Economics International Edition 8th Edition Roger A. Arnold - Test Bank

Economics International Edition 8th Edition Roger A. Arnold – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Chapter 5—Macroeconomic Measurements, Part I: Prices and Unemployment

 

MULTIPLE CHOICE

 

1. Compared to the presidential salary paid to John F. Kennedy in 1961, George W. Bush’s salary in 2005 was

a.	lower in both real and nominal income.
b.	higher in nominal income, but lower in real income.
c.	higher in real income, but lower in nominal income.
d.	higher in both real and nominal income.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

2. The CPI was 140 in one year and 144 the following year. Approximately how much did prices rise between the two years?

a.	2.86 percent
b.	2.78 percent
c.	0.03 percent
d.	1.03 percent
e.	none of the above

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

3. If the CPI is 100 in the base year and 135 in the current year, how much did prices rise between these two years?

a.	35 percent
b.	135 percent
c.	1.35 percent
d.	0.35 percent

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

4. Suppose the market basket consists of 10X, 20Y, and 30Z. Current-year prices are $1.00 for each unit of X, $0.96 for each unit of Y, and $1.13 for each unit of Z. Base-year prices are $1.00 for each unit of X, Y, and Z. What is the approximate CPI in the current year?

a.	1.05
b.	203
c.	105.17
d.	309

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

5. One measure of the inflation rate is the

a.	sum of the CPIs of adjacent years.
b.	percentage change in the CPI of adjacent years.
c.	percentage change in the Real GDP of adjacent years.
d.	GDP minus the Real GDP in a year.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

6. Suppose there are five goods in the economy, A-E. The current-year quantity of each is 10A, 20B, 30C, 40D, and 50E. Current-year prices are $1 for each unit of A, $2 for each unit of B, $3 for each unit of C, $4 for each unit of D, and $5 for each unit of E. Base-year prices are $1 for each good. Real GDP in the current year equals __________.

a.	$100
b.	$130
c.	$150
d.	$180
e.	$550

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

7. In year 1 the CPI is 130.1, and in year 2 the CPI is 146.7. From year 1 to year 2, Martha’s salary rises from $32,000 to $34,000, and Chiang’s salary rises from $43,000 to $45,000. Who is “more than keeping up with inflation”?

a.	Martha
b.	Chiang
c.	both Martha and Chiang
d.	neither Martha nor Chiang

 

 

ANS:  D                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

8. In year 1 the CPI is 144.1, and in year 2 the CPI is 151. If Sarah’s salary was $33,500 in year 1, what salary in year 2 would cause her to exactly “keep up with inflation”?

a.	$50,585
b.	$48,274
c.	$40,508
d.	$35,104

 

 

ANS:  D                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

9. In year 1 the CPI is 141, and in year 2 the CPI is 149. If Dennis’s salary was $65,000 in year 1, what is the minimum salary he must earn in year 2 to “more than keep up with inflation”?

a.	$96,850
b.	$68,689
c.	$91,650
d.	$63,625

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

10. Suppose that 1982 is the base year for the Consumer Price Index (CPI) and in 1998 the CPI is 250. What does this “250” mean?

a.	What cost $100 in 1982 will on average cost 250 times as much in 1998.
b.	What cost $100 in 1982 will on average cost $250 more in 1998.
c.	What cost $100 in 1982 will on average cost 100/250 (or 0.4) times as much in 1998 (that is, it will cost $40 in 1998).
d.	What cost $100 in 1982 will on average cost $150 more in 1998.

