Question 1

The sequence of events by which inflation can reduce output is:

Accepted Answer

A)   as prices rise,the quantity of goods and services demanded increases,the firms therefore,produce more output which causes the unemployment to increase.
B)   as prices rise,the quantity of goods and services demanded increases,the firms therefore,produce more output which causes the unemployment to decrease.
C)   as prices rise,the quantity of goods and services demanded falls,the firms therefore,produce less output which causes the unemployment to increase.
D)   as prices rise,the quantity of goods and services demanded falls,the firms therefore,produce less output which causes the unemployment to decrease.E) C) and D)
F) A) and B)

Question 2

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105.The person's real income will:

Accepted Answer

A)   fall by about 20 percent.
B)   fall by about 2 percent.
C)   rise by about 25 percent.
D)   rise by about 15 percent.E) B) and C)
F) A) and B)

Question 3

The complexity in recognizing the type of inflation:

Accepted Answer

A)   arises because demand-pull inflation always follows the cost-push inflation.
B)   arises because sometimes the original source of inflation is unknown.
C)   arises because cost-push inflation always follows the demand-pull inflation.
D)   arises because demand-pull inflation is self-limiting while cost-push inflation will continue as long as there is excess spending.E) A) and C)
F) C) and D)

Question 4

If the total population is 175 million,the labour force is 100 million,and 89 million workers are employed,then the unemployment rate is 11 percent.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not correct?

Accepted Answer

A)   The Canadian unemployment rates of male and female workers are roughly the same.
B)   The unemployment rate for teenagers is higher than that of adults.
C)   Teenagers experience approximately the same unemployment rates as do adults.
D)   lower-skilled workers are more vulnerable to unemployment than are higher-skilled workersE) None of the above
F) A) and D)

Question 6

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 D)

Question 7

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) B) and D)
F) A) and B)

Question 8

Suppose there are 10 million part-time workers and 90 million full-time workers in an economy.Five million of the part-time workers switch to full-time work.We can conclude that:

Accepted Answer

A)   the official unemployment rate will fall.
B)   the official unemployment rate will rise.
C)   the official unemployment rate will remain unchanged.
D)   the size of the labour force will increase.E) A) and B)
F) A) and C)

Question 9

If the rate of inflation is 12 percent per year,the price level will double in about:

Accepted Answer

A)   4 years.
B)   6 years.
C)   10 years.
D)   12 years.E) A) and B)
F) C) and D)

Question 10

The business cycle is so named because upswings and downswings in business activity are equal in terms of duration and intensity.

Accepted Answer

A) True 
 B)False

Question 11

A nation has a population of 300 million people.Of these,80 million are retired,in the military,in institutions,or under 15 years old.There are 210 million who are employed.What is the unemployment rate?

Accepted Answer

A)   3.3 percent
B)   3.6 percent
C)   4.5 percent
D)   5.2 percentE) C) and D)
F) A) and C)

Question 12

Given the annual rate of inflation,the "rule of 70" allows one to:

Accepted Answer

A)   determine whether the inflation is demand-pull or cost-push.
B)   calculate the accompanying rate of unemployment.
C)   determine when the value of a real asset will approach zero.
D)   calculate the number of years required for the price level to double.E) B) and D)
F) B) and C)

Question 13

The production of durable goods varies more than the production of nondurable goods because:

Accepted Answer

A)   durables purchases are non-postponable.
B)   durables purchases are postponable.
C)   nondurables purchases are postponable.
D)   durables purchases and nondurable purchases are both non- postponable.E) A) and B)
F) A) and C)

Question 14

If the nominal interest rate is 8 percent and the real interest rate is 5 percent,then the inflation premium is 13 percent.

Accepted Answer

A) True 
 B)False

Question 15

In defending a mild inflation rate in the economy,the proponents argue that a mild inflation is a by-product of strong spending,and as a result:

Accepted Answer

A)   high spending generates high profit,strong demand for labour and,a great incentive for firms to expand their production capacity.
B)   high spending generates high profit,less need for labour and,a great incentive for firms to cut back production.
C)   high spending increases the general price level,increase in the cost of labour and this would result in cost push inflation.
D)   even a low inflation rate reduces the real output,employment and the profits of the firms.E) None of the above
F) All of the above

Question 16

Unanticipated inflation tends to penalize:

Accepted Answer

A)   people who save money in financial institutions.
B)   individuals who borrow money from financial institutions.
C)   businesses which borrow money from financial institutions.
D)   governments which have a progressive personal income tax.E) All of the above
F) C) and D)

Question 17

Okun's law indicates that for:

Accepted Answer

A)   every 1 percent that the actual unemployment rate exceeds the natural unemployment rate,there is a generated 2 percent GDP gap.
B)   every 1 percent that the actual unemployment rate exceeds the natural unemployment rate,there is a generated 5 percent GDP gap.
C)   a 5 percent GDP gap,there is a generated 1 percent increase in the natural unemployment rate.
D)   a 2 percent GDP gap,there is a generated 2 percent increase in the actual unemployment rate.E) B) and C)
F) C) and D)

Question 18

A cumulative wage-price spiral which produces a rapid and huge increase in the price level can be characterized as:

Accepted Answer

A)   anticipated inflation.
B)   demand-pull inflation.
C)   cost-push inflation.
D)   hyperinflation.E) A) and B)
F) All of the above

Question 19

Demand-pull inflation:

Accepted Answer

A)   occurs when prices of resources rise,pushing up costs and the price level.
B)   occurs when total spending exceeds the economy's ability to provide output at the existing price level.
C)   occurs only when the economy has reached its absolute production capacity.
D)   is also called cost-push inflation.E) All of the above
F) None of the above

Question 20

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) B) and D)
F) A) and B)

Exam 9: Business Cycles, Unemployment, and Inflation

Which of the following is not correct?

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The complexity in recognizing the type of inflation:

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Okun's law indicates that for:

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The business cycle is so named because upswings and downswings in business activity are equal in terms of duration and intensity.

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If the total population is 175 million,the labour force is 100 million,and 89 million workers are employed,then the unemployment rate is 11 percent.

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The sequence of events by which inflation can reduce output is:

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Unanticipated inflation tends to penalize:

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

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If the nominal interest rate is 8 percent and the real interest rate is 5 percent,then the inflation premium is 13 percent.

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Core inflation refers to the:

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If the rate of inflation is 12 percent per year,the price level will double in about:

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A trough in the business cycle occurs when:

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In defending a mild inflation rate in the economy,the proponents argue that a mild inflation is a by-product of strong spending,and as a result:

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Suppose there are 10 million part-time workers and 90 million full-time workers in an economy.Five million of the part-time workers switch to full-time work.We can conclude that:

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Given the annual rate of inflation,the "rule of 70" allows one to:

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Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105.The person's real income will:

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A cumulative wage-price spiral which produces a rapid and huge increase in the price level can be characterized as:

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A nation has a population of 300 million people.Of these,80 million are retired,in the military,in institutions,or under 15 years old.There are 210 million who are employed.What is the unemployment rate?

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Demand-pull inflation:

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The production of durable goods varies more than the production of nondurable goods because:

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