriceIndex
Skill: Analytical
theCPIin2010?
A) 320
B) 1.00
C) 3.20
D) 100
Answer: D
Skill: Analytical
thecostoftheCPIbasketin2011?
A) $430
B) $335
C) $320
D) $540
Answer: D
Skill: Analytical
theCPIin2011?
A) 59
B) 129
C) 169
D) 102
Answer: C
Skill: Analytical
theinflationratein2011?
A) 69percent
B) zero
C) 31percent
D) 2percent
Answer: A
Skill: Analytical
50) Ifthisyearspricelevelexceedslastyears,
A) theinflationratebetweentheseyearshasbeenpositive.
B) theinflationrateisaccelerating.
C) deflationisoccurring.
D) norelativepricechangesareoccurring.
Answer: A
Topic: InflationandthePriceLevel
Skill: Recognition
51) Ifthepricelevelforthelastthreemonthshasbeen112,125,and126,wewouldsay
A) inflationhasbeenconstantoverthethreemonths.
B) inflationwasmorerapidbetweenthefirstandsecondmonththanbetweenthesecondand
thirdmonth.
C) inflationwaslessrapidbetweenthefirstandsecondmonththanbetweenthesecondand
thirdmonth.
D) inflationhassteadilyincreasedoverthethreemonths.
Answer: B
Skill: Conceptual
52) Assumetheinflationratefallsfrom4percentto2percent.Thismeansthat
A) thepricelevelhasfallen.
B) thepricelevelisincreasingmoreslowly.
C) theeconomyisexperiencingdeflation.
D) realGDPisdecreasing.
Answer: B
Skill: Conceptual
53) Iftheinflationrateisnegative,thepricelevelinaneconomyis
A) falling.
B) risingslowly.
C) constant.
D) risingrapidly.
Answer: A
Skill: Conceptual
54) Supposethatthepricelevelwas100in2008,110in2009,and130in2010.Overthesethree
years,
A) deflationoccurredatanacceleratingrate.
B) theinflationratewaspositivebutslowing.
C) priceswerestable.
D) theinflationratewaspositiveandaccelerating.
Answer: D
Skill: Analytical
55) InChina,supposethatthepricelevelwas100in2007,110in2008,120in2009,and130in2011.
Overthesethreeyears,
A) theinflationrateaccelerated.
B) inflationdidnotoccur.
C) priceswerestable.
D) theinflationratewaspositive.
Answer: D
Skill: Analytical
56) IntheUnitedStates,theinflationratehas
A) remainedalmostconstantoverthepast25years.
B) risenandfallensincethe1970s.
C) fallenasaresultofOPECoilpricehikes.
D) risenconstantlyoverthepast30years.
Answer: B
Topic: InflationintheUnitedStates
Skill: Recognition
57) LookingatinflationratesintheUnitedStatessincethe1970sweseethat
A) inflationfellthemostduringthe1970sproductivityslowdown.
B) thehighestinflationrateswerethedoubledigitsduringthe1990s.
C) theinflationrateincreasedwiththeincreasedgrowthofthe1990s.
D) the1970sexperiencedthehighestinflationrates.
Answer: D
Topic: InflationintheUnitedStates
Skill: Recognition
58) ThebiasesintheCPIincludethe
A) oldgoods,unemployment,andinflationbiases.
B) newgoods,qualitychange,andsubstitutionbiases.
C) oldgoods,newgoods,andqualitychangebiases.
D) substitution,newgoods,andoldgoodsbiases.
Answer: B
Topic: BiasedCPI
Skill: Recognition
59) ThebiasintheCPItypically
A) overstatesinflation.
B) understatesinflation.
C) abouthalfthetimeoverstatesandabouthalfthetimeunderstatestheinflationrate.
D) cannotbemeasuredorestimated.
Answer: A
Topic: BiasedCPI
Skill: Recognition
60) WhichofthefollowingmeansthattheCPIoverstatestheactualinflationrate?
A) newgoodsbias
B) qualitychangebias
C) outletsubstitutionbias
D) AlloftheabovecausetheCPItooverstateinflation
Answer: D
Topic: BiasedCPI
Skill: Recognition
61) ThebiasesintheCPIare
A) notimportantsincetheyaresosmall.
B) importantonlytoeconomists,nottherealworld.
C) importantsincetheyeffectnearly1/3offederalgovernmentspending.
D) notimportantalthoughtheyarelarge.
Answer: C
Topic: BiasedCPI
Skill: Recognition
62) ThecurrentlyusedmethodforcalculatingtheCPI
A) accountsforpeopleincreasingconsumptionofagoodthatfallsinrelativeprice.
B) probablyoverstatesinflationbyabout1percentagepoint.
C) hasnoeffectongovernmentexpenditures.
Answer: B
Topic: BiasedCPI
Skill: Conceptual
63) BecauseofthebiasesincalculatingtheCPI,actualinflationis
A) accuratelymeasured.
B) lessthanthemeasuredinflationratebyabout1percentperyear.
C) morethanthemeasuredinflationratebyabout1percentperyear.
D) morethanthemeasuredinflationratebyabout1percentpermonth.
Answer: B
Topic: BiasedCPI
Skill: Conceptual
64) ThecurrentlyusedmethodforcalculatingtheCPI
A) accountsforpeopleincreasingconsumptionofagoodthatfallsinrelativeprice.
B) probablyoverstatesinflationbyabout1percentagepoint.
C) hasnoeffectongovernmentexpenditures.
Answer: B
Topic: BiasedCPI
Skill: Recognition
65) AnexampleofthenewgoodsbiasintheCPIisthe
A) introductionofhigherqualitybrakesasstandardequipmentonnewcars.
B) introductionofhybridautomobiles,vehiclesthatwerenotmadeuntilrecently.
C) decreasingpopularityofSUVsasthepriceofgasolinehasrisen.
D) switchfromtraditionalcardealershipstolow-costInternetcarbuyingservices.
Answer: B
Topic: BiasedCPI,NewGoodsBias
Skill: Conceptual
66) Ifanewandbettergoodreplacedanolderandlessexpensivegood,thenthepricelevel
measuredbytheCPI________.
A) islowerthantheactualpricelevel
B) ishigherthantheactualpricelevel
C) mightbeeitherhigherorlowerthantheactualprice
D) isthesameastheactualpricelevelbecauseitmeasuresthepricesoftheactualgoods.
Answer: B
Topic: TheBiasedCPI,NewGoodsBias
Skill: Conceptual
67) Priceindexescanoverstateinflationbecausethey
A) omitsomequalityimprovements.
B) donotcontainthepricesofanyusedgoods.
C) donotcontainthepricesofforeigngoods.
D) donotcontainthepricesofservices.
Answer: A
Topic: BiasedCPI,QualityImprovement
Skill: Conceptual
68) Ascurrentlycalculated,theCPItendstooverstatethetrueinflationratebecause
A) wecannotknowwhatthetrueinflationrateis.
B) itfailstocorrectlymeasurequalitychangesforsomeproducts.
C) themarketbasketselectedisinappropriate.
D) themarketbasketfailstoweighhousingcostssufficiently.
Answer: B
Skill: Recognition
69) ThetechniquecurrentlyusedtocalculatetheCPIimplicitlyassumesthatovertimeconsumers
buy
A) relativelymoreofgoodswhoserelativepricesarerising.
B) relativelylessofgoodswhoserelativepricesarerising.
C) thesamerelativequantitiesofgoodsasinabaseyear.
D) goodsandserviceswhosequalityimprovesattherateofgrowthofrealincome.
Answer: C
Topic: BiasedCPI,CommoditySubstitutionBias
Skill: Conceptual
70) SubstitutionbiasintheCPIreferstothefactthattheCPI
A) takesintoaccountthesubstitutionofgoodsbyconsumerswhenrelativepriceschange.