 

 

ANS:  D                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

11. According to the text, the top grossing movie in the US for all time, in today’s dollars, is

a.	Star Wars
b.	Titanic
c.	Shrek 2
d.	Gone With the Wind
e.	Snow White and the Seven Dwarfs

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

12. The base year is the year

a.	in which prices are unstable.
b.	in which prices are lowest.
c.	in which prices are highest.
d.	that serves as a reference point or benchmark.
e.	in which nominal output is largest.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

Exhibit 5-1

 

	CPI
Year	(1982=100)
1980	79.5
1981	91.3
1982	100.0
1983	104.3
1984	108.2

 

 

13. Refer to Exhibit 5-1. Prices rose by __________ percent from 1981 to 1982.

a.	8.7
b.	9.1
c.	0.095
d.	9.5
e.	9.7

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

14. Refer to Exhibit 5-1. Prices rose by __________ percent from 1983 to 1984.

a.	3.7
b.	3.9
c.	3.5
d.	3.6
e.	4.1

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

15. Refer to Exhibit 5-1. Prices rose by __________ percent from 1980 to 1984.

a.	26.5
b.	36.1
c.	25.2
d.	23.4

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

16. Refer to Exhibit 5-1. Prices rose by __________ percent from 1981 to 1983.

a.	12.5
b.	9.9
c.	12.6
d.	14.2
e.	none of the above

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

17. The civilian non-institutional population consists of everyone in the population who is

a.	at least 16 years of age, in the armed forces, or institutionalized.
b.	at least 16 years of age.
c.	not in the armed forces.
d.	not institutionalized.
e.	b, c, and d

 

 

ANS:  E                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

18. The civilian non-institutional population can be broken down into two groups:

a.	employed persons and unemployed persons.
b.	persons working and persons not working.
c.	persons working in service jobs and persons working in manufacturing jobs.
d.	persons not in the labor force and persons in the labor force.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

19. Persons who are retired or engaged in own-home housework are considered to be in which of the following categories?

a.	in the civilian labor force
b.	not in the labor force
c.	employed
d.	unemployed

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

20. A person in the civilian labor force falls into one of two categories:

a.	a person who works in a service industry or a person who works in a manufacturing industry.
b.	unemployed or employed.
c.	disemployed or unemployed.
d.	a self-employed worker or a non-self-employed worker.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

21. If a person did at least one hour of work as a paid employee during the survey week, how is she classified?

a.	as an employed person
b.	as not in the labor force
c.	as an unemployed person
d.	none of the above

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

22. If a person worked at least 15 hours per week as an “unpaid” worker on a family farm, how is she classified?

a.	as not in the labor force
b.	as an unemployed person
c.	as an employed person
d.	none of the above

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

23. If a person is waiting to be called back to a job from which she has been laid off, how is she classified?

a.	as not in the labor force
b.	as an unemployed person
c.	as an employed person
d.	none of the above

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

24. In order to be classified as unemployed, a person must

a.	not have a job, have been actively looking for work within the past four weeks, and currently be available for work.
b.	not have a job, and currently be available for work.
c.	actively have looked for work within the past six weeks.
d.	not have a job.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

25. The unemployment rate equals the

a.	number of employed persons divided by the number of unemployed persons.
b.	number of unemployed persons divided by the civilian non-institutional population.
c.	number of unemployed persons divided by the civilian labor force.
d.	sum of unemployed persons and discouraged workers divided by the civilian labor force.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

26. The employment rate equals the number of

a.	employed persons divided by the number of unemployed persons.
b.	unemployed persons divided by the civilian non-institutional population.
c.	employed persons divided by the civilian labor force.
d.	employed persons divided by the civilian non-institutional population.
e.	none of the above

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

27. Suppose the civilian non-institutional population equals 150,000; there are 72,500 employed persons and 10,000 unemployed persons. How many people are not in the labor force?

a.	10,000
b.	77,500
c.	63,500
d.	67,500

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

28. Suppose the civilian non-institutional population equals 100,000; the civilian labor force equals 75,000; there are 70,000 employed persons and 5,000 unemployed persons. If 5,000 persons who are currently “not in the labor force” decide to join the civilian labor force, and 3,000 are unemployed, then

a.	both the unemployment and the employment rate rise.
b.	both the unemployment and the employment rate fall.
c.	the unemployment rate rises and the employment rate falls.
d.	the unemployment rate falls and the employment rate rises.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

29. A person is unemployed if he

a.	is a member of the civilian labor force, out of work, and actively seeking work.
b.	is 15 years old and seeking his first job.
c.	is out of work, available for work, but not actively seeking work.
d.	all of the above

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

Exhibit 5-2

 

