Question 1

Most economists define hyperinflation as an inflation rate greater than _____ a year.
A) 10%
B) 50%
C) 100%
D) 1,000%

Accepted Answer

Hyperinflation is generally defined as a very high rate of inflation, typically over 50% per month or an annual rate of over 100%. The exact threshold may vary depending on the economist and the country in question, but an annual inflation rate of 100% or higher is generally considered to be hyperinflation.

Question 2

In the United States, people are considered unemployed if and when they
A) have become discouraged and are no longer actively seeking work.
B) do not have a job but are available for work and have been actively seeking work.
C) are working at a job that does not fully utilize their skills.
D) are on family leave.

Accepted Answer

According to the Bureau of Labor Statistics, individuals are considered unemployed if they do not have a job, are available for work, and have actively sought employment in the four weeks preceding the survey. Option A describes discouraged workers who are no longer actively seeking work and are therefore not included in the official unemployment rate. Option C describes underemployed workers who are working but not to their full potential, and they are not considered unemployed. Option D describes individuals on family leave, who are not actively seeking work during that time and therefore not considered unemployed.

Question 3

Suppose the unemployment rate is 10% and an economist breaks the unemployment rate into the following components: frictional (3%) and structural (3%). Based on these estimates, the cyclical inflation rate is
A) 3%.
B) 4%.
C) 5%.
D) 6%.

Accepted Answer

Cyclical unemployment is the difference between the total unemployment rate and the sum of frictional and structural unemployment rates. Here, it's 10% - (3% + 3%) = 4%.

Question 4

Inflation is a
A) steady rise in the unemployment rate across the labor market.
B) general rise in interest rates.
C) decline in confidence in prices.
D) general rise in prices.

Accepted Answer

Inflation refers to a general rise in prices over time, leading to a decline in the value of money. It is measured by the percentage change in the price level of goods and services in an economy over a period of time. Options A and B are incorrect because they refer to other economic indicators, while option C is unclear in its meaning.

Question 5

If the cost of a typical market basket in 2019 is 400 and the cost of a typical market basket in 2020 is 390, then during this period the economy is undergoing
A) inflation.
B) disinflation.
C) deflation.
D) hyperinflation.

Accepted Answer

Deflation is indicated by a decrease in the cost of a typical market basket, from 400 to 390 in this case, showing that overall prices have fallen.

Question 6

The formula for calculating the percentage change in prices between any two years is [(CPI in Current Year / CPI in Original Year) × 100] - 100.

Accepted Answer

The formula for calculating the percentage change in prices between any two years is [(CPI in Current Year / CPI in Original Year) × 100] - 100.

Question 7

(Table) According to the table, nominal GDP for 2013 is approximately 
A) $7,292 billion.
B) $7,492 billion.
C) $7,692 billion.
D) $7,892 billion.

Accepted Answer

The table shows that nominal GDP for 2013 is 16,768,100 in millions, which is equivalent to 16,768.1 in billions. Rounded to the nearest billion, the answer is $7,692 billion.

Question 8

Which statement does NOT describe a problem in measuring the consumer price index (CPI)?
A) The CPI measures only private goods and services.
B) The CPI uses a fixed market basket of goods determined by surveys that are three to five years old.
C) Approximately 10% of the original market basket must be replaced each year by products that are improved or modified.
D) The CPI includes new products in its baskets.

Accepted Answer

The statement "The CPI includes new products in its baskets" is not a problem in measuring the CPI. In fact, it is an improvement because it allows for the inclusion of new and innovative products in the market. The other three statements pose potential issues with measuring the CPI.

Question 9

The nominal value of wages explains how much a consumer can pay for goods and services.

Accepted Answer

The nominal value of wages is the amount of money an individual is paid in their wages or salary. It does not necessarily determine how much they can afford to pay for goods and services, as this is also influenced by factors such as inflation and cost of living.

Question 10

From a macroeconomic perspective, policymakers can be most effective with policies that target cyclical unemployment.

Accepted Answer

Cyclical unemployment is caused by changes in the business cycle, and therefore can be influenced by macroeconomic policies such as monetary and fiscal policy. Policies that stimulate economic growth and increase aggregate demand can help reduce cyclical unemployment. In contrast, structural and frictional unemployment are caused by factors that are outside the control of macroeconomic policies.

Question 11

The labor force consists of all adults in the United States.

Accepted Answer

The labor force consists of all adults who are employed or actively seeking employment. It does not include adults who are not working and not seeking employment, such as retirees or stay-at-home parents. Therefore, the labor force is a subset of all adults in the United States.

Question 12

_____ is an index of the average prices for all goods and services in the economy and is the broadest measure of inflation.
A) The consumer price index
B) The producer price index
C) Personal consumption expenditure
D) The GDP deflator

Accepted Answer

The GDP deflator measures the level of prices for all goods and services that are included in the gross domestic product (GDP). It is a more comprehensive measure of inflation compared to other indices like the consumer price index, which only tracks prices for a selected basket of goods and services that the average consumer purchases. The producer price index measures the change in prices for goods sold by manufacturers and wholesalers, while personal consumption expenditure tracks the spending patterns of individuals and households on goods and services.