B) takesnoaccountofthesubstitutionofgoodsbyconsumerswhenrelativepriceschange.
C) substitutesqualitychangeswhenevertheyoccurwithouttakingaccountofthecostofthe
qualitychanges.
D) substitutesrelativepricesforabsolutepricesofgoods.
Answer: B
Topic: BiasedCPI,CommoditySubstitutionBias
Skill: Recognition
71) Attheendoflastyear,theCPIequaled120.Attheendofthisyear,theCPIequals132.Whatis
theinflationrateoverthisyear?
A) 6percent
B) 10percent
C) 12percent
D) Noneoftheaboveanswersarecorrectbecausemoreinformationisneededtocalculatethe
inflationrate.
Answer: B
Topic: StudyGuideQuestion,InflationRate
Skill: Analytical
72) Iflastyearspricelevelwas100andthisyearspricelevelis114,overtheyeartheinflationrate
hasbeen
A) 14percent.
B) 114percent.
C) 12percent
D) 100percent.
Answer: A
Topic: StudyGuideQuestion,InflationRate
Skill: Analytical
73) Ofthefollowingsequencesofpricelevels,whichcorrectlyrepresentsa5percentinflationrate?
A) 100,100,100,100
B) 100,105,105,105
C) 100,105,110,115
D) 100,105,110.25,115.76
Answer: D
Topic: StudyGuideQuestion,InflationandthePriceLevel
Skill: Analytical
74) Thecommoditysubstitutionbiasisthat
A) consumerssubstitutehigh-qualitygoodsforlow-qualitygoods.
B) governmentspendingisagoodsubstituteforinvestmentexpenditures.
C) nationalsavingandforeignborrowingareinterchangeable.
D) consumersdecreasethequantitytheybuyofgoodswhoserelativepricesriseandincrease
thequantityofgoodswhoserelativepricefalls.
Answer: D
Topic: StudyGuideQuestion,CommoditySubstitutionBias
Skill: Recognition
4NewsBasedQuestions
1) TheNewYorkTimesreportedinnovember2008that240,000additionalpeoplelosttheirjobs
whichincreasedtheunemploymentrateto6.5percent.Inaddition,itwasnotedthatalarge
numberofcollegegraduatesweretakingjobsthatdonotrequireacollegedegree.Itwasalso
expectedthatteenswillbethrownoutofthelabormarket....causingyouthstomissexperience
thatcouldhelpthemprepareforhigher-skilledjobs.
Thearticlereflectstheideathatunemploymentisaproblembecauseitresultsin
A) alossofhumancapital.
B) fewerdiscouragedworkers.
C) alossofincome.
D) adecreaseinthelaborforce.
Answer: A
Topic: Unemployment
Skill: Conceptual
AACSB: Communication
2) ThetablebelowshowsdataregardingGermanyslabormarket.
Numberof
LaborForce
Employed
Population
(millions)
(millions)
(millions)
Year
2006
43.7
39.01
82.3
2007
43.7
39.06
82.2
2008
43.6
39.8
82.1
ThedatashowthatGermanysunemploymentratein2007was
A) 9.8percent.
B) 8.4percent
C) 5.6percent
D) Moreinformationisneededtoanswerthisquestion.
Answer: B
Skill: Analytical
Numberof
LaborForce
Employed
Population
(millions)
(millions)
(millions)
Year
2006
43.7
39.01
82.3
2007
43.7
39.06
82.2
2008
43.6
39.8
82.1
ThedatashowthatGermanysunemploymentratebetween2007and2008
A) increased.
B) decreased
C) stayedthesame.
D) cannotbedeterminedbecausethepopulationdecreased.
Answer: B
Skill: Analytical
Numberof
LaborForce
Employed
Population
Year
(millions)
(millions)
(millions)
2006
43.7
39.01
82.3
2007
43.7
39.06
82.2
2008
43.6
39.8
82.1
Working-age
Population
(millions)
54.9
54.7
54.6
ThedatashowthatGermanysemployment-to-populationratiois________in2007.
A) 92percent
B) 47.5percent
C) 67percent
D) 80percent
Answer: C
Skill: Analytical
Numberof
LaborForce
Employed
Population
(millions)
(millions)
(millions)
Year
2006
43.7
39.01
82.3
2007
43.7
39.06
82.2
2008
43.6
39.8
82.1
Working-age
Population
(millions)
54.9
54.7
54.6
ThedatashowthatGermanyslaborforceparticipationrateis________in2007.
A) 80percent
B) 47.5percent
C) 67percent
D) 78percent
Answer: A
Skill: Analytical
6) AnarticleintheFinancialTimesreportsonatrendbycollegestudentstotakeayearoffafter
graduationgiventhelackofsuccessinfindingajob.InasurveypublishedlastmonthbyTMP
Worldwide...54percentofthefinal-yearundergraduateintervieweeswerethinkingabout
takingagapyearandonein10wasplanningtowaitforayeartoescapethefinancialchaosand
waitfortheeconomytoeitherimproveorforthepicturetobecomeclearer.
www.ft.com,10/13/2008
Thesechoicesaddtothefluctuationsseeninthe________asworkersleavethelaborforcegiven
theirunsuccessfuljobsearches.
A) laborforceparticipationrate
B) employmentrate
C) efficiencywage
D) inflationrate
Answer: A
Skill: Conceptual
7) NPR(CertainGreenIndustriesHaveJobOpenings,November12,2008)reportedonastory
aboutwindturbinemanufacturersinOhiohavingtroublefindingskilledworkers.Thereport
notedthatasaresulttensofthousandsofpeoplehavingbeenlaidoff,thereisahugepoolof
job-seekers.Thefirmsclaimtooffergoodpayandbenefits.ArepresentativefromtheUnited
Steelworkersclaimthattheirunionmembershaveeasilytransferrableskills,butthepayistoo
low,around$30,000annually.AmanageratApolloAlliancesaysthatworkersinthenew
industryneeddifferentskillsthanthoseintheoldsteelindustry.
Thetypeofunemploymentdescribedinthestoryis________unemployment.
A) cyclical
B) structural
C) frictional
D) efficiencywage
Answer: B
Topic: UnemploymentTypes
Skill: Conceptual
8) Reflectingthestateoftheeconomyin2008,theBureauofLaborStatisticsreportedinOctober
thatover1000jobswerelostinthelegalservicessector.Forexample,onefirminChicago
statedthatithadfired54lawyersin2008.Arepresentativefromthefirmstatedthatmosthad
workedinitsrealestatedivision.
www.nytimes.com,11/11/2008
Thelawyersthatwerefiredareanexampleof________unemployment.
A) frictional
B) structural
C) efficiencywage
D) cyclical
Answer: D
Skill: Conceptual
9) Inlate2006,theunemploymentrateincreasedfrom4.4percentto4.5percent.Itwasreported
thatnewjobswerecreatedinseveralsectorsincludingaccounting,engineeringservices,
computerdesignandeducation.Theseincreasesoffsetjoblossesintheconstructionand
automobileindustries.Atthe
sametime,thenaturalunemploymentratewasestimatedtobeabout5.5percent
Basedonthestory,thelabormarketreflects
A) apositiveoutputgap.
B) anegativeoutputgap.
D) efficiencywages.
Answer: A
Topic: OutputGap
Skill: Conceptual
10) InflationinVietnamroseto27percentinJuly2008thehighestinflationrateinAsia.
Squeezedonallsides,peoplearecuttingbackonfood,limitingtravel,lookingforsecondjobs,
delayingmajorpurchasesandwaitingforthecostofaweddingtogodownbefore
marrying...Giventhisslowdown,Vietnam...isscalingbackitsplansforgrowthandeconomic
development....Somearelosingconfidenceintheabilityofthegovernmenttomanagethe
economy.Andrumorsofpriceincreaseshavecausedpanicbuyingoffuelandrice.
