Transcript Unit Two Test

Unit Two Test
Vocabulary: Inflation
1. An increase in the Consumer Price Index is
commonly referred to as
– economic growth.
– inflation.
– unemployment.
– discouraged workers.
– deflation
Real = Nominal – inflation
-1 = 4 - x
2. If your nominal income rises 4 percent and
your real income falls 1 percent, by how much
did the price level change?
– 5 percent decrease
– 1/4 percent increase
– 3 percent increase
– 3 percent decrease
– 5 percent increase
Vocabulary: Discouraged Worker
3. What does the presence of discouraged workers do to
the measurement of the unemployment rate?
– Discouraged workers are counted as "out of the labor
force," thus understating the unemployment rate,
making the economy look stronger than it is.
– Discouraged workers are counted as "out of the labor
force," thus overstating the unemployment rate, making
the economy look weaker than it is.
– Discouraged workers are not surveyed so there is no
impact on the unemployment rate.
– Discouraged workers are counted as "unemployed," thus
understating the unemployment rate, making the
economy look stronger than it is.
– Discouraged workers are counted as "unemployed," thus
overstating the unemployment rate, making the economy
look weaker than it is.
Concept: Economic Growth
4. Which of the following would likely contribute
to faster rates of economic growth?
– A more restrictive immigration policy.
– Negative net investment.
– Higher taxes on households and firms.
– Higher government funding of research on clean
energy supplies.
– Protective trade policies.
Vocabulary: Cyclical Unemployment
and NRU
5. When a nation is operating at the natural rate
of employment,
– there is no cyclical unemployment.
– the inflation rate is zero.
– there is no structural unemployment.
– the nation is experiencing a recession.
– the unemployment rate is zero.
Vocabulary: GDP
6. Which of the following transactions would be
included in the computation of Gross Domestic
Product?
A. Josh buys a new pair of running shoes.
B. Nancy offers to babysit her granddaughter.
C. Katie buys her dad's used car.
D. Eli cannot go to a concert so he resells his
ticket to a friend.
E. Molly rakes the leaves in her own yard.
Unemployment Rate =
unemployed/labor force
8. The table above summarizes the local labor market.
Based on this information, which of the following is an
accurate statement?
• The number of discouraged workers has fallen from
2003 to 2004.
• Although the population has grown, the labor force has
remained constant from 2003 to 2004.
• The unemployment rate fell from 33 percent in 2003 to
25 percent in 2004.
• The economic recession in 2003 worsened in 2004.
• The unemployment rate fell from 25 percent in 2003
to 20 percent in 2004.
GDP = C + I + G + (X-M)
9. Suppose that the federal government reclassified
the purchase of a new home as consumption
spending rather than investment spending. This
decision would
• increase aggregate demand and decrease real GDP.
• decrease aggregate demand and decrease real GDP.
• decrease aggregate demand and increase real GDP.
• increase aggregate demand and increase real GDP.
• have no impact on aggregate demand and real
GDP.
Vocabulary: GDP Deflator
10. Which of the following best measures changes in
the price level of national product?
• The consumer price index.
• The real interest rate.
• The unemployment rate.
• The producer price index.
• The GDP deflator.
Vocabulary: Scarcity + Opportunity
Cost
11. Which of the following scenarios best describes the
concepts of scarcity and opportunity cost? ®
• As a birthday present, your cousin sends you a $20 bill.
• Your state government, in order to increase support for
higher education, must increase the sales tax to keep the
budget balanced.
• Your state government, in order to increase support for
higher education, must cut spending for environmental
protection to keep the budget balanced.
• The local fire department conducts a raffle to raise funds for
new equipment.
• Smoke from a forest fire impairs air quality in a small
mountain town.
Model: Circular Flow
• 13. Which of the following is true of the complete
circular flow model of an open economy?
• All goods and services flow through the government in
exchange for resource payments.
• There is no role for the foreign sector.
• Households supply resources to producers in exchange
for goods and services.
• Producers provide goods and services to households in
exchange for the costs of production.
• The government collects taxes from firms and
households in exchange for goods and services.
Real = Nominal – inflation
4 = 11 - 7
14. If, in a specified year, your nominal GDP grew
by 11 percent and real GDP grew by 4 percent,
inflation for this year would be
A. -7%
B. 7%
C. 8%
D. 11%
E. 15%
Vocabulary: Structural Unemployment
• 15. Which of the following is an example of
structural unemployment?
• A. A computer programmer who leaves her job to
move to Florida.
• B. A worker who loses his job due to a recession.
• C. An autoworker whose plant shuts down on
account of decreased wages across the economy.
• D. A manufacturer whose job was sent to China.
• E. A robot machinist.
