Question 1

Most economists believe that a zero rate of unemployment

Accepted Answer

Most economists believe that a zero rate of unemployment is inconsistent with a well-functioning economy because some level of unemployment is necessary for the economy to operate efficiently. This is because there are always people entering or leaving the workforce, and some industries may experience cyclical or structural changes that result in temporary unemployment. Therefore, a zero rate of unemployment may indicate other economic concerns, such as inflation or a lack of available workers with necessary skills.

Question 2

Which of the following countries experienced hyperinflation during the 1920s?

Accepted Answer

Germany experienced hyperinflation during the 1920s due to the economic fallout from World War I and the reparations demanded by the Treaty of Versailles. The United States, Canada, and England did not experience hyperinflation during this time period.

Question 3

Increases in interest rates are often blamed on

Accepted Answer

Increases in interest rates are typically determined by the Federal Reserve (the Fed), which is responsible for setting the federal funds rate. The Fed raises interest rates in order to combat inflation and slow down economic growth. While Congress, the President, and the U.S. Treasury may have some influence over interest rates through policy decisions, the Fed is generally seen as the primary driver of changes in interest rates.

Question 4

Interest rate fluctuations

Accepted Answer

Interest rate fluctuations can make it difficult for households and firms to plan for the future because they can impact the cost of borrowing and the return on savings or investments. As a result, it can be challenging to make long-term financial decisions. The Fed does pay close attention to interest rates and may adjust them in order to achieve its goals of promoting economic growth and stable prices. However, interest rate fluctuations are not eliminated entirely and can still have an impact on the economy. There is no evidence to support the statement that interest rate fluctuations paradoxically increase the rate of economic growth, and it is not accurate to say that fluctuations are largely ignored by the Fed.

Question 5

A rising dollar makes U.S. goods

Accepted Answer

A rising dollar makes U.S. goods more expensive to foreign buyers, which reduces the demand for U.S. exports and subsequently decreases the volume of U.S. exports.

Question 6

Inflation is an economic problem because it

Accepted Answer

Inflation makes prices less useful as signals for resource allocation because prices no longer accurately reflect the value of goods and services which distorts market signals and causes misallocation of resources.

Question 7

When all workers who want jobs have them and the demand for and supply of labor are in equilibrium,

Accepted Answer

When the demand for and supply of labor are in equilibrium, there will still be some level of unemployment due to frictions or mismatches in the labor market. This level of unemployment is referred to as the natural rate of unemployment. Therefore, option B is the correct answer. Option A is incorrect because even at full employment, there will still be some frictional and structural unemployment. Option C is incorrect because equilibrium in the labor market does not necessarily mean that the economy is experiencing high rates of inflation. Option D is incorrect because frictional unemployment will never be zero, as there will always be some workers in between jobs or searching for their first job.

Question 8

When financial markets and institutions are not efficient in matching savers and borrowers,

Accepted Answer

When financial markets and institutions are not efficient in matching savers and borrowers, resources are lost because potential borrowers may not be able to access loans, causing them to forego important investments or projects. Additionally, savers may not be able to allocate their funds to the most productive investment opportunities. As a result, valuable economic opportunities may be missed, leading to lost economic growth and welfare gains.

Question 9

High employment spurs economic growth because high employment

Accepted Answer

High employment often leads to high rates of investment as more people are earning income and able to spend and save more, which can increase overall economic activity and stimulate growth. Option A may also be valid as lower unemployment can reduce inflationary pressures. Option B and C do not have a clear link to economic growth.

Question 10

The Fed's goal of interest rate stability

Accepted Answer

The answer of The Fed's goal of interest rate stability
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Question 11

Rates of inflation in the hundreds or thousands of percent per year are known as

Accepted Answer

Inflation rates of hundreds or thousands of percent per year are known as hyperinflation. This refers to a situation where the value of a currency is rapidly decreasing, leading to a surge in prices and a decrease in purchasing power. Super inflation and megainflation are not commonly used terms in economics, while overinflation is not a recognized concept at all.

Question 12

The unemployment that is caused by changes in the economy, such as shifts in manufacturing techniques, increased use of computers and electronic machines, and increases in the production of services instead of goods, is called

Accepted Answer

Structural unemployment refers to unemployment caused by changes in the structure of the economy, such as changes in technology or production processes. This type of unemployment is often long-term and can lead to a mismatch between the skills of the unemployed workers and the available job opportunities. Frictional unemployment is caused by individuals who are temporarily between jobs or who are in the process of searching for a new job. Cyclical unemployment is caused by fluctuations in the business cycle and occurs when the economy experiences a downturn or recession. Natural unemployment refers to the unemployment that exists in the economy due to factors such as demographic changes or mismatches between the skills of workers and available job opportunities.

Question 13

The Employment Act of 1946 codified the federal government's commitment to

Accepted Answer

The Employment Act of 1946 codified the federal government's commitment to promote high employment consistent with price stability. This means that the government seeks to achieve as high a level of employment as possible while also maintaining stable prices and avoiding inflation.

Question 14

John Smith leaves his job in New York to go to California in hopes of finding a better one. If John Smith is unemployed while searching for a job in California, economists would consider him to be

Accepted Answer

John Smith is not unemployed due to a lack of demand in the economy or due to his skills being mismatched with available jobs, which would be structural unemployment. He is also not experiencing a downturn in the business cycle, which would be cyclical unemployment. Rather, he is between jobs and looking for work, which is known as frictional unemployment.

Question 15

When economists and policymakers refer to the Fed's dual mandate, they are referring to:

Accepted Answer

The Fed's dual mandate, as stated in the Federal Reserve Act, is to promote maximum employment and price stability. Therefore, the correct answer is B, which states price stability and maximum employment as the two components of the dual mandate.

Question 16

Which of the following statements about the natural rate of unemployment is correct?

Accepted Answer

Currently, most economists think that the natural rate of unemployment is between 5% and 6%. This means that at any given time, there will always be some level of unemployment due to frictional and structural factors. The natural rate of unemployment is not zero, as there will always be some degree of job turnover and mismatch between workers' skills and the available jobs in the economy.

Question 17

Which of the following is considered to be a goal of monetary policy?

Accepted Answer

Price stability is a common goal of monetary policy. This involves maintaining a stable and predictable level of inflation in order to promote economic growth and stability. A low federal budget deficit relates more to fiscal policy, while fair wages and an end to poverty are social and economic goals that may not necessarily fall under the purview of monetary policy.

Question 18

The Fed was created

Accepted Answer

The Fed was created in 1913 in response to a series of financial panics that occurred in the late 1800s and early 1900s. Its primary function was to provide stability and regulate the banking system to prevent future panics.

Question 19

Sally Jones lost her job at a steel company because of a permanent decline in the demand for steel. Sally Jones is considered by economists to be

Accepted Answer

Sally Jones lost her job because of a permanent decline in the demand for steel. This type of unemployment is known as structural unemployment, which occurs when there is a mismatch between the skills that workers have and the skills that employers are looking for. This type of unemployment is long-term and often requires retraining or relocation to find new employment opportunities.

Question 20

Which of the following is NOT considered to be a goal of monetary policy?

Accepted Answer

Fair wages are a goal of labor policy, not monetary policy. Monetary policy objectives typically focus on controlling inflation, promoting price stability, maintaining full employment, and supporting economic growth.

Quiz 15: Monetary Policy