Thestoryprovidesanexampleofhowinflation
A) redistributesincome.
B) divertsresourcesfromproduction.
C) leadstoincreasesintheconsumerpriceindex.
D) canleadtochangesintheCPImarketbasket.
Answer: B
Topic: Inflation
Skill: Conceptual
11) In2000,youcouldbuyaCadillacDTSfor$45,000.In2011,theCadillacDTSsoldfor$55,000.
Whilebothmodelsincludeanti-lockbrakesandairbags(alongwithothersimilarfeatures),the
2011modelalsoincludessatelliteradioandnewtechnologythatprovidesimprovedgas
mileageandsaferdriving.IftheCadillacDTSwasincludedintheCPIbasket,itwouldcreate
A) adownwardbiasintheinflationrate.
B) anupwardbiasintheCPIasaresultofqualitychangebias.
C) anupwardbiasintheCPIasaresultofcommoditysubstitutionbias.
D) adownwardbiasintheCPIasaresultofnewgoodsbias.
Answer: B
Skill: Conceptual
12) ThetablebelowshowsthepriceindexforZimbabwestartingin2000.
Year
2000
2001
2002
2003
2004
2005
2006
PriceIndex
100.0
173.4
404.37
1880.5
8462.2
28,586.6
319,222.5
www.econstats.com
WhichofthefollowingstatementscorrectlydescribethebehaviorofpricesinZimbabwe?
i. ThecostoftheCPIbasketincreased.
ii. Theinflationratewas73.4percentbetween2000and2001.
A) ionly
B) iionly
C) bothiandii
D) neitherinorii
Answer: C
Topic: Inflation
Skill: Analytical
13) ThetablebelowshowsthepriceindexforZimbabwestartingin2000.
Year
2000
2001
2002
2003
2004
2005
2006
PriceIndex
100.0
173.4
404.37
1880.5
8462.2
28,586.6
319,222.5
www.econstats.com
Thedatashowthat
A) theinflationratebetweenthebaseyearand2001is73.4percent.
B) newgoodsbiasandqualitychangebiasareresponsibleformostofZimbabwesinflation.
C) theinflationratebetween2005and2006was319.2percent.
D) whileZimbabweexperiencedahighpricelevel,itdidnotexperiencehighinflation.
Answer: A
Topic: Inflation
Skill: Analytical
14) ThetablebelowshowsthepriceindexforChinastartingin2000.
Year
2000
2001
2002
2003
2004
2005
2006
PriceIndex
100.0
100.73
99.95
101.12
105.06
106.95
108.52
www.econstats.com
WhichofthefollowingstatementscorrectlydescribethebehaviorofpricesinChina?
A) ThecostoftheCPIbasketdecreasedin2002.
B) Chinaexperiencedahighpricelevelandhighinflation.
C) Inflationreached73%betweenthebaseyearand2001.
D) Theinflationratebetween2005and2006was14.4percent.
Answer: A
Topic: Inflation
Skill: Analytical
15) ThetablebelowshowsthepriceindexforChinastartingin2000.
Year
2000
2001
2002
2003
2004
2005
2006
PriceIndex
100.0
100.73
99.95
101.12
105.06
106.95
108.52
www.econstats.com
Theinflationratebetween2004and2005was
A) 3.9percent
B) 2.8percent
C) 1.8percent
D) 0.7percent.
Answer: C
Topic: Inflation
Skill: Analytical
16) ABCnewsinAustraliareportedthattheaverageannualwagein2008was$13,308.Tocalculate
therealwagerateinAustralia,youwouldneedtoknow
A) Australiasinflationratebetween2007and2008.
B) Australiaspricelevelin2008.
C) thecoreinflationrateinAustraliain2008.
D) theexchangeratebetweentheUSdollarandtheAustraliandollar.
Answer: B
Topic: RealWageRate
Skill: Conceptual
17) ThetablebelowshowsVietnamspriceindexbetween2004and2007.
Year
2004
2005
2006
2007
PriceIndex
115.15
124.65
134
145.12
www.econstats.com
Fromthedata,wecanconcludethat
A) theinflationrate2005and2006was7.5percent.
B) foodandenergypricesinVietnamwereincreasingbetween2004and2007.
C) commoditysubstitutionbiasoccurredoverthefouryears.
D) deflationoccurredbetween2005and2006aspriceincreasedmoreslowlythanin2004.
Answer: A
Topic: Inflation
Skill: Analytical
5EssayQuestions
1) Whyisunemploymentaproblem?
Answer: Unemploymentisaproblemforboththenationandfortheunemployedworker.Forthe
nation,unemploymentrepresentslostproductionandlostincomes.Thelostincomeis
alsoamajorproblemfortheunemployedworker.Inthelongrun,theworkeralsosuffers
alossofhumancapitalwhichcanpermanentlydamagetheworkersfuturejobprospects.
Topic: Unemployment
Skill: Conceptual
2) HowdoestheCurrentPopulationSurveydetermineifapersonshouldbecountedinthelabor
force?
Answer: Tobeinthelaborforce,apersonmusteitherbeemployedorunemployed.Tobecounted
asemployed,intheweekpriortothesurveythepersonmusteitherhaveworkedfor
payforonehourormoreorelseworkedwithoutpayforfifteenhoursormoreina
family-ownedbusinessorelsebeentemporarilyabsentfromhisorherjob.Tobecounted
asunemployedinthesurvey,thepersonmusthavehadnojob,beenavailableforwork,
andeithermadespecificeffortstofindworkwithinthepreviousfourweeksorelsebe
waitingtoberecalledtoajobfromwhichtheywerelaidoff.
Skill: Recognition
3) Howistheunemploymentratecalculated?Includeinyouranswertheprocessbywhichthe
U.S.CensusBureauclassifiesthedataitcollectsinitsCurrentPopulationSurvey.
Answer: TheU.S.CensusBureauconductstheCurrentPopulationSurveywhichasksquestions
abouttheageandemploymentstatusofhouseholdmembers.Thepopulationisdivided
intotheworking-agepopulation(everyone16orolderwhoisavailabletowork)andall
theothers.Theworkingagepopulationisdividedintothelaborforceandthosenotin
thelaborforce.Thelaborforceincludesallthosewhoareworking(eitherpart -timeor
full-time)andthosewhoareunemployed.Theunemploymentrateistheratioofthe
unemployedtothelaborforcemultipliedby100toconvertitintoapercentage.
Skill: Conceptual
4) ThecurrentU.S.populationisabout300millionyetthecurrentU.S.laborforceisonlyabout
150million.Whatsubtractionsaremadefromthepopulationnumbertosetitequaltothelabor
force?
Answer: Thepopulationisfirstreducedbyeliminatingthosewhoarelessthan16yearsofageor
institutionalized.Thenthosewhoareneitherworkingnorlookingforworkare
eliminated.Thisleavesjustthosewhoareemployedorunemployed.Thesetwogroups
togethercomprisethelaborforce.
Topic: EmploymentCalculations
Skill: Recognition
5) Whatisthedefinitionoftheunemploymentrate?Howarepart -timeworkersanddiscouraged
workerstreatedwhencalculatingtheunemploymentrate?
Answer: Thedefinitionoftheunemploymentrateis[(numberofunemployed)(laborforce)]
100.Inthiscalculation,thelaborforceequalsthesumofemployedplusunemployed
people.Part-timeworkersarecountedasemployed.Thuspart-timeworkersarecounted
inthelaborforcebutareNOTcountedasunemployed.Discouragedworkersarepeople
whohavestoppedlookingforworkandsoarenotinthelaborforce.Hence,when
calculatingtheunemploymentrate,discouragedworkersarecountedinneitherthe
numberofunemployednorinthelaborforce.
Skill: Conceptual
6) Howdoestheunemploymentratechangeinarecessionandinanexpansion?