	Civilian	Civilian	Employed
	Noninstitutional	Labor Force	Persons
Year	Population (millions)	(millions)	(millions)
1	250	200	175
2	400	300	200
3	500	400	350
4	1000	800	720

 

 

30. Refer to Exhibit 5-2. How many people are not in the labor force in year 1?

a.	25 million
b.	50 million
c.	75 million
d.	175 million
e.	200 million

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

31. Refer to Exhibit 5-2. How many people are not in the labor force in year 3?

a.	50 million
b.	100 million
c.	150 million
d.	350 million
e.	400 million

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

32. Refer to Exhibit 5-2. How many unemployed persons are there in year 1?

a.	25 million
b.	50 million
c.	75 million
d.	175 million
e.	200 million

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

33. Refer to Exhibit 5-2. How many unemployed persons are there in year 3?

a.	50 million
b.	100 million
c.	150 million
d.	350 million
e.	400 million

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

34. Refer to Exhibit 5-2. The unemployment rate in year 1 is

a.	12 1/2 percent.
b.	70 percent.
c.	87 1/2 percent.
d.	30 percent.
e.	10 percent.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

35. Refer to Exhibit 5-2. The unemployment rate in year 2 is

a.	75 percent.
b.	33 1/3 percent.
c.	50 percent.
d.	66 2/3 percent.
e.	25 percent.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

36. Refer to Exhibit 5-2. The employment rate in year 1 is

a.	12 1/2 percent.
b.	70 percent.
c.	87 1/2 percent.
d.	30 percent.
e.	10 percent.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

37. Refer to Exhibit 5-2. The labor force participation rate in year 1 is

a.	12 1/2 percent.
b.	80 percent.
c.	87 1/2 percent.
d.	70 percent.
e.	10 percent.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

38. Refer to Exhibit 5-2. The labor force participation rate in year 2 is

a.	12 1/2 percent.
b.	75 percent.
c.	87 1/2 percent.
d.	30 percent.
e.	50 percent.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

39. Refer to Exhibit 5-2. The labor force participation rate in year 3 is

a.	12 1/2 percent.
b.	70 percent.
c.	80 percent.
d.	30 percent.
e.	50 percent.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

40. Refer to Exhibit 5-2. The labor force participation rate in year 4 is

a.	12 1/2 percent.
b.	72 percent.
c.	87 1/2 percent.
d.	30 percent.
e.	80 percent.

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

41. In an economy with 200 million people, 120 million hold jobs and 30 million are not working but are looking for jobs. The number of people in the labor force is

a.	200 million.
b.	80 million.
c.	150 million.
d.	90 million..
e.	There is not enough information to answer this question.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

42. In an economy with 100 million people, 70 million hold jobs and 9 million are not working but are looking for jobs. The number counted as unemployed is

a.	60 million.
b.	9 million.
c.	30 million.
d.	70 million.
e.	79 million.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

43. In an economy with 100 million people, 64 million hold jobs and 4.7 million are not working but are looking for jobs. The unemployment rate is __________.

a.	15.0 percent
b.	13.1 percent
c.	7.3 percent
d.	4.7 percent
e.	6.8 percent

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

44. The unemployment due to the time it takes for unemployed people to locate a job utilizing their transferable skills is called __________ unemployment.

a.	structural
b.	cyclical
c.	natural
d.	frictional

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

45. The unemployment due to changes in the types of skills employers require is called __________ unemployment.

a.	structural
b.	cyclical
c.	natural
d.	frictional

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

46. The cyclical unemployment rate is defined as the __________ unemployment rates.

a.	sum of the structural and the frictional
b.	difference between the structural and the frictional
c.	difference between the existing (actual) and the natural
d.	sum of the natural and the frictional

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

47. “Full employment” is said to exist when the unemployment rate equals

a.	zero.
b.	the cyclical unemployment rate.
c.	the structural unemployment rate.
d.	the natural unemployment rate.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

48. In many large retail stores, price markdowns are now determined by computer. The “middle managers” who used to make these decisions personally became __________ unemployed.

a.	frictionally
b.	structurally
c.	naturally
d.	cyclically

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

49. A dynamic, changing economy will

a.	experience frictional and structural unemployment.
b.	experience only cyclical unemployment.
c.	have zero unemployment.
d.	have no natural unemployment.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

50. Assume that Ms. Sawyer’s salary is $74,500, up from $70,000 last year, while the CPI is 165 this year, up from 150 last year. This means that Ms. Sawyer’s real income has

a.	increased.
b.	decreased.
c.	stayed the same.
d.	It depends on which year is the base year.

