Deck 10: Unemployment, Inflation, and the Business Cycle

Question 1

Which of the following is NOT a type of unemployment?

A) Frictional unemployment
B) Structural unemployment
C) Fiscal unemployment
D) Cyclical unemployment

Answer 1

Fiscal unemployment

Question 2

Which one of the following people is NOT counted as unemployed?

A) A recent college graduate currently without any employment and looking for her first full-time job
B) A 35-year-old woman fired from her prior work because of poor performance and still looking for another job
C) A 50-year-old woman laid off from her former job because of a downturn in the company's sales and still looking for another job
D) A 22-year-old aspiring actress currently without any show business employment, but working temporarily as a waitress while she auditions for acting jobs

Answer 2

A 22-year-old aspiring actress currently without any show business employment, but working temporarily as a waitress while she auditions for acting jobs

Question 3

Structural unemployment is the result of

A) workers not having the right skills.
B) workers not having the right information about job prospects.
C) government mandates that cause employers to reduce their demand for labor.
D) the inability of some firms to smooth out the available work from season to season.

Answer 3

government mandates that cause employers to reduce their demand for labor.

Question 4

Enrique worked for Starbucks and was laid off due to a downturn in sales that the company expects will persist for a year or more. This is

A) frictional unemployment.
B) structural unemployment.
C) seasonal unemployment.
D) cyclical unemployment.

Question 5

If economic policy makers can keep the economy growing at a steady pace, they can reduce

A) frictional unemployment.
B) structural unemployment.
C) seasonal unemployment.
D) cyclical unemployment.

Question 6

Which of the following groups would NOT be considered as part of the civilian labor force?

A) Full-time students
B) Those already employed
C) Those who are unemployed
D) Part-time workers

Question 7

Assuming there are 90 million people employed in the United States and 2 million people unemployed, the unemployment rate would approximately equal

A) 2.2%.
B) 3.7%.
C) 4.8%.
D) 10.1%.

Question 8

Discouraged workers

A) are considered as unemployed.
B) are not considered as unemployed.
C) are considered as part of the labor force.
D) are employed but are not considered part of the labor force.

Question 9

The unemployment rate can increase even when the number of unemployed people stays the same if

A) the people who remain employed work fewer hours.
B) the people who remain employed earn lower wages.
C) the size of the labor force decreases.
D) the size of the labor force increases.

Question 10

Use Table 10.1. The following is the output of a two product economy.
Table 10.1
Using Year 1 as the base year, the price index in this economy in Year 2 is

A) 113.
B) 105.
C) 100.
D) 87.

Question 11

Use Table 10.2. The following is the output of a two product economy.
Table 10.2
Using Year 1 as the base year, the price index in this economy in Year 2 is

A) 110.
B) 125.
C) 157.
D) 175.

Question 12

The Consumer Price Index

A) is a fixed quantity price index.
B) measures the rate of anticipated inflation.
C) allows for the change in purchasing patterns that result from changes in relative prices.
D) measures price changes in all goods, not just a market basket of select items.

Question 13

Which of the following is a measurement of inflation?

A) Consumer Price Index
B) The unemployment rate
C) The labor force participation rate
D) The size of the labor force

Question 14

COLA's are designed to

A) protect workers against layoffs.
B) improve worker productivity.
C) protect against unanticipated inflation.
D) reduce the inflation rate.

Question 15

Which of these declines during periods of inflation?

A) The consumer price index
B) The nominal interest rate
C) The GDP deflator
D) The purchasing power of money

Question 16

Economists agree that the structure of the consumer price index has some problems that limit its usefulness as a reliable measure of inflation. What is one of these drawbacks?

A) It is based on the faulty assumption that each consumer buys only one unit of each item.
B) It is based on the faulty assumption that consumption choices are not influenced by income levels.
C) It ignores changes in consumption patterns brought about by changes in the relative prices of consumer goods.
D) It is based on a market basket of mail-order items and does not include the goods that consumers typically purchase.