Answer: Duringarecession,theunemploymentrategenerallyincreases.Duringanexpansion,the
unemploymentrategenerallydecreases.
Skill: Conceptual
7) Definetheunemploymentrateandlabor-forceparticipationrate.Discussthedifferences
betweenthesetworates.
Answer: Theunemploymentrateisdefinedas[(numberofunemployed) (laborforce)]100.and
thelaborforceparticipationrateisdefinedasis[(laborforce)(working-age
population)]100.Thetwomeasuresgivedifferentperspectivesonthelabormarket.
Thelaborforceparticipationratetellsthepercentageoftheworking -agepopulationthat
iseitherworkingorisavailableforwork.Theunemploymentratetellsthepercentageof
thepeopleworkingoravailableforwork(thelaborforce)whodonothavejobs.
Topic: UnemploymentRateandLaborForceParticipationRate
Skill: Conceptual
8) Whatisamarginallyattachedworker?
Answer: Amarginallyattachedworkerisapersonwithoutajob,whoisavailableandwillingto
work,butwhohasstoppedlookingintherecentpast.Onetypeofmarginallyattached
workerisadiscouragedworker.Essentially,adiscouragedworkerissomeonewho
wantsajobbuthasgrownsodiscouragedaboutfindingone,heorshehasstopped
looking.
Skill: Conceptual
9) Whatisadiscouragedworker?Howdotheyaffecttheunemploymentrate?
Answer: Adiscouragedworkerisapersonwithoutajob,whoisavailableandwillingtowork,but
whohasnotmadespecificeffortstofindajobwithinthepastfourweeks.Essentially,a
discouragedworkerissomeonewhowantsajobbuthasgrownsodiscouragedabout
findingone,heorshehasstoppedlooking.Discouragedworkersarenotinthelabor
forcesoinonesensetheydonotaffecttheunemploymentrate.However,iftheyre -enter
thelaborforcetolookforwork,theunemploymentwillincreasebecausewhiletheyare
searchingtheyarenowcountedamongtheranksoftheunemployed.
Skill: Conceptual
10) Explainhowthelaborforceparticipationrateandtheunemploymentratechangeinarecession.
Answer: Thelaborforceparticipationratetendstodecreaseduringarecessionasmoreworkers
becomediscouraged.Theunemploymentrateincreasesduringarecessionbecausethere
arefewerjobs.
Topic: LaborMarketinaRecession
Skill: Conceptual
11) Listanddefinethethreetypesofunemployment.
Answer: Thethreetypesarefrictional,structuralandcyclical.Frictionalunemploymentisdefined
asthenormalturnoverinthelabormarketofworkersenteringandleavingthework
force.Structuralunemploymentiscausedbytechnologicalchangeorinternational
competitionthatcausesjobstodisappear.Cyclicalunemploymentiscausedbybusiness
cyclefluctuationsthatchangetheunemploymentrate.
Topic: TypesofUnemployment
Skill: Recognition
12) Whatarethethreetypesofunemploymentandhowdotheychangeoverthebusinesscycle?
Answer: Thethreetypesofunemploymentarefrictional,structural,andcyclical.Ofthesethree
types,thefirsttwofrictionalandstructuralunemploymenthavenostrongrelationship
tothebusinesscycle.Thethirdtype,cyclicalunemployment,howeveristheresultofthe
businesscycle.Whentheeconomyisinarecessionandpeoplelosetheirjobsasaresultof
therecession,theunemployedworkersarecyclicallyunemployed.Conversely,whenthe
economyisanexpansion,cyclicalunemploymentdecreases.Hence,cyclical
unemploymentincreasesduringarecessionanddecreasesduringanexpansion.
Skill: Recognition
13) Giveanexampleofafrictionallyunemployedperson.
Answer: Apersonwhoiswithoutajobbecauseofanormallabormarketturnoverisfrictionally
unemployed.Forinstance,astudentwhojustgraduatedfromschoolandislookingfora
jobisfrictionallyunemployedasisaworkerwhoquittolookforabetterjob.
Skill: Conceptual
14) Defineandgiveanexampleofhowaspelloffrictionalunemploymentcanbegin.
Answer: Frictionalunemploymentistheunemploymentresultingfromnormalturnoverinthe
labormarket.Forinstance,therearealwayspeopleenteringorreenteringthelaborforce
(entrantsandreentrants)andwhilethesepeoplelookforwork,theyarefrictionally
unemployed.Similarly,therearealwayssomepeoplewhoquittheirjobstolookfor
somethingbetter,andthesepeoplearefrictionallyunemployed.And,thereisalwaysa
normalebbandflowamongfirmsassomegainsaleswhileotherslosethem.Thelosers
mayreleaseworkersandthesepeoplealsoarefrictionallyunemployed.
Skill: Conceptual
15) Canfrictionalunemploymenteverbetotallyeliminated?Explainyouranswer.
Answer: Frictionalunemploymentarisesfromnormallabormarketturnover.Becausethistypeof
unemploymentisassociatedwithnormalchanges,itisimpossibletobeeliminated.
Indeed,somefrictionalunemploymentispurelyvoluntary,withtheseunemployed
workerschoosingtobecomeunemployedbecausetheyexpecttofindajobthatismore
satisfying.
Skill: Conceptual
16) Explainthedifferencebetweenfrictionalandstructuralunemployment.
Answer: Frictionalunemploymentismoreshorttermandisassociatedwithpeoplechangingjobs
andenteringthelaborforce.Structuralunemploymentismorelongtermandis
associatedwithchangesinthestructureoftheeconomythatrequirepeopletolearnnew
skills.
Skill: Conceptual
17) Giveanexampleofastructurallyunemployedperson.
Answer: Apersonwholoseshisorherjobbecausehisfirmhadtoclosebecauseofforeign
competitionorbecauseheorshenolongerpossessestheskillsnecessaryforajobis
structurallyunemployed.
Skill: Conceptual
18) Defineandgiveanexampleofhowaspellofstructuralunemploymentcanbegin.
Answer: Structuralunemploymentariseswhenchangesintechnologyorinternationalcompetition
changestheskillsnecessaryforjobsorchangethelocationofjobs.Forinstance,
technologicalchange,suchastheinventionofthepersonalcomputer,canswitchthe
skillsneededforjobs,sayfromtheabilitytorepairtypewriterstotheabilitytorepair
computers.Inthiscase,thepeoplewholosetheirjobsanddonothavethenecessary
skillstoperformthenewjobsarestructurallyunemployed.Inaddition,therearetimes
whenforeigncompetitioncauseslargedownscalinginsectorsoftheU.S.economyasU.S.
firmsfindthattheycannotcompetewithforeignfirms.Inthiscase,theU.S.workerswho
losetheirjobsdonotgooverseastotakejobsintheexpandingforeigncompanies,sothe
workersarestructurallyunemployed.
Skill: Conceptual
19) Giveanexampleofacyclicallyunemployedperson.
Answer: Apersonwholoseshisorherjobbecauseofarecessioniscyclicallyunemployed.
Skill: Conceptual
20) Explainwhattypeofunemploymentchangeswiththebusinesscycleandhowitchanges.
Answer: Cyclicalunemploymentistheunemploymentthatchangeswiththebusinesscycle.
Cyclicalunemploymentriseswhentheeconomyisintherecessionpartofabusiness
cycleanddecreaseswhentheeconomyisintheexpansionpartofthebusinesscycle.
Skill: Conceptual
21) Whyisthereunemploymentevenwhentheeconomyisatfullemployment?
