1. The natural rate of unemployment is:
A.higher than the full-employment rate of unemployment.
B.lower than the full-employment rate of unemployment.
C.that rate of unemployment occurring when the economy is at its potential output.
D.found by dividing total unemployment by the size of the labor force.


2. Anne Kasperson works in her own home as a full-time caretaker and homemaker. Officially, she is:
A.unemployed.
B.employed.
C.not in the labor force.
D.in the labor force.


3. If the unemployment rate is 9 percent and the natural rate of unemployment is 5.5 percent, then the:
A.frictional unemployment rate is 5.5 percent.
B.cyclical unemployment rate and the frictional unemployment rate together are 5.5 percent.
C.cyclical unemployment rate is 3.5 percent.
D.natural rate of unemployment will eventually increase.


4. The presence of discouraged workers:
A.increases the size of the labor force, but does not affect the unemployment rate.
B.reduces the size of the labor force, but does not affect the unemployment rate.
C.may cause the official unemployment rate to understate the amount of unemployment.
D.may cause the official unemployment rate to overstate the amount of unemployment.


5. Assume Smith is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Smith will be considered as:
A.cyclically unemployed.
B.frictionally unemployed.
C.secularly unemployed.
D.employed.


6. Cyclical unemployment is a consequence of:
A.a deficiency of aggregate spending.
B.the decreasing relative importance of goods and the increasing relative importance of services in our economy.
C.the everyday dynamics of a free labor market.
D.technological change.


7. The aggregate cost of unemployment can be measured by the:
A.amount by which actual GDP exceeds potential GDP.
B.amount by which potential GDP exceeds actual GDP.
C.excess of real GDP over nominal GDP.
D.excess of nominal GDP over real GDP.


8. The consumer price index was 140.3 in 1992 and 144.5 in 1993. Therefore, the rate of inflation in 1993 was about:
A.6.7 percent.
B.3.0 percent.
C.1.2 percent.
D.13.6 percent.


9. If the rate of inflation is 12 percent per year, the price level will double in about:
A.4 years.
B.6 years.
C.10 years.
D.12 years.


10.
R-1 F08071

Refer to the above diagram. An increase in total demand in Range l will:
A.cause unemployment and deflation.
B.increase employment, output, and the price level.
C.increase employment and output, but not the price level.
D.increase the price level, but not employment and output.



11. Inflation initiated by increases in wages or other resource prices is labeled:
A.demand-pull inflation.
B.demand-push inflation.
C.cost-push inflation.
D.cost-pull inflation.


12. Suppose that a person's nominal income rises by 5 percent and the price level rises from 125 to 130. The person's real income will:
A.fall by about 1 percent.
B.remain constant.
C.rise by about 4 percent.
D.rise by about 1 percent.


13. In 1994 Ortega's nominal income rose by 8 percent and the price level rose by 5 percent. We can conclude that Ortega's real income:
A.may have either increased or decreased.
B.rose by 13 percent.
C.rose by 3 percent.
D.fell by 13 percent.
E.fell by 3 percent.


14. Cost-of-living adjustment clauses (COLAs):
A.invalidate the "rule of 70."
B.apply only to demand-pull inflation.
C.increase the gap between nominal and real income.
D.tie wage increases to changes in the price level.


15. Inflation is undesirable because it:
A.arbitrarily redistributes real income and wealth.
B.always is cumulative; that is, creeping inflation invariably causes hyperinflation.
C.always tends to make the distribution of income less equal.
D.reduces everyone's standard of living.
E.is always accompanied by a declining real output.



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