Question 17

Which government agency defines the market basket of goods and services used in the CPI?

A) The Bureau of Labor Statistics
B) The Congressional Budget Office
C) The Department of the Treasury
D) The President's Council of Economic Advisors

Question 18

If the bank advertises 5 percent interest for your checking account and the anticipated rate of inflation is 3.5 percent

A) the real rate of interest earned on the account is 5.0 percent.
B) the real rate of interest earned on the account is 3.5 percent.
C) the real rate of interest earned on the account is 2.5 percent.
D) the real rate of interest earned on the account is 1.5 percent.

Question 19

Table 10.3


-In Table 10.3 the total cost of the market basket of commodities in 2000 was

A) $6.00.
B) $8.50.
C) $60.00.
D) $85.00.

Question 20

Table 10.3


-In Table 10.3 the total cost of the market basket in 2003 was

A) $6.00.
B) $8.50.
C) $60.00.
D) $85.00.

Question 21

Table 10.3


-If 2000 is the base year in Table 10.3, what is the price index for the year 2000?

A) 100.0
B) 121.3
C) 147.1
D) 141.7

Question 22

Table 10.3


-If 2000 is the base year in Table 10.3, what is the price index for the year 2003?

A) 100.0
B) 114.7
C) 147.1
D) 141.7

Question 23

If there is positive, unanticipated inflation, who benefits?

A) Creditors
B) Savers
C) Borrowers
D) People on fixed nominal incomes

Question 24

Who is unanticipated inflation likely to help?

A) Lenders
B) Borrowers
C) All consumers
D) All producers

Question 25

External shocks are events that

A) cause the unemployment rate to differ from its officially measured level.
B) cause U.S. workers to be more productive.
C) originate outside the U.S. but disrupt U.S. economic activity.
D) reduce frictional unemployment.

Question 26

Which of the following statements is correct?

A) The depth and the length of all business downturns are identical.
B) An economy can go through contractions and expansions while still growing over time.
C) Business cycles are caused by seasonal unemployment changes.
D) Business fluctuations are caused by unanticipated inflation.

Question 27

Which of the following is not a likely cause of business fluctuations?

A) External shocks
B) Changes in business investment
C) Government influence in the economy
D) Changes in college admissions policies

Question 28

The opportunity cost of looking for a job

A) depends on the overall unemployment rate.
B) is lower for those who are already unemployed, as opposed to those who are working.
C) is lower for workers currently earning high hourly wages, as opposed to those currently earning low hourly wages.
D) does not affect how people conduct a job search.

Question 29

If the U.S. economy enters a recessionary phase,

A) the economy enjoys full employment.
B) the unemployment rate will increase.
C) inflation will be eliminated.
D) the distribution of income will become more equal.

Question 30

The total labor force is comprised of

A) the unemployed and the employed.
B) only the employed.
C) only workers employed full-time.
D) all individuals over 16 years of age.

Question 31

Suppose that Matt quits a job with the XYZ Corporation in order to look for more rewarding employment. Matt would be

A) counted as structurally unemployed.
B) counted as seasonally unemployed.
C) counted as frictionally unemployed.
D) counted as cyclically unemployed.

Question 32

If a person is fired for poor performance, this person is considered

A) seasonally unemployed.
B) frictionally unemployed.
C) structurally unemployed.
D) a discouraged worker.

Question 33

Bob's assembly line job has been replaced by robots. He is considered

A) structurally unemployed.
B) frictionally unemployed.
C) seasonally unemployed.
D) a discouraged worker.

Question 34

Structural unemployment can occur when

A) there is a change in the nature of skills needed in the workforce.
B) the change of seasons causes construction workers to be laid off.
C) recessions occur.
D) a worker dislikes her boss and quits.

Question 35

Which one of the following individuals would be classified as structurally unemployed?