Answer: Thereisunemploymentevenatfullemploymentbecausetherealwayswillbe
unemployment.Unemploymentisanaturaloccurrenceinanyeconomywithchanges,
suchashighschoolorcollegegraduatesenteringthelaborforce,ortechnological
advancesinonesector,orconsumerpreferenceschangingtofavoroneproductover
another.Frictionalandstructuralunemploymentwillalwaysexist.Cyclical
unemployment,however,isadifferentmatter.Cyclicalunemploymentdoesnotseemto
havethesamedegreeofinevitabilityandhencefullemploymentisdefinedasoccurring
whencyclicalunemploymentequalszero.
Skill: Conceptual
22) Whatistherelationshipbetweenthenaturalunemploymentrate,theunemploymentrate,
potentialGDP,andactualGDP?
Answer: WhentheeconomyisatpotentialGDP,theunemploymentrateisthenatural
unemploymentrate.IfactualGDPislessthanpotentialGDP,thentheunemployment
rateexceedsthenaturalunemploymentrate.AndifactualGDPexceedspotentialGDP,
thentheunemploymentrateislessthanthenaturalunemploymentrate.
Topic: ActualandPotentialGDP
Skill: Conceptual
23) Explaintherelationship(s)betweenfullemployment,cyclicalunemployment,thenatural
unemploymentrate,andpotentialGDP.
Answer: Theeconomyisatfullemploymentwhenthereisnocyclicalunemployment.The
unemploymentrateatfullemploymentiscalledthenaturalunemploymentrate.Because
thereisnocyclicalunemployment,thenaturalunemploymentrateiscomprisedofonly
frictionalandstructuralunemployment.Thelevelofoutputthattheeconomywould
produceifitwasatfullemploymentiscalledpotentialGDP.
Skill: Recognition
24) Considerthefollowingstatement:RealGDPandpotentialGDParealwaysequal.Isthis
statementtrueorfalse?Explainyouranswer.
Answer: RealGDPoftendiffersfrompotentialGDP.RealGDPequalspotentialGDPonlywhen
theeconomyisatfullemployment.However,theeconomyisnotalwaysatfull
employment.Whenemploymentislessthanfullemployment,realGDPislessthan
potentialGDPandtheeconomyisinarecession.Whenemploymentexceedsfull
employment,realGDPexceedspotentialGDPandtheeconomyisinanexpansion.
Skill: Recognition
25) WhatispotentialGDPandwhatistherelationshipbetweenactualandpotentialrealGDP?
Answer: ThequantityofGDPatfullemploymentiscalledpotentialGDP.Overthebusinesscycle,
realGDPfluctuatesaroundpotentialGDP.Whentheunemploymentrateishigherthan
thenaturalrate,realGDPislessthanpotentialGDPandwhentheunemploymentrateis
lowerthanthenaturalrate,realGDPexceedspotentialGDP.
Skill: Recognition
26) ExplaintherelationshipbetweenrealGDPandpotentialGDPandbetweentheunemployment
rateandthenaturalunemploymentrateastheeconomymovesthroughabusinesscycle.
Answer: PotentialGDPisthelevelofGDPwhentheeconomyisatfullemployment.RealGDPis
thelevelofGDPandcanbeaboveorbelowpotentialGDPdependingonwhether
employmentisaboveorbelowfullemployment.Thenaturalunemploymentrateisthe
unemploymentratewhentheeconomyisatfullemployment.Theunemploymentrate
canbeaboveorbelowthenaturalunemploymentrate.Inarecession,realGDPisless
thanpotentialGDPandunemploymentexceedsthenaturalrate.Inanexpansion,real
GDPisgreaterthanpotentialGDPandunemploymentislessthanthenaturalrate.
Skill: Conceptual
27) WhatistherelationshipoverthebusinesscycleofpotentialGDPandrealGDP?
Answer: Thelevelofoutputthattheeconomywouldproduceifitwasatfullemploymentiscalled
potentialGDP.However,theeconomyisnotalwaysatfullemployment.Inarecession,
employmentislessthanfullemploymentandsorealGDPislessthanpotentialGDP.
And,inanexpansion,employmentcanexceedfullemploymentsothatrealGDPexceeds
potentialGDP.
Skill: Conceptual
28) WhatarethethreestagesofconstructingtheCPI?
Answer: ThefirststageistoselecttheCPIbasket.Thebasketisdeterminedbysurveyingthe
spendinghabitsofconsumersbyconductingaConsumerExpenditureSurvey.The
secondstageistocheckthepricesofabout80,000goodsandservicesin30metropolitan
areas.Thischeckingisdoneonamonthlybasis.ThethirdstageistocalculatetheCPI
itself.TocalculatetheCPI,aperiodoftimeisselectedasthebasereferenceperiodand
thecostoftheCPIbasketusingthepricesfromthatperiodiscomputed.ThentheCPIin
anyothermonthequals100timesthequotientofthecostofthebasketusing
current-periodpricesdividedbythecostofthebasketinthereferencebaseperiod.
Skill: Conceptual
29) ThemarketbasketusedtocalculatetheCPIisrevisedmonthlytomoreaccuratelydepict
consumerschoices.ThepricedatafortheCPIarecollectedeverymonth.Aretheprevious
sentencestrueorfalse?
Answer: Thefirstsentenceisfalseandthesecondistrue.ThepointoftheCPIistodeterminehow
thepricesofafixedbasketofgoodsandserviceschangeovertime,sotheCPIbasketis
revisedonlyinfrequently.However,thepricesforthegoodsandservicesinthebasket
arecollectedmonthlysothattheCPIcanbecomputedmonthly.
Skill: Conceptual
30) Assumethatafteryougraduate,youmovetoasimpleeconomyinwhichonlythreegoodsare
producedandconsumed:fish,fruit,andmeat.SupposethatonJanuary1,fishsoldfor$2.50per
pound,meatwas$3.00perpound,andfruitwas$1.50perpound.Attheendoftheyear,you
discoverthatthecatchwaslowandthatfishpriceshadincreasedto$5.00perpound,butfruit
pricesstayedat$1.50perpound,andmeatpriceshadactuallyfallento$2.00.Canyousaywhat
happenedtotheoverallCPI,intermsofwhetheritincreased,decreased,orstayedthesame?Do
youhaveenoughinformationtocalculatetheinflationrate?Note,thisproblemrequiresno
calculation;juststateandexplainyouranswers.
Answer: YoucannotsaywhathappenedtotheCPIbecauseyoudonotknowthequantitiesinthe
basket.Youalsodonothaveenoughinformationtodeterminetheinflationratebecause
youneedtheCPIatthebeginningandtheendoftheyeartocomputetheinflationrate.
Skill: Conceptual
31) WhatisinflationandhowisitmeasuredusingtheConsumerPriceIndex?
Answer: Theinflationrateisthepercentagechangeinthepricelevelfromoneyeartothenext.In
otherwords,itisthegrowthrateofthepricelevel.TheCPIisameasureofthepricelevel
andsocanbeusedtocalculatetheinflationrate.
Skill: Conceptual
32) ListthefoursourcesofbiasintheCPIandbrieflyexplainthem.
Answer: Therearefourpotentialbiases.Firstisthenewgoodsbias,whichoccurswhennew,
higherpricedgoodsreplaceoldergoods.Secondisthequalitychangebias,whichoccurs
whentheCPIfailstotakeaccountofqualityimprovementsthatraiseprices.Thirdisthe
commoditysubstitutionbias,whichoccurswhenconsumersshifttheirpurchasesaway
fromgoodswhoserelativepricesrisetowardlowerpricedgoods.Lastistheoutlet
substitutionbias,whichbecausewithhigherprices,peopleswitchtolow-costdiscount
stores.
Topic: BiasedCPI
Skill: Conceptual
33) IstheCPIabiasedmeasureoftheinflationrate?Explainyouranswer.
