Exam 2 chapter 8

Question 1

When a student finishes college and begins looking for work
Answers:
frictional and cyclical unemployment increase.
frictional unemployment increases.
structural unemployment increases.
cyclical unemployment increases.

Answer 1

frictional unemployment increases.

Question 2

Marginally attached workers fall into which of the following population categories?
Answers:	
not in the labor force
employed
labor force
unemployed

Answer 2

not in the labor force

Question 3

If the number of people unemployed is 100, the number of people employed is 1000, and the working-age population is 1400, then the unemployment rate is

Answer 3

9.1%

Question 4

Unemployment caused by the fluctuation of the business cycle is called \_\_\_\_\_\_\_\_ unemployment.
Answers:	
cyclical
frictional
structural
recession-related

Answer 4

cyclical

Question 5

As currently calculated, the CPI tends to overstate the true inflation rate because
Answers:
the market basket fails to weigh housing costs sufficiently.
we cannot know what the true inflation rate is.
it fails to correctly measure quality changes for some products.
the market basket selected is inappropriate.

Answer 5

it fails to correctly measure quality changes for some products.

Question 6

Which type of price index theory uses base year's quantities?
Answers:	
Fisher's Mean
Boskin's Index
Laspeyres
Paasche

Answer 6

Laspeyres

Question 7

The unemployment rate measures the percentage of
Answers:
the working age population that can’t find a full-time job.
the working-age population who can’t find a job.
people who want full-time jobs, but can’t find them.
people in the labor force who can’t find a job.

Answer 7

people in the labor force who can’t find a job.

Question 8

When the automobile replaced horse-drawn carriages as the principal means of transportation, firms producing horse-drawn carriages went bankrupt and permanently laid off all their workers, thereby increasing
Answers:	
frictional and cyclical unemployment.
cyclical unemployment.
frictional unemployment.
structural unemployment.

Answer 8

structural unemployment.

Question 9

Cyclical unemployment occurs when
Answers:
individuals with skills no longer valued in the labor market cannot find employment.
individuals enter into the labor market making the rounds of potential employers.
a business cycle recession decreases employment.
individuals give up the search for employment.

Answer 9

a business cycle recession decreases employment.

Question 10

Substitution bias in the CPI refers to the fact that the CPI
Answers:
takes into account the substitution of goods by consumers when relative prices change.
takes no account of the substitution of goods by consumers when relative prices change.
substitutes relative prices for absolute prices of goods.
substitutes quality changes whenever they occur without taking account of the cost of the quality changes.

Answer 10

takes no account of the substitution of goods by consumers when relative prices change.

Question 11

Suppose there are currently 100 people unemployed, 1500 people employed, and 2000 people in the working age population. The labor force participation rate equals 100 times

Answer 11

1600/2000.

Question 12

Deflation represents:
Answers:	
a recession.
an increase in the unemployment rate.
a reduction in output.
a reduction in the aggregate price level.

Answer 12

a reduction in the aggregate price level.

Question 13

Which of the following statements is INCORRECT?
Answers:
The working age population includes everyone over the age of 16.
The unemployment rate is the number of persons who are unemployed divided by the labor force then times 100.
The labor-force participation rate is the labor force divided by the working-age population then times 100.
The labor force is equal to the number of people employed plus the number of people unemployed.

Answer 13

The working age population includes everyone over the age of 16.

Question 14

Suppose the CPI last year is 121 and the CPI this year is 137. The correct method to calculate the inflation rate is

Answer 14

[(137 - 121)/121] × 100 = 13.2.

Question 15

frictional unemployment comes about because of
Answers:
a mismatch between skills and available jobs.
friction between labor and management.
normal labor market turnover.
a general economic slowdown.

Answer 15

normal labor market turnover.

Question 16

An example of “investment” in computing real GDP using the expenditure approach is the purchase of
Answers:
100 shares of IBM stock.
computer chips by Dell to put in their personal computers.
a 100 year old house by a married couple.
a new set of tools by an auto mechanic, for use in repairing cars.

Answer 16

a new set of tools by an auto mechanic, for use in repairing cars.

Question 17

The employment-to-population ratio is defined as
Answers:
total employment divided by the labor force then multiplied by 100.
total employment divided by labor hours then multiplied by 100.
the labor force divided by the working-age population then multiplied by 100.
total employment divided by the working-age population then multiplied by 100.

Answer 17

total employment divided by the working-age population then multiplied by 100.

Question 18

Which type of price index theory uses current year's quantities?
Answers:	
Boskin's Index
Paasche
Laspeyres
Fisher's Mean

Answer 18

Paasche

Question 19

The three types of unemployment are

Answer 19

frictional, structural, and cyclical.

Question 20

The ________ is calculated as the number of people ________ divided by the labor force multiplied by 100.
Answers:
employment-to-population ratio; in the working age population
employment-to-population ratio; unemployed
unemployment rate; unemployed
employment rate; employed

Answer 20

unemployment rate; unemployed

Question 21

Because of a bank merger, Ms. Davis lost her position as Vice President and had to seek work with other banks. Ms. Davis has the skills necessary to find a new job, thus she is best considered as
Answers:	
structurally unemployed.
naturally unemployed.
cyclically unemployed.
frictionally unemployed.

Answer 21

frictionally unemployed.