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

51. A market basket is made up of three goods, 10X, 12Y, and 18Z. The prices in the base year are $1.20, $2.10, and $3.25, respectively. The prices in the current year are $1.44, $2.23, and $3.88. What is the approximate consumer price index in the current year?

a.	103
b.	111
c.	116
d.	110
e.	96

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

52. If the CPI is 123 in year 1 and 135 in year 2, what is the approximate percentage change in prices between the two years?

a.	8.9 percent
b.	9.8 percent
c.	15.7 percent
d.	11.4 percent
e.	23.9 percent

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

53. Which of the following statements is true?

a.	Base year prices are necessarily higher than current year prices.
b.	The CPI in the base year is 100.
c.	If the CPI is 112 in year 1 and 123 in year 2, prices have risen by approximately 9.8 percent between the two years.
d.	b and c
e.	a, b, and c

 

 

ANS:  D                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

54. Smith’s income was $50,000 in year 1 and $55,600 in year 2. The CPI was 114 in year 1 and 124 in year 2. What was the approximate percentage change in Smith’s real income between the two years?

a.	-2.2 percent
b.	+3.4 percent
c.	-1.7 percent
d.	+5.6 percent
e.	+2.2 percent

 

 

ANS:  E                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

55. A movie star was paid $1 million in 1960 to do a movie. The CPI was 29.3 in 1960 and the CPI in 2005 was 195. Approximately how much did the movie star earn in 2005 dollars?

a.	$0.87 million
b.	$5.25 million
c.	$0.16 million
d.	$6.66 million

 

 

ANS:  D                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

56. The movie “Return of the Jedi” earned $264 million in 1983 when it was released. The CPI in 1983 was 97.8 and the CPI in 2005 was 195. Approximately how much did the movie earn in 2005 dollars?

a.	$150 million
b.	$526 million
c.	$237 million
d.	$368 million
e.	$444 million

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

57. According to the text, when John F. Kennedy’s salary as president is converted to 2005 dollars and compared to the salary paid to George W. Bush in 2005, the result is that

a.	Kennedy’s salary had relatively more purchasing power.
b.	Bush’s salary had relatively more purchasing power.
c.	The purchasing power of their salaries is almost identical.
d.	Bush’s salary was higher in both real and nominal terms.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

58. Suppose that the price index in 1999 was 170 and your salary was $44,000. Suppose in 2010 the consumer price index will be 300. What salary will you have to earn in 2010 in order to equal your 1999 real income?

a.	$66,000
b.	$77,647
c.	$71,000
d.	$83,209

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

59. Look at the following data: Employed persons = 110 million; civilian labor force = 125 million; civilian noninstitutional population = 180 million. The unemployment rate is __________ percent and the employment rate is __________ percent.

a.	10; 69
b.	8; 54
c.	12; 61
d.	5; 61
e.	12; 88

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

60. Look at the following data: Total population = 230 million; employed persons = 80 million; unemployed persons = 8 million. The unemployment rate is approximately __________ and the employment rate __________.

a.	9.1 percent; cannot be determined
b.	10 percent; is 90 percent
c.	8.2 percent; is 34 percent
d.	11 percent; is 38 percent
e.	9.1 percent; 90.9 percent

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

61. Which of the following statements is false?

a.	The sum of the unemployment rate and the employment rate always equals 100 percent.
b.	The sum of the number of employed persons and the number of unemployed persons equals the civilian non-institutional population.
c.	The labor force participation rate equals the number of persons in the civilian labor force divided by the number of persons in the total population.
d.	a and b
e.	a, b and c

 

 