A) David lost his construction job because there was a reduction in the number of houses built during the winter of 2002.
B) Jayme lost her job with the state because there was a reduction in the state budget.
C) Ted lost his job when the steel mill where he worked closed because domestic producers would not produce as efficiently and cheaply as foreign firms.
D) Linda lost her job in early January when the Christmas store where she worked closed.

Question 36

The labor force is composed of the employed and the _________ .

Question 37

The continuous flow of individuals from job to job constitutes _________ unemployment.

Question 38

To the extent that government policies create labor market rigidities which result in workers losing jobs, _________ unemployment results.

Question 39

When overall economic activity slows down, _________ unemployment results.

Question 40

The level of _________ unemployment depends on the number of workers switching jobs.

Question 41

Government mandates that cause employers to reduce their labor demand cause _________ unemployment.

Question 42

To the extent that an economy lessens its fluctuations in overall business activity, it will reduce the amount of _________ unemployment.

Question 43

Workers whose jobs are dependent on weather conditions are subject to _________ unemployment.

Question 44

The amount of _________ unemployment would be reduced if measures were taken to reduce the costs of obtaining information about job openings.

Question 45

To the extent that workers looking for jobs lack the skills necessary to fill the positions available, _________ unemployment results.

Question 46

Workers who have dropped out of the labor force because they believe they cannot find work are classified as _________ workers.

Question 47

Over the last 60 years, the labor force participation rate of women has _________.

Question 48

Disability payments may account for lower _________ participation among men.

Question 49

During the twentieth century, the U.S. unemployment rate was highest during years of the _________.

Question 50

An overall increase in prices is known as _________.

Question 51

An overall decline in the purchasing power of money results when there is _________.

Question 52

In the base year, the price index always has a value of _________.

Question 53

The consumer price index measures changes in the cost of a typical market basket of goods purchased by _________ consumers.

Question 54

The Bureau of _________ _________ compiles the information used to compute the CPI.

Question 55

Because the CPI is a fixed quantity price index, it does not allow for the fact that consumers _________ between goods as their relative prices change.

Question 56

The broadest price index reported in the U.S. is the _________ _________.

Question 57

To the extent that inflation in an economy is _________, it redistributes wealth from creditors to debtors.

Question 58

Borrowers benefit from unanticipated inflation, because the _________ interest rate they pay will end up being less than expected.

Question 59

Cost of living adjustments are designed to protect workers from _________.

Question 60

The real interest rate on a loan is the _________ interest rate minus the rate of inflation.

Question 61

The real rate of interest on a loan will be zero if the actual rate of _________ equals the nominal interest rate.

Question 62

The ups and downs in overall economic activity are known as _________ ________.

Question 63

A slowdown in the pace of nationwide economic activity is a _________.

Question 64

The bottom of an economic contraction is called a _________.

Question 65

The top of an economic expansion is called a _________.

Question 66

An extremely severe recession is called a _________.

Question 67

The events of September 11, 2001 were an _________ _________that disrupted U.S. economic activity.

Question 68

As firms invest in new plant and equipment or embrace new innovations in their production technology, the economy enters an _________ phase.

Question 69

Business fluctuations consist of _________ and _________.

Question 70

A sustained decrease in overall prices is known as _________.

Question 71

What are the four main types of unemployment?

Question 72

Which type of unemployment is caused by government mandates that cause firms to reduce their demand for labor?

Question 73

Which type of unemployment affects workers who depend on good weather for them to conduct their jobs effectively?

Question 74

Which type of unemployment is related to workers moving in and out of jobs?

Question 75

Which type of unemployment results from downturns in overall business activity?

Question 76

What causes someone to become a discouraged worker?

Question 77

How has Social Security Disability Insurance affected the labor force participation rate of men?

Question 78

What determines the level and duration of frictional unemployment?

Question 79

What does the consumer price index measure?

Question 80

Which government agency compiles the CPI?