Question 1

When inflation occurs:

Accepted Answer

When inflation occurs, the general price level rises, which means that the purchasing power of money decreases. It takes more money to buy the same goods and services as before, so the value of money has decreased. Option A is incorrect because not all prices may rise at the same rate. Option B is incorrect because the decline in purchasing power offsets any increase in output that one may receive. Option C is incorrect because the purchasing power of money actually decreases during inflation.

Question 2

The inflation rate measures the percentage growth rate of:

Accepted Answer

The inflation rate is measured by the percentage growth rate of the Consumer Price Index (CPI) from one year to the next. The CPI measures the average price level of goods and services consumed by households, and is used as a proxy for the overall inflation rate. Choices A and B refer to the growth rate of Real GDP, which is not the same as inflation. Choice C refers to the base period of the CPI, but does not specify the growth rate.

Question 3

Unemployment rates for men and women normally are very similar. In the Great Recession of 2007-09, the unemployment rate for men:

Accepted Answer

During the recession, the unemployment rate for men significantly exceeded that for women. This was largely due to the fact that male-dominated industries such as construction and manufacturing were hit particularly hard during the recession, while sectors with a higher proportion of women such as healthcare and education held up relatively well.

Question 4

If the Consumer Price Index for a certain year is 120, this means that the average price of consumer items in that year was:

Accepted Answer

The Consumer Price Index (CPI) of 120 indicates that the average price level is 20% higher than the base period, which is typically set at 100.

Question 5

The rate of unemployment tends to be lowest for:

Accepted Answer

Historically, white adult males have had the lowest unemployment rates compared to other demographic groups. This is due to a combination of factors such as higher levels of education, greater access to job opportunities, and institutionalized discrimination in hiring practices. While the unemployment rates for all groups have fluctuated over time, white adult males have consistently experienced the lowest rate of unemployment.

Question 6

If the CPI declines from one year to the next, then the following statements are true, except:

Accepted Answer

The CPI can never turn negative as it is a weighted average of prices and cannot be less than zero.

Question 7

"Depression means idleness. And idleness means loss of skills, loss of self-respect, plummeting morale, family disintegration, and sociopolitical unrest." This quote describes some of the:

Accepted Answer

The quote specifically mentions depression and idleness as leading to non-economic costs such as loss of skills, self-respect, family disintegration, and sociopolitical unrest. It is not necessarily related to hyperinflation or the natural rate of unemployment, and while structural unemployment can lead to loss of skills, the quote is not specific to that type of unemployment.

Question 8

The economy has an annual inflation rate of 3.5%. It will take approximately how many years for the price level to double?

Accepted Answer

The Rule of 72 is a quick and easy way to estimate how long it takes for a price level to double. It states that you divide the number 72 by the annual inflation rate to get the approximate number of years it takes for prices to double.

In this case, 72 divided by 3.5% gives us approximately 20.57 years, which we can round down to 20 years. Therefore, choice B is the best answer.

Question 9

Inflation is a rise in:

Accepted Answer

Inflation refers to the general increase in prices of goods and services over time. This means that a certain amount of money can purchase fewer goods and services than before, leading to a decrease in the purchasing power of the money. Inflation is usually measured by the Consumer Price Index (CPI), which tracks the prices of a basket of goods and services over time.

Question 10

Over a ten-year period, the Consumer Price Index doubled. On the basis of this information and using the rule of 70, we can say that the average annual rate of inflation over this period was approximately:

Accepted Answer

The rule of 70 states that if we divide 70 by the annual growth rate (in percent), we get the approximate time it takes for a quantity to double. In this case, since the CPI doubled over a ten-year period, we can set up the following equation:

70 / growth rate = 10

Solving for the growth rate, we get:

growth rate = 70 / 10 = 7

Therefore, the average annual rate of inflation over this period was approximately 7 percent.

Question 11

If the Consumer Price Index was 90 in one year and 100 in the following year, then the rate of inflation is about:

Accepted Answer

The answer of If the Consumer Price Index was 90...

Question 12

Which of the following measures the changes in the prices of a "market basket" of some 300 goods and services purchased by typical urban consumers?

Accepted Answer

The Consumer Price Index (CPI) measures the changes in the prices of a "market basket" of some 300 goods and services purchased by typical urban consumers. The market basket includes items such as food, housing, transportation, clothing, and medical care. The CPI is commonly used as a measure of inflation, which is the rate at which prices for goods and services are increasing.

Question 13

If the natural rate of unemployment is 4.5 percent and the actual unemployment rate is 6.5 percent, then Okun's law indicates that the GDP gap is:

Accepted Answer

The answer of If the natural rate of unemployment is...

Question 14

Which measure of inflation would include consumer goods and capital goods?

Accepted Answer

The GDP Price Index measures the average prices of goods and services produced in an economy, including both consumer goods and capital goods. It provides a broader measure of inflation than the Consumer Price Index, which only includes consumer goods. The Retail Trade Survey and Employment Cost Index are not measures of inflation.

Question 15

Okun's law indicates that for:

Accepted Answer

Okun's law states that for every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 2 percent GDP gap is generated. Therefore, option A is the correct answer.

Question 16

The CPI compiled by the Bureau of Labor Statistics is used in the computations for:

Accepted Answer

The CPI (Consumer Price Index) is a measure of the overall cost of goods and services purchased by consumers, and is commonly used to compute inflation rates. Inflation rates are important to monitor as they can impact economic indicators such as interest rates, investment decisions, and government policies. The CPI is not directly used in the computation of the unemployment rate or foreign exchange rate.

Question 17

Inflation rates in the U.S. reached double-digit rates in the:

Accepted Answer

Inflation rates in the U.S. reached double-digit rates in the 1970s, particularly in the years 1973-1975 and again from 1979 to 1981. The inflation was driven by factors such as high oil prices, government spending, and wage-price spirals.

Question 18

Which of the following statistics can turn negative?

Accepted Answer

The inflation rate can turn negative, indicating deflation, which means that the general price level of goods and services is decreasing.

Question 19

Inflation rates in the U.S. from 2000 to 2012 were within the range of:

Accepted Answer

During the period from 2000 to 2012, U.S. inflation rates generally fluctuated between 0% and 4%, with occasional dips and spikes due to economic conditions such as the 2008 financial crisis.

Question 20

Unemployment rates for skilled workers compared to unemployment rates for unskilled workers are:

Accepted Answer

Skilled workers tend to be employed in industries that are less vulnerable to economic cycles, such as the services and non-durable goods industries. Therefore, their unemployment rates are lower compared to unskilled workers who are employed in more cyclically vulnerable industries such as construction or manufacturing.

Quiz 9: Business Cycles, Unemployment, and Inflation