ANS:  E                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

62. Look at the following data: The frictional unemployment rate is 3 percent, the natural unemployment rate is 6.5 percent, and the cyclical unemployment rate is 2.4 percent. The structural unemployment rate is __________ percent and the actual unemployment rate (in this economy) is __________ percent.

a.	3; 8.9
b.	3.5; 8.9
c.	3.5; 9.5
d.	5.4; 2.4
e.	none of the above

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

63. If the cyclical unemployment rate is negative, then the __________.

a.	natural unemployment rate is less than the actual unemployment rate in the economy.
b.	natural unemployment rate is greater than the actual unemployment rate in the economy.
c.	structural unemployment rate is greater than the frictional unemployment rate.
d.	structural unemployment rate is less than the frictional unemployment rate.
e.	a and d

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

64. Is it possible for the economy to be at full employment and still have some people who are unemployed?

a.	No, full employment means that no one is unemployed.
b.	Yes, since full employment exists if the economy is operating at the natural unemployment rate and there is always some natural unemployment.
c.	Yes, since full employment exists if the economy is operating at the frictional unemployment rate and there is always some frictional unemployment.
d.	Yes, since full employment equals the sum of the cyclical unemployment rate and the natural unemployment rate, and there is always some cyclical unemployment.
e.	none of the above

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

65. Jones lost his job in industry A, but he has skills that can be transferred to industry B (which is currently hiring). Smith lost a job in industry C, but his skills cannot be transferred to industry B or to any other industry. Jones is __________ unemployed and Smith is __________ unemployed.

a.	structurally; frictionally
b.	structurally; structurally
c.	frictionally; frictionally
d.	frictionally; structurally

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

66. If the CPI was 193 in 2005 and 172.2 in 2000, by what percentage did prices rise during the period 2000-2005?

a.	0.10 percent
b.	6.43 percent
c.	10 percent
d.	12.1 percent

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

67. Good X sold for $40 in 1957. The CPI in 1957 was 27.6 and the CPI in 2003 was 184. What was the price of good X in 2003 dollars?

a.	$266.67
b.	$226.67
c.	$1,104
d.	$34
e.	none of the above

 

 

ANS:  A                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

68. A __________ is a person who was employed in the civilian labor force and was either fired or laid off.

a.	new entrant
b.	reentrant
c.	job leaver
d.	job fixer
e.	none of the above

 

 

ANS:  E                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

69. The answer is “a person employed in the civilian labor force who quits his or her job.” The question is:

a.	Who is a job loser?
b.	Who is an entrant?
c.	Who is a reentrant?
d.	Who is a job leaver?
e.	Who is a discouraged worker?

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

70. A(n) __________ is a person who was previously employed, hasn’t worked for some time, and is currently reentering the labor force.

a.	discouraged worker
b.	entrant
c.	reentrant
d.	job loser
e.	job leaver

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

71. Which of the following statements is false?

a.	A discouraged worker is counted as an unemployed worker.
b.	The frictional unemployment rate is greater than the natural unemployment rate.
c.	The natural unemployment rate is greater than the structural unemployment rate.
d.	a and b
e.	b and c

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

72. Of all the categories of unemployment, most unemployed persons fall into the category of

a.	reentrant.
b.	new entrant.
c.	job leaver.
d.	job loser.
e.	none of the above

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

73. If there are 10 job losers, 12 job leavers, 13 reentrants, and 12 new entrants, then there are __________ unemployed persons.

a.	35
b.	47
c.	25
d.	37
e.	There is not enough information to answer the question.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Anlaytic

LOC:  Measuring the economy

 

74. The number of employed persons plus the number of unemployed persons equals the number of persons

a.	in the total population.
b.	in the civilian noninstitutional population.
c.	in the civilian labor force.
d.	not in the labor force.
e.	none of the above

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

75. If we subtract the number of people not in the labor force from the civilian noninstitutional population, we get the number of people in the

a.	ranks of the unemployed.
b.	civilian labor force.
c.	ranks of the employed.
d.	ranks of discouraged workers.
e.	none of the above