Concept: Opportunity cost and trade
• 16. Suppose two countries are each capable of individually
producing two given commodities. Instead, each specializes
by producing the commodity for which it has the comparative
advantage and then trades with the other country. Which of
the following is likely to result? ®
• A. The two countries will become more independent of each
other.
B. Unemployment will increase in one country and decrease
in the other.
C. There will be more efficient production in one country but
less efficient production in the other.
• D. Both countries will be better off.
• E. Both countries will be producing their commodity
inefficiently.
Vocabulary: Frictional Unemployment
17. Frictional unemployment is
• A. associated with a general downturn in the
economy
B. the same as structural unemployment
• C. present in any dynamic economy
• D. long-term unemployment
• E. associated with a long-term decline of specific
industries
Vocabulary: Employment, Unemployment,
and Labor Force
18. The top government officials claim that more people
are working now more than ever before, which of the
following must be true?
•
A. The unemployment rate is lower than ever
before
•
B. The number of people employed is higher than
ever before.
•
C. The employment rate is higher than ever before.
•
D. The number of people in the labor force is higher
than ever.
•
E. The number of people unemployed is lower than
ever.
Concept: GDP per capita
19. Declining population in an economy
•
A. may increase economic growth.
•
B. may cause lower living standards, even
if
GDP increases
•
C. could contribute to higher real GDP per
capita
•
D. increases the rate of savings in an
economy
•
E. increases real GDP
Vocabulary: Cyclical Unemployment
20. Full employment indicates a zero percent
•
A. cyclical unemployment rate
•
B. frictional unemployment rate
•
C. structural unemployment rare
•
D. seasonal unemployment rate
•
E. all of the above
Real GDP = Nominal/deflator x 100
• 21. If the nominal GDP is 10 trillion dollars and
the GDP deflator is .9, the real GDP is
approximately
•
A. 9 trillion
•
B. 11.1 trillion
•
C. 1 trillion
•
D. 9.9 trillion
•
E. 10.9 trillion
GDP = C + I + G + (X-M)
22. The GDP for this country is
•
A. $38
•
B. $25
•
C. $28
•
D. $22
•
E. $31
Real = Nominal - IR
• 23. If the nominal interest rate is 12 percent
and the inflation rate is 7 percent, the real
interest rate is
•
A. 12 percent
•
B. 19 percent
•
C. 5 percent
•
D. 7 percent
•
E. 10 percent
Deflator = Price current year/Price base
year x 100
Real = Nominal/Deflator x 100
24. Suppose that the country of Samiam produces only eggs and
ham. In 2002, it produced 100 units of eggs at $3 each and 50
units of Ham at $4 each. In 2001, the base year, eggs sold for $1.50
per unit and ham for $5.
•
A. Nominal 2002 GDP is $500, real 2002 GDP is 400, and the
GDP deflator is 80.
•
B. Nominal 2002 GDP is $500, real 2002 GDP is 400, and the
GDP deflator is 125.
•
C. Nominal 2002 GDP is $400, real 2002 GDP is 400, and the
GDP deflator is 100.
•
D. Nominal 2002 GDP is $400, real 2002 GDP is 500, and the
GDP deflator is 25.
•
E. Nominal 2002 GDP is $400, real 2002 GDP is 600, and the
GDP deflator is 80.
Concept: GNP
25. Which of the following is not included in the
United States GNP?
•
A. An American-owned bakery is College Park.
•
B. An American-owned bakery in Oslo.
•
C. A Vietnamese-owned donut shop in
Orlando.
•
D. An American business owner in Fiji.
•
E. A Florida-owned surf company in Prague.
Components of GDP
26. After the terrorist attack on 9/11, governments raised
expenditures to increase security at airports. These purchases
of goods and services are
•
A. not included in GDP since they are not productive.
•
B. not included in GDP since the government will have
to raise taxes to pay for them.
•
C. not included because they are not accounted for in the
circular flow.
•
D. included in GDP since government expenditures are
included in GDP.
•
E. included in GDP only to the extent that the Federal
government, not local and state, pay for them.
Components of GDP
27. Which of the following is the largest
component of the expenditure calculation of
GDP?
•
A. Investment
•
B. Government spending
•
C. Consumption
•
D. Exports
•
E. Imports
Real GDP = Nominal/Deflator x 100
28. If a small country has a current nominal GDP of 20
billion and a GDP deflator of 50, what is the real
GDP?
•
A. $100 billion
•
B. $40 billion
•
C. $10 billion
•
D. $14 billion
•
E. $ 22 billion
Real = Nominal/deflator x 100
GDP per capita = real/population
• 29. Suppose that 25 years ago a country had a nominal
GDP of 1000, a GDP deflator of 200, and a population
of 100. Today, they have a nominal GDP of 3000, a GDP
deflator of 400, and a population of 150. What
happened to the real GDP per capita?