Answer: ThereareatleastfoursourcesofbiasintheCPImeasure.Thefirstbiasisthenewgoods
bias,whichreferstothefactthatnewgoodsarecontinuouslyreplacingoldones.Because
thenewgoodsareoftenbothofhigherqualityandhigherpriced,theirintroduction
complicatesmeasuringtheCPI.ThenewgoodsbiasbiasestheCPIupwards.Second,the
CPIisnotalwaysadjustedforimprovementsinthequalityoftheproducts,whichisthe
qualitychangebias.Apricehikethatreflectsaqualityincreaseoftenismistakenly
recordedasonlyapricehike,withnorecognitiongiventothehigherquality.Third,
consumerssubstituterelativelylowerpricedgoodsforgoodsthatincreaseinprice,which
iscalledcommoditysubstitution.However,theCPIdoesnttakethissubstitutioninto
account,therebygivingrisetothecommoditysubstitutionbias.Fourth,whenfacedwith
pricehikes,consumersswitchawayfrombuyingatfullservicestorestobuyingfrom
discountstoresbecausethepricesinthediscountstoresarelower.Onceagain,theCPI
doesnottakeaccountofthisoutletsubstitutionandsotheCPIsuffersfromtheoutlet
substitutionbias.
Topic: BiasedCPI
Skill: Conceptual
34) ThenewgoodsbiasputsadownwardbiasintotheCPIanditsmeasureoftheinflationrate.Is
theprevioussentencecorrectornot?Explainyouranswer.
Answer: ThesentenceisfalsebecausethenewgoodsbiasputsanupwardbiasintotheCPIandits
measureoftheinflationrate.Thenewgoodsbiasoccurswhennew,higherqualityand
moreexpensivegoodsreplaceolder,lowerqualityandlessexpensivegoods.Partofthe
expenseofthenewgoodsistopayforthehigherqualityofthenewgoods.But,ifthe
priceisnotadjusted(downward)totakeaccountofthehigherquality,incorporatingthe
newgoodintotheCPIleadstoanupwardbiasinthepricesthatgotomakeuptheCPI
andhencealsoanupwardbiasintheinflationrate.
Topic: TheBiasedCPI,NewGoodsBias
Skill: Conceptual
35) Whatisthecommoditysubstitutionbias?WhateffectdoesithaveontheCPI?
Answer: Thecommoditysubstitutionbiasreferstothefactthatpeopleswitch(substitute)away
fromgoodsandservicesthathaveriseninpriceandbuymoregoodsandservicesthat
havenotrisenasmuchinprice.ThusifthenpriceofCokerises20whilePepsisprice
doesnotchange,manypeoplewillsubstitutePepsiforCoke.Thecommoditysubstitution
biasintheCPIoccursbecausetheCPIusesafixedbasketofgoodsandservices.So,ifthe
basketcontains,say,10bottlesofCokeand8bottlesofPepsi,thebasketwillnotchange
eventhoughpeoplechangetheirbuyingpatternsinfavorofPepsiandawayfromCoke.
Thechangeinpeoplesbuyingpatternsoffsets,atleasttoadegree,theeffectofhigher
prices.IntheCoke/Pepsicase,bypurchasingmorePepsiandlessCoke,peoplehave
insulatedthemselvesfrompartoftheeffectofthehigherpriceofCoke.HowevertheCPI
doesnottakethischangeintoaccountandsotheCPIreflectsthefulleffectofthehigher
priceofCoke,therebyoverstatingtheactualinflationthatpeopleexperience.
Topic: TheBiasedCPI,CommoditySubstitutionBias
Skill: Conceptual
36) ThebiasintheCPIdistortsprivatecontractsbecauseafuturepaymentthatislinkedtotheCPI
willberaisedabovethetrueincreaseinthepricelevel.Istheprevioussentencetrueorfalse?
Answer: Thesentenceiscorrect.Thefactthatthepaymentsincreasebymorethanthetrueincrease
inthepricelevelmeansthatonepartytothecontractbenefitsmore,thehigherthe
inflationrate.
Topic: TheBiasedCPI,PrivateContracts
Skill: Conceptual
37) ExplaintheCPIbiasandhowitcandistortprivatecontractsandincreasegovernmentoutlays.
Answer: TheCPIbiasisthepointthattheCPIoverstatesthetrueinflationrate.Theamountofthe
biashasbeenestimatedat1.1percentagepointsperyear.Thuswhenworkerssigna
contractthatlinkstheirwagestotheCPIinordertoadjustthewagestooffsetinflation,
theadjustmentistoolarge.Wagesrisebymorethanisnecessarytokeeppacewith
inflation.Thusacontractthatmighthavebeendesignedtokeepworkersevenwith
inflationisdistortedsothatworkersactuallygain.Similarly,manygovernmentoutlays,
suchasSocialSecurity,arelinkedtotheCPI.Thustheadjustmentintheseexpenditures
exceedstheamountnecessaryforinflation,andhencetheamountofthegovernments
outlaysincreasesbymorethanisappropriateforinflation.
Topic: TheBiasedCPI,GovernmentOutlays
Skill: Conceptual
38) What,ifany,istheimpactoftheCPIbiasongovernmentspending?
Answer: Aboutone-thirdofgovernmentoutlays,suchasSocialSecurity,arelinkedtotheCPIso
thatthesesourcesofgovernmentspendingincreasewhentheCPIincreases.Becausethe
CPIoverstatestheactualinflationrate,governmentspendingincreasesbymorethanis
warrantedbyinflation.HencetheCPIbiasincreasestheamountofgovernmentoutlays.
Topic: TheBiasedCPI,GovernmentOutlays
Skill: Conceptual
39) HowistheGDPdeflatoriscalculated.
Answer: TheGDPdeflatorequals100timesthenominalGDPdividedbyrealGDP,orintermsof
symbols,theGDPdeflatorequals(100)(nominalGDP)(realGDP).
Topic: GDPDeflator
Skill: Recognition
6NumericandGraphingQuestions
1) Theunemploymentrateis6percent.Ifthepopulationis300million,andthenumber
unemployedis6millionandthenumberemployedis94million,whatisthesizeofthelabor
force?
Answer: Thelaborforceisthesumofthenumberofemployedpeopleplusthenumberof
unemployedpeople.Hencethelaborforceequals94million+6million=100million.
Skill: Analytical
2) Supposethecurrentunemploymentrateis5percent,thelaborforceis400millionpeople,the
laborforceparticipationrateis80percentandtheworking-agepopulationis500million
people.Whatnumberofpeopleareunemployed?
Answer: Thenumberofunemployedpeopleequalsthelaborforcemultipliedbythe
unemploymentrate.Sothenumberofunemployedpeopleis(400million) (5percent)=
20millionpeople.
Skill: Analytical
3) SupposethattheU.S.populationis275million.Alsoassumethatthelaborforceis135million
andthat130millionpeopleareemployed.Calculatetheunemploymentrate.
Answer: Theunemploymentrateis(5millionunemployed) (135millionlaborforce) 100= 3.7
percent.
Skill: Analytical
istheunemploymentrate?
Answer: Theunemploymentrateis(20millionunemployed) (150millionlaborforce)100=
13.3percent.
Skill: Analytical
5) Supposetheworking-agepopulationis150million,thelaborforceis125million,and
employmentis120million.
a) Whatistheunemploymentrate?
b) Nowsupposethat2millionstudentsgraduatefromcollegeandbegintolookforjobs.What
isthenewunemploymentrateifnoneofthestudentshavefoundjobsyet?
c) Supposethatall2millionstudentsfindjobs.Whatistheunemploymentratenow?
Answer: a) Theunemploymentrateis(5millionunemployed) (125millionlaborforce)100=
4.0percent.
b) Theunemploymentrateis(7millionunemployed)(127millionlaborforce)100=
5.5percent.
c) Theunemploymentrateis(5millionunemployed)(127millionlaborforce)100=
3.9percent.