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

76. Which of the following statements is true?

a.	Natural unemployment is caused by frictional and structural factors in the economy.
b.	The labor force participation rate is equal to the civilian noninstitutional population divided by the civilian labor force.
c.	A discouraged worker is counted as an unemployed worker.
d.	a and c
e.	a, b, and c

 

 

ANS:  A                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

77. In macroeconomics, price refers to

a.	a price index.
b.	an aggregate price.
c.	an average price.
d.	a price level.
e.	all of the above

 

 

ANS:  E                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

78. Which of the following is false?

a.	The Bureau of Labor Statistics samples thousands of households and businesses as part of the process involved in calculating the CPI.
b.	The representative group of goods used in computing the CPI is called the market basket.
c.	The group of goods and services used to compute the CPI is limited to five major categories: housing, food, transportation, apparel, and medical care.
d.	The base year is the year chosen to serve as a benchmark for purposes of comparison.

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

79. According to Bureau of Labor Statistics records, _______ percent of all women 20 years and older were working in the labor force in 1948 and that percentage has risen to around _________ percent today.

a.	31; 57
b.	15; 60
c.	20; 53
d.	25; 72

 

 

ANS:  A                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

80. Juan lost his job as a nuclear physicist working for a defense contractor.  He can not find a job because no firms in the defense industry or any other industry are hiring people with his skills.  Juan is ______________ unemployed.

a.	frictionally
b.	cyclically
c.	structurally
d.	naturally

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

81. Look at the following data: The structural unemployment rate is 4 percent, the natural unemployment rate is 5 percent, and the cyclical unemployment rate is 3 percent.  The frictional unemployment rate is ____________ percent and the actual unemployment rate is __________ percent.

a.	2; 7
b.	2; 8
c.	1; 7
d.	1; 8

 

 

ANS:  D                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

82. Look at the following data: The frictional unemployment rate is 2 percent, the structural unemployment rate is 3.5 percent, and the actual unemployment rate is 9.5 percent.  The natural unemployment rate is ____________ percent and the cyclical unemployment rate is __________ percent.

a.	1.5; 4
b.	5.5; 4
c.	1.5; 6
d.	6; 15

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

83. Look at the following data: The frictional unemployment rate is 1.5 percent, the natural unemployment rate is 4.5 percent, and the cyclical unemployment rate is -1 percent.  The structural unemployment rate is _________ percent and the actual unemployment rate (in this economy) is ___________ percent.

a.	6; 3.5
b.	3; 5.5
c.	3; 3.5
d.	6; 5.5

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

84. If the CPI is 170 and nominal income is $75,000, approximately what does real income equal?

a.	$127,500
b.	$74,825
c.	$75,175
d.	$44,118

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

85. Suppose there are 65 million people employed, 15 million unemployed, and 30 million not in the labor force.  What does the civilian noninstitutional population equal?

a.	80 million
b.	110 million
c.	65 million
d.	95 million

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

86. Suppose there are 200 million people in the population, 120 million people in the civilian labor force, and 90 million people are employed.  The number of people unemployed is _______ million and the unemployment rate is ___________ percent.

a.	30; 25
b.	30; 33
c.	30; 5
d.	80; 40

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

87. At the time of Carol’s 10 year high school reunion she was making $30,000 and the CPI was 90.  Now that it is time for her to attend her 20 year high school reunion, Carol’s income has risen to $65,000 and the CPI is 200.  At her 20 year reunion, can Carol rightfully brag that her real income has risen since the last time she saw her former classmates ten years ago?

a.	Yes, Carol’s real income rose during that 10 year period.
b.	No, Carol’s real income fell during that 10 year period.
c.	No, Carol’s real income remained constant during that 10 year period.
d.	It is impossible to determine what happened to Carol’s real income.

