Principles of Macroeconomics - Business Cycles, Unemployment and Inflation Practice Set

1) During the business cycle, an economic expansion occurs:
a. At the peak of the business cycle.
b. At the trough of a business cycle.
c. In between the peak and trough.
d. In between the trough and peak.

2) Suppose the working age population in Tiny Town is 100 people. If 25 of these people are NOT in the labor force, the ________ equals ________.
A) unemployment rate; 25/75 × 100 B) labor force; 75
C) unemployment rate; 25/100 × 100 D) labor force; 25/100 × 100

3) Which of the following people would be counted as is employed in the Current Population Survey?
A) Jason, who was laid off from work less than 6 months ago but who has stopped looking for work
B) April, who just graduated from college and is looking for work
C) Rich, who is working 20 hours a week but wants a full-time job
D) Misty, who just quit her job to return full-time to school

4) During a recession, people drop out of the labor force because they are unable to find a job. All else
the same, this
A) does not change the unemployment rate.
B) increases the unemployment rate and the labor force participation rate.
C) increases the unemployment rate.
D) decreases the unemployment rate.

5) Which of the following would be included as a member of the labor force?
a. A full time college student.
b. A recent high school graduate looking for a first job.
c. A homemaker contributing 15 hours per week as a volunteer worker in a hospital.
d. A retired school teacher collecting social security benefits.

6) Which of the following people would be considered unemployed?
a. A full-time college student.
b. A recent high school graduate looking for a first job.
c. A retired school teaching collecting social security benefits.
d. A homemaker contributing 15 hours per week as a volunteer worker in a hospital.

7) Which one of the following persons would NOT be considered unemployed?
a. An auto worker vacationing in Florida during the layoff period, before the production of new models begins next month. He does not know for sure whether he will be called back to work when this happens, and looked for a new job last week.
b. A college student actively searching for a summer job.
c. A construction worker who has given up looking for work after 18 months without a job.
d. A retiree actively looking for part-time work to supplement Social Security income.

8) The labor force participation rate measures the number of people:
a. In the labor force.
b. In the labor force as a percentage of the total population.
c. In the labor force as a percentage of the population at least sixteen years old.
d. Who are working as a percentage of the labor force.

9) Unemployment caused by a recession is called:
a. Frictional unemployment.
b. Cyclical unemployment.
c. Natural unemployment
d. Structural unemployment.

10) Frictional unemployment often occurs when:
a. The economy enters a recession.
b. People first enter the labor force.
c. People are discriminated against.
d. People lose a job because their skills are no longer needed.

11) Suppose more men decided to stay at home and raise their pre-school aged children. We would expect:
a. The labor force participation rate for males to increase.
b. The labor force participation rate for males to decrease.
c. The labor force participation rate for males to remain the same.
d. The impact on the labor force participation rate for males to be unpredictable.

12) Assume that the total labor force is 100 individuals with 10 unemployed. The unemployment rate is
________. Now assume that 10 people drop out of the labor force and that 10 remain unemployed.
The new unemployment rate is ________.
A) 10 percent, 11 percent B) 11 percent, 10 percent
C) 10 percent, 9 percent D) 9 percent, 10 percent

13) Suppose the working-age population is 220 million, the labor force is 150 million, and the
unemployment rate is 10 percent. The number of unemployed people is
A) 22 million. B) 37 million. C) 7 million. D) 15 million.

14) Suppose the population is 220 million people, the labor force is 150 million people, the number of
people employed is 130 million and the working-age population is 175 million people. What is the
labor force participation rate?
A) 85.7 percent B) 86.7 percent C) 68 percent D) 0.68 percent

15) The above table shows answers given by people interviewed in a government survey of
households. Which person is a discouraged worker?
A) A B) B C) C D) D

16) During a period of unpredictable inflation,
A) the price level falls unpredictably.
B) the Consumer Price Index falls.
C) the value of money changes unpredictably.
D) the economy is unharmed.

17) The Consumer Price Index is a measure of the average of the prices paid by ________ for a fixed
basket of consumer goods and services.
A) urban consumers
B) consumers living in cities with a population greater than 100,000
C) urban wage earners and clerical workers
D) all consumers

18) Suppose the Consumer Price Index for the year 2007 is 143.6. What does that number mean? 26)
A) Prices rose 143.6 percent over the reference base period, on average.
B) On average, goods cost $243.60 each in 2007.
C) Prices rose 43.6 percent over the reference base period, on average.
D) On average, goods cost $143.60 each in 2007.

19) Suppose that last year the Consumer Price Index was 124; this year it is 130.7. What was the
inflation rate between these years?
A) 5.4 percent B) 6.7 percent C) 5.1 percent D) 30.7 percent

20) If the inflation rate is negative, the price level in an economy is
A) rising rapidly. B) falling. C) rising slowly. D) constant.

21) A price index in years after the base year:
a. Is never 100.
b. Is always greater than 100.
c. Is always less than 100.
d. Can be less than, greater than, or equal to 100.

22) If the CPI increased from 80 to 84, the rate of inflation is:
a. 4 percent.
b. 5 percent.
c. 10 percent.
d. 20 percent.

23) If the consumer price index (CPI) at the end of 1990 was 125 and the CPI at the end of 2000 was 133, then the rate of inflation over the time period was:
a. zero (prices were stable during this period).
b. 4.8 percent.
c. 6.4 percent.
d. 8 percent.

24) Inflationary expectations are important because widespread changes in inflationary expectations affect:
a. The distribution of income.
b. Relative prices.
c. Actual inflation.
d. Unexpected inflation.

25) Suppose that both real GDP and prices double. We can conclude that nominal output:
a. More than doubled.
b. Doubled.
c. Rose by less than double.
d. Did not increase.

26) Unexpected inflation will:
a. Hurt borrowers.
b. Hurt lenders.
c. Hurt borrowers and lenders equally.
d. Have no effect on either borrowers or lenders.

27) Which of the following statements is FALSE?
a. Whether you gain or lose during a period of inflation depends on whether your income rises faster or slower than the prices of the things you buy.
b. Inflation that is higher than expected benefits borrowers, and inflation that is lower than expected benefits lenders.
c. There are no costs or losses associated with expected inflation.
d. When unanticipated inflation occurs regularly, the degree of risk associated with investments in the economy increases

Problem:

1) The table above gives the CPI basket for 2007 and 2008. Suppose that 2007 is the reference base period.
a) What is the cost of the CPI basket in 2007?
b) What is the cost of the CPI basket in 2008?
c) What is the CPI for 2007?
d) What is the CPI for 2008?