Skill: Analytical
6) Supposethereare180millionemployedpeopleand20millionunemployedpeople.
a) Whatistheunemploymentrate?
b) Supposethat5millionunemployedpeoplegiveuptheirsearchforjobsandbecome
discouragedworkers.Whatisthenewofficialunemploymentrate?
Answer: a) Theunemploymentrateis(20millionunemployed) (200millionlaborforce) 100
=10.0percent.
b) Theunemploymentrateis(15millionunemployed) (195millionlaborforce)100
=7.7percent.
Topic: UnemploymentRateandDiscouragedWorkers
Skill: Analytical
7) Considerthefollowingscenario.Initiallytheeconomyhas90millionpeopleworking,10million
peopleunemployed,and20millionpeoplenotinthelaborforce.Thenprospectsforthe
economyimprove.Fivemillionpeoplewhopreviouslywerenotinthelaborforcenowjointhe
10millionpreviouslyunemployedinlookingforwork.Fornow,theeconomyremainswith90
millionworkers.Whathappenstotheunemploymentrate?
Answer: Theunemploymentraterisesfrom10.0percent,(10millionunemployed) (100million
laborforce)100,to14.3percent,(15millionunemployed)(105millionlaborforce)
100.
Topic: UnemploymentRateandDiscouragedWorkers
Skill: Analytical
Category
Totalpopulation
Laborforce
Employed
Unemployed
Numberofpeople
(millions)
246
207
139
133
6
8) Basedontheinformationintheabovetable,whatistheunemploymentrate?Whatisthelabor
forceparticipationrate?
Answer: Theunemploymentrateequals(6millionunemployed) (139millionlaborforce) 100=
4.3percent.Thelaborforceparticipationrateequals(139millionlaborforce) (207
millionworking-agepopulation)100=67.1percent.
Skill: Analytical
9) IfthebaseyearCPIbasketcosts$250andnextyeartheCPIbasketcosts$275,whatisnextyears
CPI?
Answer: TheCPIequals100 ($275/$250)= 110.
Skill: Analytical
Item
Loavesofbread
Jugsofsoda
Item
Loavesofbread
Jugsofsoda
Quantity
(2010)
20
20
Price
(2010)
$3.00
$2.00
Quantity
(2011)
22
30
Price
(2011)
$4.00
$1.50
10) Thetablesabovegivethepurchasesofanaverageconsumerinasmalleconomy.(These
consumerspurchaseonlyloavesofbreadandjugsofsoda.)Suppose2006isthereferencebase
period.
a) WhatquantitiesareintheCPIbasket?
b) WhatisthecostoftheCPIbasketusing2010prices?
c) WhatisthecostoftheCPIbasketusing2011prices?
d) WhatistheCPIin2007?
Answer: a) ThequantitiesintheCPIbasketarethe2010quantitiesbecause2010isthereference
baseperiod.So,thequantitiesare20loavesofbreadand20jugsofsoda.
b) ThecostoftheCPIbasketusing2010pricesis(20loaves)($3)+(20jugs)($2)=
$100.
c) ThecostoftheCPIbasketusing2011pricesis(20loaves)($4)+(20jugs)($1.50)=
$110.NotethatthequantitiesusedinthiscalculationarethequantitiesintheCPIbasket.
d) TheCPIin2011equals100timesthecostoftheCPIbasketat2011pricesdividedby
thecostoftheCPIbasketat2010(baseperiod)prices.TheCPIequals100 ($110)($100)
=110.
Skill: Analytical
Item
Shampoo
Pizza
Item
Shampoo
Pizza
Quantity
(2010)
25
15
Price
(2010)
$2.35
$7.50
Quantity
(2010)
25
15
Price
(2011)
$2.50
$7.75
11) Thetablesabovegivethepurchasesofanaverageconsumerinasmalleconomy.(These
consumerspurchaseonlyshampooandpizza.)Suppose2010isthereferencebaseperiod.
a) WhatisthecostoftheCPIbasketin2010and2011?
b) WhatistheCPIin2010andin2011?
c) Whatistheinflationratebetween2010and2011?
Answer: a) For2010theCPIbasketcosts$171.25.For2011theCPIbasketcosts$178.75.
b) For2010,thebaseperiod,theCPIis100.0.For2011theCPIis($178.75/$171.25) 100,
whichis104.4.
c) Betweenthetwoyearstheinflationrateisequalto[(104.4-100.0)/100]100,which
is4.4percent.
Skill: Analytical
Item
Meals
Parking
Item
Meals
Parking
Quantity
(2010)
100
50
Price
(2010)
$10.00
$100.00
Quantity
(2011)
100
50
Price
(2011)
$12.00
$97.50
12) Thetablesabovegivethepurchasesofatypicalconsumerinacountrycomprisedofonelarge
city.Theseconsumerspurchaseonlyrestaurantmealsandparking.Theyear2010isthe
referencebaseperiod.
a) FindthetotalcostoftheCPIbasketfor2010and2011.
b) WhatistheCPIin2010andin2011?
c) Whatistheinflationratebetween2010and2011?
Answer: a) ThetotalcostoftheCPIbasketin2010equals(100meals) ($10)+(50parking)
($100)=$6,000.ThetotalcostoftheCPIbasketin2011equals(100meals) ($12)+(50
parking)($97.50)=$6,075.Thequantitiesarethesamein2010and2011.Ifthe
quantitiesdiffered,the2010quantitieswouldbeusedbecause2010isthebaseyear.
b) TheCPIin2010is100because2010isthebaseperiod.(Alternatively,theCPIin2010
equals100($6,000)/$6,000)=100.)TheCPIin2011equals100($6075)/($6,000)=
101.25.
c) Theinflationratebetween2010and2011equals100[(101.25-100)(100)]=1.25
percent.
Skill: Analytical
Item
Oranges
Bananas
Chicken
Beef
Bread
Quantity
(2010)
50
100
200
100
300
Price
(2010)
$0.90
$0.50
$2.00
$5.00
$1.75
Price
(2011)
$0.75
$0.95
$2.50
$4.80
$2.00
13) ThetableabovegivestheCPIbasketfor2010.Supposethat2010isthereferencebaseperiod.
a) WhatisthecostoftheCPIbasketin2010?
b) WhatisthecostoftheCPIbasketin2011?
c) WhatistheCPIfor2010?
d) WhatistheCPIfor2011?
Answer: a)
b)
c)
d)
ThecostoftheCPIbasketin2010is$1,520.00.
ThecostoftheCPIbasketin2011is$1,712.50.
TheCPIfor2010is100because2010isthebaseperiod.
TheCPIfor2011equals100[$1,712.50$1,520.00]=112.66.
Skill: Analytical
14) IftheCPIthisyearis175.2andnextyeartheCPIis176.1,whatwastheinflationrateoverthe
year?
Answer: Theinflationrateequals100 [(176.1- 175.2) 175.2]= 0.5percent.
Skill: Analytical
15) LastyeartheCPIwas177.1andthisyeartheCPIis180.9.Whatwastheinflationratebetween
thesetwoyears?
Answer: Theinflationrateequals100([(180.9(177.1) 177.1]= 2.1percent.
Skill: Analytical
Year
1997
1998
1999
2000
2001
2002
CPI
152.5
157.0
160.6
163.1
166.7
172.3
16) ThetableabovegivestheU.S.CPIforsixyears.Calculatetheinflationratesbetween1997to
1998,1998to1999,1999to2000,2000to2001,and2001to2002.
Answer: Between1997to1998,theinflationratewas3.0percent.Between1998to1999,the
inflationratewas2.3percent.Between1999to2000,theinflationratewas1.6percent.
Between2000to2001,theinflationratewas2.2percent.Andbetween2001to2002,the
inflationratewas3.4percent.
