Question 1

Households and businesses must spend time and effort obtaining the information they need to distinguish between real and nominal values such as prices, wages, and interest rates.

Accepted Answer

A) True 
 B)False

Question 2

A worker would be hurt least by inflation when the:

Accepted Answer

A)  worker anticipates inflation and increases savings at the bank.
B)  worker is protected by a cost-of-living adjustment clause in an employment contract.
C)  worker is protected by fixed annual increases in wages and benefits in an employment contract.
D)  government increases the level of social security retirement benefits to correct for the effects of anticipated inflation.E) None of the above
F) A) and C)

Question 3

The natural rate of unemployment:

Accepted Answer

A)  is fixed over time.
B)  is found by adding the cyclical and structural unemployment rates.
C)  may change from one decade to another.
D)  cannot be changed through public policy.E) B) and D)
F) A) and D)

Question 4

The relationship between the size of the GDP gap and the unemployment rate is:

Accepted Answer

A)  direct.
B)  inverse.
C)  undefined.
D)  direct during recession, but inverse during expansion.E) A) and B)
F) A) and C)

Question 5

If Ernie's annual real income rises by 8 percent each year, his annual real income will double in about:

Accepted Answer

A)  8-9 years.
B)  10-11 years.
C)  5-6 years.
D)  19-20 years.E) B) and D)
F) B) and C)

Question 6

Most economists believe that the immediate cause of cyclical changes in the levels of real output and employment is:

Accepted Answer

A)  the changes in productivity.
B)  the changes in technology.
C)  the changes in the level of total spending.
D)  the changes in the money supply.E) B) and D)
F) A) and C)

Question 7

A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment?

Accepted Answer

A)  structural
B)  cyclical
C)  frictional
D)  naturalE) None of the above
F) B) and D)

Question 8

Which of the following constitute the unemployment occurring when the natural rate of unemployment exists?

Accepted Answer

A)  frictional and cyclical unemployment
B)  structural, seasonal and frictional unemployment
C)  cyclical and structural unemployment
D)  frictional, structural, and cyclical unemployment.E) All of the above
F) C) and D)

Question 9

The total population of an economy is 175 million, the labour force is 125 million, and the number of unemployed is 8 million.The unemployment rate for this economy is:

Accepted Answer

A)  4.6 percent.
B)  5.8 percent.
C)  6.4 percent.
D)  7.8 percent.E) None of the above
F) A) and B)

Question 10

Dr.Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in P.E.I.That year, Professor Simpson would be officially counted as:

Accepted Answer

A)  structurally unemployed.
B)  frictionally unemployed.
C)  not in the labour force.
D)  employed.E) B) and C)
F) All of the above

Question 11

The consumer price index (CPI) :

Accepted Answer

A)  is an average of the prices of all consumer goods purchased each year.
B)  measures changes in the prices of a market basket of some 600 goods and services purchased by urban consumers.
C)  measures prices of goods, but not services since services don't fit into a market basket.
D)  is also known as the GDP price index.E) B) and C)
F) A) and D)

Question 12

Core inflation refers to the:

Accepted Answer

A)  underlying increases in the CPI after volatile food and energy prices are removed.
B)  underlying decreases in the CPI after volatile durable goods prices are removed.
C)  underlying increases for goods and services bought by businesses only.
D)  overall inflation rate for consumers and not businesses.E) A) and D)
F) B) and C)

Question 13

Compared to the United States, Canada's recent unemployment rate has been:

Accepted Answer

A)  higher.
B)  lower.
C)  about the same.
D)  more variable.E) A) and B)
F) A) and C)

Question 14

The type of unemployment associated with recessions is called:

Accepted Answer

A)  frictional unemployment.
B)  structural unemployment.
C)  cyclical unemployment.
D)  seasonal unemployment.E) B) and D)
F) None of the above

Question 15

You are given the following information about the economy: (1)  nominal interest = 8 percent; (2)  real rate of interest = 6 percent.The inflation premium is:

Accepted Answer

A)  2 percent.
B)  6 percent.
C)  8 percent.
D)  14 percent.E) B) and D)
F) All of the above

Question 16

A trough in the business cycle occurs when:

Accepted Answer

A)  cyclical unemployment is at a minimum point.
B)  employment and output reach their lowest levels.
C)  the natural rate of unemployment is at a minimum point.
D)  structural and frictional unemployment are at their highest levels.E) None of the above
F) A) and B)

Question 17

Suppose the nominal annual interest rate on a two year loan is 16 percent and lenders expect inflation to be 10 percent in each of the two years.The annual real rate of interest is:

Accepted Answer

A)  12 percent.
B)  16 percent.
C)  4 percent.
D)  6 percent.E) B) and C)
F) B) and D)

Question 18

Suppose rate of inflation for some specific year was 10 percent.If the CPI for that year was 139.7, the previous year's CPI must have been:

Accepted Answer

A)  100.0.
B)  129.7.
C)  153.7.
D)  127.0.E) None of the above
F) All of the above

Question 19

Which of the following is correct?

Accepted Answer

A)  Real and nominal incomes always move in the same direction.
B)  Inflation increases the purchasing power of the dollar and necessarily reduces one's nominal income.
C)  Inflation reduces the purchasing power of the dollar and necessarily reduces one's real income.
D)  Inflation reduces the purchasing power of the dollar, but does not necessarily reduce one's real income.E) A) and B)
F) A) and C)

Question 20

A recession is a period in which:

Accepted Answer

A)  cost-push inflation is present.
B)  nominal domestic output falls.
C)  demand-pull inflation is present.
D)  real domestic output falls.E) C) and D)
F) B) and C)

Exam 9: Part B: Business Cycles, Unemployment, and Inflation

Most economists believe that the immediate cause of cyclical changes in the levels of real output and employment is:

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Compared to the United States, Canada's recent unemployment rate has been:

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Which of the following is correct?

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Households and businesses must spend time and effort obtaining the information they need to distinguish between real and nominal values such as prices, wages, and interest rates.

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The type of unemployment associated with recessions is called:

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A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment?

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If Ernie's annual real income rises by 8 percent each year, his annual real income will double in about:

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Core inflation refers to the:

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Dr.Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in P.E.I.That year, Professor Simpson would be officially counted as:

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Suppose the nominal annual interest rate on a two year loan is 16 percent and lenders expect inflation to be 10 percent in each of the two years.The annual real rate of interest is:

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The relationship between the size of the GDP gap and the unemployment rate is:

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The total population of an economy is 175 million, the labour force is 125 million, and the number of unemployed is 8 million.The unemployment rate for this economy is:

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Which of the following constitute the unemployment occurring when the natural rate of unemployment exists?

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The consumer price index (CPI) :

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A recession is a period in which:

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The natural rate of unemployment:

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You are given the following information about the economy: (1) nominal interest = 8 percent; (2) real rate of interest = 6 percent.The inflation premium is:

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A trough in the business cycle occurs when:

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A worker would be hurt least by inflation when the:

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Suppose rate of inflation for some specific year was 10 percent.If the CPI for that year was 139.7, the previous year's CPI must have been:

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