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

88. Every ____________ the U.S. government surveys ______________ of households to gather information about the number of Americans unemployed.

a.	month; millions
b.	year; millions
c.	week; thousands
d.	month; thousands

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

89. The labor force participation rate (LFPR) equals the number of

a.	employed persons divided by the number of unemployed persons.
b.	unemployed persons divided by the civilian noninstitutional population.
c.	employed persons divided by the civilian labor force.
d.	employed persons divided by the civilian noninstitutional population.
e.	none of the above

 

 

ANS:  E                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

90. At the time of Elise’s 20 year high school reunion she was making $50,000 and the CPI was 80.  Now that it is time for her to attend her 25 year high school reunion, Elise’s income has risen to $80,000 and the CPI is 150.  At her 25 year reunion, can Elise rightfully brag that her real income has risen since the last time she saw her former classmates five years ago?

a.	Yes, Elise’s real income rose during that 5 year period.
b.	No, Elise’s real income fell during that 5 year period.
c.	No, Elise’s real income remained constant during that 5 year period.
d.	It is impossible to determine what happened to Elise’s real income.

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         NAT:  Analytic

LOC:  Measuring the economy

 

91. A plumber who quits his job in San Diego and moves to Orlando where additional plumbers are needed is said to be ___________________ unemployed

a.	frictionally	c.	cyclically
b.	structurally	d.	underemployed

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

TRUE/FALSE

 

1. The sum of the unemployment rate and the employment rate always equals 100 percent.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

2. Discouraged workers are not counted as unemployed because they are working.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

3. “Full employment” is said to exist when the actual unemployment rate is zero.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        OBJ:   Analytic

 

4. A common measure of inflation is the percentage change in the CPI of adjacent years.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

5. The CPI in the base year is necessarily 100.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

6. The base year is always the year in which prices are the lowest.

 

ANS:  F                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

7. The cyclical unemployment rate can never be negative.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

8. Ryan lost his job when a mechanical device replaced people with his skills. If Ryan’s skills are non-transferable, he would be considered to be structurally unemployed.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

9. Structural unemployment results primarily from automation and long-lasting changes in demand.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy

 

10. Most unemployed persons fall into the category of job loser.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

11. When news reports state that the cost of living has changed they are usually referring to a change in the CPI.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy

 

12. George W. Bush’s presidential salary in 2005 was greater in both real and nominal terms than John F. Kennedy’s salary in 1962.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

The federal government agency that is responsible for determining the inflation rate and the unemployment rate is the Federal Reserve.

 

ANS:  F                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

The CPI is based on a representative group of goods called the market basket.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

15. A seamstress who quits her job in Los Angeles and moves to New York where additional seamstresses are needed is said to be frictionally unemployed.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  Measuring the economy                   NOT:  NEW

 

ESSAY

 

1. Explain why historical comparisons of one’s income should be made using real income rather than nominal income.

 

ANS:

Nominal income can change as a result of changes in the price level, while a change in real income reflects a change in purchasing power.

 

PTS:   1                    DIF:    Moderate       NAT:  Analytic         LOC:  Measuring the economy

 

2. List and describe the three different types of unemployment.

 

ANS:

Frictional unemployment is created when individuals with transferable skills leave their jobs to move to others. It is caused by normal changes in market conditions and a lack of complete information available to both employers and employees. Structural unemployment occurs when the unemployed person’s skills do not match the available job openings. It is caused largely by automation and long-lasting shifts in demand. Cyclical unemployment occurs when the actual unemployment rate is different from the natural unemployment rate.

 

PTS:   1                    DIF:    Moderate       NAT:  Analytic         LOC:  Measuring the economy

 

3. Explain the substitution-bias inherent in a fixed-weighted price index and the impact this bias has on the reported cost of living.

 

ANS:

Any price index that uses fixed quantities of goods does not reflect the way that people actually make purchases. When the price of an item rises, people often shift to a substitute good in response to the change in relative prices. As a result of this substitution-bias, a fixed-weighted price index can overstate the cost of living.

 

PTS:   1                    DIF:    Difficult         NAT:  Analytic         LOC:  Measuring the economy

 

4. Describe what the term “full employment” means to an economist.

 

ANS:

Full employment exists when the economy is operating at its natural unemployment rate. Full employment does not mean that the unemployment rate is zero percent because some unemployment is natural in a dynamic, changing economy.

 

PTS:   1                    DIF:    Moderate       NAT:  Analytic         LOC:  Measuring the economy