Question 13

Retirees and creditors
A) are hurt by inflation because their purchasing power is reduced.
B) are hurt by inflation because taxes decrease.
C) benefit from inflation because they are paid in cheaper dollars.
D) benefit from inflation because interest rates rise.

Accepted Answer

Retirees and creditors are hurt by inflation because their purchasing power is reduced. When the general price level in an economy rises, their fixed income or savings are not enough to meet their expenses or debts. As a result, they have to either reduce their consumption or borrow at a higher rate, which could lead to financial hardship.

Question 14

If Kim's salary was $50,000 last year, and this year she receives a cost-of-living increase tied to the consumer price index (CPI), what will her salary be this year assuming the CPI has risen from 110 to 114?
A) $49,114
B) $50,114
C) $50,300
D) $51,818

Accepted Answer

First, calculate the percentage increase in CPI: (114-110)/110 = 0.036 or 3.6%
Next, apply that same percentage increase to Kim's salary:
$50,000 x 1.036 = $51,818. Thus, Kim's new salary will be $51,818.

Question 15

People who are considered unemployed include those who
A) are doing temporary work.
B) are unpaid family workers.
C) do not have a job and are not actively seeking employment.
D) do not have a job but are available for work and have been actively seeking work.

Accepted Answer

According to the International Labor Organization (ILO), the definition of unemployed individuals includes those who do not have a job but are available for work and have been actively seeking work. This definition excludes those who are not actively seeking employment (option C), as well as those who are doing temporary work (option A) or unpaid family work (option B), as they are considered employed.

Question 16

Frictional unemployment refers primarily to workers between jobs.

Accepted Answer

Frictional unemployment occurs when workers are temporarily between jobs or in the process of searching for a new job. It is often seen as a normal part of the job market as workers move between different employers and jobs.

Question 17

The costs of inflation are greater when it is unanticipated.

Accepted Answer

When inflation is unanticipated, individuals and firms are not able to anticipate its effects on prices and wages. As a result, they may make decisions based on incorrect expectations, leading to a misallocation of resources and higher economic costs. In contrast, when inflation is anticipated, individuals and firms can adjust their behavior and prices accordingly, minimizing the costs of inflation.

Question 18

Which statement regarding the types of unemployment is TRUE?
A) Frictional unemployment is generally short-term, whereas structural unemployment is often long-term.
B) Cyclical unemployment is due to expansions in the business cycle.
C) Frictional unemployment is brought about by changes in technology.
D) Structural unemployment is the result of normal labor turnover.

Accepted Answer

Frictional unemployment is temporary and occurs as workers move between jobs or enter the labor force for the first time. Structural unemployment results from a mismatch between the skills or location of workers and the available job openings, and can often be long-term. Cyclical unemployment is caused by downturns in the business cycle, and is not a type of unemployment brought about by changes in technology. Normal labor turnover may contribute to frictional unemployment, but is not the sole cause of structural unemployment.

Question 19

Cathy works part-time as a bookkeeper but would like to have a full-time position. She has been actively searching for months but so far has not found a job. According to the Bureau of Labor Statistics, Cathy is unemployed.

Accepted Answer

According to the Bureau of Labor Statistics, Cathy is not considered unemployed because she is currently working part-time, even though she is seeking full-time employment. Unemployment refers to individuals who are not working at all but are actively seeking work.

Question 20

Full employment, or the natural rate of unemployment, is determined by institutional factors such as the presence or absence of employment agencies and their effectiveness.

Accepted Answer

Full employment, or the natural rate of unemployment, is influenced by institutional factors including the efficiency of employment agencies, labor laws, and training programs, which affect how quickly unemployed individuals can find work.

Quiz 6: Measuring Inflation and Unemployment

Most economists define hyperinflation as an inflation rate greater than _____ a year.

In the United States, people are considered unemployed if and when they

Suppose the unemployment rate is 10% and an economist breaks the unemployment rate into the following components: frictional (3%) and structural (3%) . Based on these estimates, the cyclical inflation rate is

Inflation is a

If the cost of a typical market basket in 2019 is 400 and the cost of a typical market basket in 2020 is 390, then during this period the economy is undergoing

The formula for calculating the percentage change in prices between any two years is [(CPI in Current Year / CPI in Original Year) × 100] - 100.

(Table) According to the table, nominal GDP for 2013 is approximately

Which statement does NOT describe a problem in measuring the consumer price index (CPI) ?

The nominal value of wages explains how much a consumer can pay for goods and services.

From a macroeconomic perspective, policymakers can be most effective with policies that target cyclical unemployment.

The labor force consists of all adults in the United States.

_____ is an index of the average prices for all goods and services in the economy and is the broadest measure of inflation.

Retirees and creditors

If Kim's salary was $50,000 last year, and this year she receives a cost-of-living increase tied to the consumer price index (CPI) , what will her salary be this year assuming the CPI has risen from 110 to 114?

People who are considered unemployed include those who

Frictional unemployment refers primarily to workers between jobs.

The costs of inflation are greater when it is unanticipated.

Which statement regarding the types of unemployment is TRUE?

Cathy works part-time as a bookkeeper but would like to have a full-time position. She has been actively searching for months but so far has not found a job. According to the Bureau of Labor Statistics, Cathy is unemployed.

Full employment, or the natural rate of unemployment, is determined by institutional factors such as the presence or absence of employment agencies and their effectiveness.