•
A. It more than doubled
•
B. It rose, but less than double.
•
C. It was unchanged.
•
D. It fell by 50%
•
E. It dropped by more than 70%
Vocabulary: Inflation
• 30. When the overall level of prices in an
economy increases, this is
•
A. deflation
•
B. stagflation
•
C. inflation
•
D. unemployment
•
E. economic growth
Concept: CPI
• 31. In the CPI, which of the following is
weighted most heavily in the U.S.?
•
A. Food and beverages
•
B. Housing
•
C. Transportation
•
D. Healthcare
•
E. Clothes
IR = CPI Year 2 – CPI Year 1/CPI Year 1 x
100
32. If the CPI in year 1 is 50 and the CPI in year 2
is 70, what is the inflation rate?
•
A. 4%
•
B. 14%
•
C. 40%
•
D. 20%
•
E. 50%
IR = CPI Year 2 – CPI Year 1/CPI Year 1 x
100
• 33. Which change in the price index shows the
greatest rate of inflation: 80 to 100, 100 to
120, 150 to 170, or 180 to 200?
•
A. 80 to 100
•
B. 100 to 120
•
C. 150 to 170
•
D. 180 to 200
•
E. They are all the same
100 x 1969 CPI/today CPI
100 x 100/400
• 34. Suppose the CPI is currently 400 and was 100
in 1969. Then, according to the CPI, $100 today
purchases the same amount of goods and
services as
•
A. $25 in 1969
•
B. $40 in 1969
•
C. $45 in 1969
•
D. $60 in 1969
•
E. $75 in 1969
Real IR = Nominal IR – inflation
• 35. Which is the most accurate statement about the
relationship between the inflation and interest rates:
•
A. There is not a relationship.
•
B. They are the same thing.
•
C. The interest rate is determined by the rate of
inflation.
•
D. In order to fully understand inflation, we need to
know how to correct for the effects
of interest
rates.
•
E. In order to fully understand interest rates, we
need to know how to correct for the
effects
of inflation.
Real IR = Nominal IR – inflation
36. If the nominal interest rate is 8 percent and
the rate of inflation is 2 percent, what is the
real interest rate?
•
A. 16%
•
B. 10%
•
C. 6%
•
D. 3%
•
E. 4%
Vocabulary: Labor Force
37. The labor force equals
•
A. All citizens who are employed
•
B. All citizens who are employed and
unemployed
•
C. All citizens between 16 and 64
•
D. All citizens between 16 and 64 who are
employed
•
E. All citizens between 16 and 64 who are
employed and unemployed
Vocabulary: unemployed
• 38. Who would not be considered to be a part of
the labor force?
•
A. An unemployed plumber
•
B. A working nurse
•
C. A stay at home mom
•
D. A college grad looking for a job
•
E. A part-time taxi driver
LFPR = labor force/adult pop x 100
39. The LFPR is defined as
•
A. (Employed /Adult Population) x 100
•
B. (Employed/Labor Force) x 100
•
C. (Labor Force/Adult Population) x 100
•
D. (Adult Population/Labor Force) x 100
•
E. (Unemployed/Labor Force) x 100
Vocabulary: LFPR
• 40. Rick loses his job and immediately begins
looking for another. Ceteris Paribus, the
unemployment rate
•
A. decreases and the LFPR is unaffected.
•
B. increases and the LFPR is unaffected.
•
C. decreases and the LFPR decreases.
•
D. increases and LFPR decreases.
•
E. None of the above
Vocabulary: NRU and Cyclical
Unemployment
• 41. The NRU for Appleofmyeye is 8 percent.
Currently, this nice nation has a 12 percent
unemployment rate. What is most likely true?
•
A. The country is going through an
expansionary phases.
•
B. 4% are structurally unemployed.
•
C. 12 % are cyclically unemployed.
•
D. 4% are cyclically unemployed.
•
E. 8% are cyclically and frictionally
unemployed.
Government Intervention
• 42. To address cyclical unemployment, which
of the following would not be used?
•
A. Tax cuts
•
B. Increase government spending
•
C. Lowering interest rates
•
D. Depreciate the nation’s currency
•
E. Tax hikes to pay for spending
6 costs of inflation
• 43. Which of the following is a cost of
inflation?
•
A. Loanable funds
•
B. Menu Costs
•
C. Shoe Costs
•
D. Unemployment
•
E. Mental illness
Costs of Inflation
• 45. Which of the following is one unexpected
cost of inflation?
•
A. Redistribution of wealth
•
B. Training programs
•
C. Brain drain
•
D. High interest rates
•
E. Decrease in CPI