Skill: Analytical
17) ForeachofthefollowingvaluesofnominalGDPandrealGDP,calculatetheGDPpricedeflator.
a) NominalGDP=$600;realGDP=$800.
b) NominalGDP=$900;realGDP=$900.
c) NominalGDP=$1,200;realGDP=$1,000
Answer: a)
b)
c)
TheGDPdeflatorequals($600 $800) 100,whichis75.

TheGDPdeflatorequals($900$900)100,whichis100.
TheGDPdeflatorequals($1,200$1,000)100,whichis120.
Topic: GDPDeflator
Skill: Analytical
18) IfnominalGDPis$230foraperiodandrealGDPis$200forthesameperiod,whatistheGDP
deflatorforthisperiod?
Answer: TheGDPdeflatorequals115,or(100) ($230) ($200).
Topic: GDPDeflator
Skill: Analytical
7TrueorFalse
1) Theworking-agepopulationisdividedbetweenthosepeopleinthelaborforceandthose
peopleunemployed.
Answer: FALSE
Skill: Recognition
2) Onewaytobeconsideredunemployedistobewithoutajobandlookingforwork.
Answer: TRUE
Skill: Recognition
3) Thelaborforceisthesumoftheworking-agepopulationandthenumberofunemployed
people.
Answer: FALSE
Skill: Conceptual
4) Theunemploymentrateequals[(thenumberofpeopleunemployed)/(thepopulation)] 100.
Answer: FALSE
Skill: Recognition
5) Theunemploymentratemeasuresthepercentageoftheworking-agepopulationwhocantfind
ajob.
Answer: FALSE
Skill: Conceptual
6) Theunemploymentratemeasuresthepercentageofpeopleinthelaborforcewhocantfinda
job.
Answer: TRUE
Skill: Conceptual
7) Unlikecyclicalunemployment,bothfrictionalandstructuralunemploymentriseduring
recessionsandfallduringexpansions.
Answer: FALSE
Skill: Conceptual
8) Frictional,structuralandcyclicalunemploymentarethreeclassificationsofunemployment.
Answer: TRUE
Skill: Recognition
9) Ifaworkeristemporarilylaidoffbecausetheeconomyisinarecession,frictional
unemploymentincreases.
Answer: FALSE
Skill: Conceptual
10) Structuralunemploymentusuallylastslongerthanfrictionalunemployment.
Answer: TRUE
Skill: Conceptual
11) Whentheeconomyisatfullemploymenttheunemploymentrateequalsthenatural
unemploymentrate.
Answer: TRUE
Skill: Recognition
12) Theabsenceofcyclicalunemploymentmeanstheeconomyisatthenaturalunemploymentrate.
Answer: TRUE
Skill: Conceptual
13) Thenaturalunemploymentrateincreasedsignificantlyduringthe1980sandthe1990s.
Answer: FALSE
Topic: ExplainingEmploymentandWageRates
Skill: Recognition
14) TheCPIistheaveragepriceofallgoodsandservicesproducedwithintheeconomy.
Answer: FALSE
Skill: Recognition
15) Thecommoditysubstitutionbiasisthatconsumerssubstitutehigh-qualitygoodsfor
low-qualitygoods.
Answer: FALSE
Topic: CommoditySubstitutionBias
Skill: Recognition
8ExtendedProblems
Category
Workingagepopulation
Laborforce
Employment
Number(millions)
222.0
146.8
138.0
1) TheBureauofLaborStatisticsreportedthedatainthetableaboveforOctober2003.
a) Calculatethenumberofpeopleunemployed.
b) Calculatethenumberofpeoplewhoarenotinthelaborforce
c) Calculatetheunemploymentrate.
d) Calculatethelaborforceparticipationrate.
Answer: a) Thelaborforceisthesumofthenumberofpeopleemployedplusthenumberof
unemployed.Sothenumberofpeopleunemployedisthelaborforceminusthenumber
ofemployed:146.8-138.0=8.8million.
b) Thenumberofpeoplewhoarenotinthelaborforceisthedifferencebetweenthe
workingagepopulationandthelaborforce: 222.0-146.8=75.2million.
c) Theunemploymentrateisthenumberofunemployedasapercentageofthelabor
force:(8.8/146.8)100=6.0percent.
d) Thelaborforceparticipationrateisthepercentageoftheworking-agepopulation
whoareinthelaborforce:(146.8/222.0)100=66.1percent.
Skill: Analytical
2) AlaborforcesurveyinBrownlandrecordsthefollowingdata:
Employed:189,000
Unemployed:15,000
Notinthelaborforce:84,000
a) Calculatetheunemploymentrate.
b) Calculatethelaborforceparticipationrate.
Answer: a) Theunemploymentrateisthenumberofunemployedasapercentageofthelabor
force.Thelaborforceisthesumofthenumberofpeopleemployedplusthenumberof
unemployed.Brownlandslaborforceis189,000+15,000=204,000.Sotheunemployment
rateis(15,000/204,000)100=7.4percent.
b) Thelaborforceparticipationrateisthepercentageoftheworking-agepopulation
whoareinthelaborforce.Theworkingagepopulationarethosewhoareinthelabor
forceandthosewhoarenotinthelaborforce.SoBrownlandsworking-agepopulationis
204,000+84,000=288,000,anditslaborforceparticipationrateis
(204,000/288,000)100=70.8percent.
Skill: Analytical
3) AtypicalhouseholdinOrangelandconsumesonlyorangejuiceandshorts.Lastyear,which
wasthebaseyear,thehouseholdspent$400onjuiceand$120onshorts.Inthebaseyear,juice
was$2abottleandshortswere$10apair.Thisyear,juiceis$3abottle,shortsare$12apair,
andatypicalhouseholdhasbought180bottlesofjuiceand14pairsofshorts.
a) WhatisthebasketusedintheCPI?
b) CalculatetheCPIinthecurrentyear.
c) Calculatetheinflationrateinthecurrentyear.
d) Istheinflationratethatyouvecalculatedlikelytobebiased?Whyorwhynot?
Answer: a) TheCPIbasketisthequantitiesboughtinthebaseyear.Inthebaseyear,atypical
householdspent$400onjuiceat$2abottle,sothequantityofjuiceboughtwas
$400/$2=200bottles.Thehouseholdspent$120onshortsat$10apair,sothequantityof
shortsboughtwas$120/$10=12.ThustheCPIbasketis200bottlesofjuiceand12pairs
ofshorts.
b) ThecostoftheCPIbasketlastyearwas$400+$120=$520.ThecostoftheCPIbasket
inthecurrentyearis$3200+$1212=$744.SotheCPIis($744/$520)100=143.1
c) TheinflationrateisthepercentagechangeintheCPI.Becausethelastyearwasalso
thebaseyear,theCPIlastyearwas100.Sotheinflationrateforthecurrentyearis
[(143.1-100)/100]100,whichis43.1percent.
d) ThecalculatedCPIislikelytooverstateinflationbecauseofthecommodity
substitutionbias.Therelativepriceofshortshasfallenfrom5to4bottlesofjuice.This
fallledconsumerstobuymoreshortsandlessjuice.Asaresult,theactualconsumer
basketinthecurrentyearislessexpensivethantheCPIbasket.TheCPIignoresthis
commoditysubstitution,andsooverstatestheinflationrate.
Skill: Analytical

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Chapter5

30) Usingtheofficialmeasureofunemployment,whichofthefollowingwould NOTbecountedas

70) Thepercentageofpeopleemployedaged16yearsandolderdividedbytheworking -age

84) Ifthepeoplewhotakeearlyretirementarenotcountedintheworking -agepopulation,then

103) Usingtheinformationinthetableabove,calculatetheemployment -to-populationratio.

17) Apersonquitsherjobinordertospendtimelookingforabetter -payingjob.Thistypeof

20) UsingthenotationPttodesignatethisperiodspricelevelandPt-1 todesignatelastperiods

TheGDPdeflatorequals($600 $800) 100,whichis75.

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