Question 22

In a country with a working-age population of 130 million, 90 million workers are employed and 10 million workers are unemployed. What is the unemployment rate?

Answer 22

10.0 percent

Question 23

The consumer price index (CPI)
Answers:
is the ratio of the average price of a typical basket of goods to the cost of producing those goods.
measures the increase in the prices of the goods included in GDP.
compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.
compares the cost of the typical basket of goods consumed in period 1 to the cost of a basket of goods typically consumed in period 2.

Answer 23

compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.

Question 24

Suppose the Consumer Price Index is 143.6. What does that number mean?
Answers:
On average, goods cost $143.60.
Prices rose 143.6 percent over the reference base period, on average.
Prices rose 43.6 percent over the reference base period, on average.
On average, goods cost $243.60.

Answer 24

Prices rose 43.6 percent over the reference base period, on average.

Question 25

The labor force is defined as
Answers:	
people with full time jobs.
all people capable of work.
workers with jobs and unemployed workers.
All of the above answers are correct.

Answer 25

workers with jobs and unemployed workers.

Question 26

The Consumer Price Index is a measure of the average of the prices paid by ________ for a fixed basket of consumer goods and services.
Answers:
all consumers
consumers living in cities with a population greater than 100,000
urban consumers
urban wage earners and clerical workers

Answer 26

urban consumers

Question 27

Full employment occurs
Answers:
only if unemployment is equal to structural unemployment plus cyclical unemployment.
only if the unemployment rate is equal to the natural rate of unemployment.
only if the unemployment rate is zero.
None of the above answers are correct.

Answer 27

only if the unemployment rate is equal to the natural rate of unemployment.

Question 28

Ms. Krupsky has shorthand and typing skills and still finds herself unemployed. In today's economy, Ms. Krupsky is an example of what type of unemployment?
Answers:	
frictional unemployment
structural unemployment
cyclical unemployment
None of the above answers is correct.

Answer 28

structural unemployment

Question 29

The biases in the CPI include the
Answers:
old goods, unemployment, and inflation biases.
substitution, new goods, and old goods biases.
old goods, new goods, and quality change biases.
new goods, quality change, and substitution biases.

Answer 29

new goods, quality change, and substitution biases.

Question 30

Question Year—- Nominal Income– Price Index

1990---- 9800-------- 99
1991---- 10000-------- 95
1992---- 15000------- 100
1993---- 17000------- 110
1994---- 23000------- 115
1995---- 33000------- 123

Calculate the change in inflation, nominal income, and real income from 1990 to 1995. I would recommend working out the entire problem as illustrated in class. Using a spreadsheet can be helpful as well.

Answer 30

24%, 237%, 171%

Question 31

Structural unemployment is the result of
nswers:
normal labor market turnover.
irresponsible workers with poor work habits.
a slowdown in the rate of economic expansion.
technological change, absolute job skills, or foreign competition.

Answer 31

technological change, absolute job skills, or foreign competition.

Question 32

Because of the biases in calculating the CPI, actual inflation is
Answers:
less than the measured inflation rate by about 1 percent per year.
accurately measured.
more than the measured inflation rate by about 1 percent per year.
more than the measured inflation rate by about 1 percent per month.

Answer 32

less than the measured inflation rate by about 1 percent per year.

Question 33

During a recession, the \_\_\_\_\_\_\_\_.
Answers:	
unemployment rate decreases
employment-to-population ratio increases
number of marginally attached workers increases
number of discouraged workers decreases

Answer 33

number of marginally attached workers increases

Question 34

Discouraged workers \_\_\_\_\_\_\_\_ counted as officially unemployed because they \_\_\_\_\_\_\_\_.
Answers:	
are not; are not actively seeking work
are; are still in the labor force
are not; are not qualified to work
are; are not working

Answer 34

are not; are not actively seeking work

Question 35

Which type of price index theory averages the base year and current year's quantities?
Answers:	
Fisher's Mean
Paasche
Laspeyres
Boskin's Index

Answer 35

Fisher’s Mean

Question 36

The labor force participation rate is calculated as the
Answers:
number of persons unemployed divided by the labor force then multiplied by 100.
labor force divided by the number of persons employed then multiplied by 100.
labor force divided by the unemployment rate then multiplied by 100.
labor force divided by the working age population then multiplied by 100.

Answer 36

labor force divided by the working age population then multiplied by 100.

Question 37

Looking at inflation rates in the United States since the 1970s we see that
Answers:
the highest inflation rates were the double digits during the 1990s.
the 1970s experienced the highest inflation rates.
inflation fell the most during the 1970s productivity slowdown.
the inflation rate increased with the increased growth of the 1990s.

Answer 37

the 1970s experienced the highest inflation rates

Question 38

If the CPI basket of goods cost $200 in the reference base period and $450 in a later year, the CPI in the later year equals

Answer 38

225.

Question 39

Price indexes can overstate inflation because they
Answers:
do not contain the prices of any used goods.
do not contain the prices of foreign goods.
do not contain the prices of services.
omit some quality improvements.

Answer 39

omit some quality improvements.

Question 40

The currently used method for calculating the CPI
Answers:
accounts for people increasing consumption of a good that falls in relative price.
has no effect on government expenditures.
probably overstates inflation by about 1 percentage point.
None of the above answers are correct.

Answer 40

probably overstates inflation by about 1 percentage point.