Question 1

To be officially unemployed a person must be in the labour force and must:

Accepted Answer

A)   be actively seeking work.
B)   be 21 years of age or older.
C)   have just lost a job.
D)   be waiting to be called back from a layoff.E) B) and D)
F) All of the above

Question 2

Which of the following is correct?

Accepted Answer

A)   Real and nominal incomes always move in the same direction.
B)   Inflation increases the purchasing power of the dollar and necessarily reduces one's nominal income.
C)   Inflation reduces the purchasing power of the dollar and necessarily reduces one's real income.
D)   Inflation reduces the purchasing power of the dollar,but does not necessarily reduce one's real income.E) A) and D)
F) All of the above

Question 3

Cost-push inflation could be explained by:

Accepted Answer

A)   an increase in the level of consumer spending.
B)   a decrease in wage rates.
C)   a decline in per-unit production costs.
D)   an increase in the per-unit production cost.E) All of the above
F) A) and B)

Question 4

During 1986-1991,Nicaragua has experienced an economic condition which can be best described as:

Accepted Answer

A)   hyperinflation.
B)   cost-push inflation.
C)   unanticipated inflation.
D)   demand-pull inflation.E) A) and B)
F) A) and C)

Question 5

Unanticipated inflation benefits creditors and savers.

Accepted Answer

A) True 
 B)False

Question 6

Cost-of-living adjustment clauses (COLAs) :

Accepted Answer

A)   invalidate the "rule of 70."
B)   apply only to demand-pull inflation.
C)   increase the gap between nominal and real income.
D)   tie wage increases to changes in the price level.E) A) and D)
F) C) and D)

Question 7

Households and businesses must spend time and effort obtaining the information they need to distinguish between real and nominal values such as prices,wages,and interest rates.

Accepted Answer

A) True 
 B)False

Question 8

Which phase of the business cycle would be most closely associated with an economic contraction?

Accepted Answer

A)   peak
B)   recession
C)   trough
D)   expansionE) All of the above
F) B) and C)

Question 9

If Ernie's annual real income rises by 8 percent each year,his annual real income will double in about:

Accepted Answer

A)   8-9 years.
B)   10-11 years.
C)   5-6 years.
D)   19-20 years.E) A) and C)
F) All of the above

Question 10

Cost-push inflation:

Accepted Answer

A)   is caused by excessive total spending.
B)   shifts the nation's production possibilities curve leftward.
C)   moves the economy inward from its production possibilities curve.
D)   is a mixed blessing because it has positive effects on real output and employment.E) None of the above
F) C) and D)

Question 11

The unemployment rate is the:

Accepted Answer

A)   ratio of unemployed to employed workers.
B)   number of employed workers minus the number of workers who are not in the labour force.
C)   percentage of the labour force which is out of work.
D)   percentage of the total population which is out of work.E) B) and C)
F) B) and D)

Question 12

If the consumer price index falls from 120 to 116 in a particular year,the economy has experienced:

Accepted Answer

A)   inflation of 4 percent.
B)   inflation of 3.33 percent.
C)   deflation of 3.33 percent.
D)   deflation of 4 percent.E) B) and C)
F) A) and D)

Question 13

Suppose there are 5 million unemployed workers seeking jobs.After a period of time,1 million of them become discouraged over their job prospects and cease to look for work.As a result of this,the official unemployment rate would:

Accepted Answer

A)   increase in the short run but eventually decline.
B)   increase.
C)   decline.
D)   be unchanged.E) A) and C)
F) A) and D)

Question 14

In Year 1,the price level was 120 and the average nominal income was $30,000.In Year 2,the price level was 125 and the average nominal level of income was $32,000.What happened to real income from Year 1 to Year 2?

Accepted Answer

A)   It fell by $400.
B)   It rose by $400.
C)   It rose by $600.
D)   It rose by $2,000.E) All of the above
F) C) and D)

Question 15

When the unemployment rate is relatively high,we can conclude that:

Accepted Answer

A)   the economy is in the expansion phase of the business cycle.
B)   potential GDP is in excess of actual GDP.
C)   actual GDP is in excess of potential GDP.
D)   actual GDP is equal to potential GDP.E) B) and D)
F) All of the above

Question 16

Cyclical unemployment is a consequence of:

Accepted Answer

A)   a decline in aggregate spending.
B)   the decreasing relative importance of goods and the increasing relative importance of services in our economy.
C)   the everyday dynamics of a free labour market.
D)   technological change.E) C) and D)
F) B) and C)

Question 17

As applied to the price level,the "rule of 70" indicates that the number of years required for the price to double can be found by:

Accepted Answer

A)   dividing "70" into the annual rate of inflation.
B)   dividing the annual rate of inflation into "70."
C)   subtracting the annual change in nominal incomes from "70."
D)   multiplying the annual rate of inflation by "70."E) All of the above
F) A) and B)

Question 18

A peak in the business cycle:

Accepted Answer

A)   occurs when the unemployment rate is its greatest.
B)   occurs when the inflation rate is its lowest.
C)   is a temporary maximum point.
D)   is a temporary minimum point.E) None of the above
F) B) and C)

Question 19

You are given the following information about the economy: (1) nominal interest = 8 percent; (2) real rate of interest = 6 percent.The inflation premium is:

Accepted Answer

A)   2 percent.
B)   6 percent.
C)   8 percent.
D)   14 percent.E) All of the above
F) B) and D)

Question 20

A recession is a period in which:

Accepted Answer

A)   cost-push inflation is present.
B)   nominal domestic output falls.
C)   demand-pull inflation is present.
D)   real domestic output falls.E) None of the above
F) A) and B)

Exam 9: Business Cycles, Unemployment, and Inflation

Unanticipated inflation benefits creditors and savers.

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Cost-push inflation:

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Cost-push inflation could be explained by:

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A recession is a period in which:

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When the unemployment rate is relatively high,we can conclude that:

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Which of the following is correct?

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Households and businesses must spend time and effort obtaining the information they need to distinguish between real and nominal values such as prices,wages,and interest rates.

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The unemployment rate is the:

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Cyclical unemployment is a consequence of:

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Which phase of the business cycle would be most closely associated with an economic contraction?

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As applied to the price level,the "rule of 70" indicates that the number of years required for the price to double can be found by:

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If the consumer price index falls from 120 to 116 in a particular year,the economy has experienced:

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During 1986-1991,Nicaragua has experienced an economic condition which can be best described as:

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Suppose there are 5 million unemployed workers seeking jobs.After a period of time,1 million of them become discouraged over their job prospects and cease to look for work.As a result of this,the official unemployment rate would:

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In Year 1,the price level was 120 and the average nominal income was $30,000.In Year 2,the price level was 125 and the average nominal level of income was $32,000.What happened to real income from Year 1 to Year 2?

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Cost-of-living adjustment clauses (COLAs) :

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To be officially unemployed a person must be in the labour force and must:

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A peak in the business cycle:

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You are given the following information about the economy: (1) nominal interest = 8 percent; (2) real rate of interest = 6 percent.The inflation premium is:

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If Ernie's annual real income rises by 8 percent each year,his annual real income will double in about:

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