48. A country's current unemployment rate is 5 percent. Economists estimate that its natural rate of unemployment is 5 percent. You can conclude that this economy is currently operating____________ and its actual real GDP Y is ____________ than the potential real GDP Y*.

A) Above its PPF; greater. B) Below its PPF; less

C) Along its PPF; equal to. D) Along its PPF; greater

49. 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 become obsolete.

50. The automation of an assembly line is likely to result in:

A) structural unemployment. C) cyclical unemployment.

B) frictional unemployment. D) seasonal unemployment

51. Suppose the demand for advertising drops as the result of a recession and that as a result, a graphic arts firm is forced to lay off some of its artists. What type of unemployment best describes the artists' situation?

A) Cyclical unemployment. C)Structural unemployment.

B) Full unemployment. D) Frictional unemployment

52. Workers at a steel plant are laid off because the steel plant is inefficient and very expensive to operate. What type of unemployment best describes the workers' situation?

A) Cyclical unemployment. C) Structural unemployment.

B) Full employment. D) Frictional unemployment

53. Cyclical unemployment is produced by:

A) a slowdown in economic activity.

B) economic restructuring.

C) the institutional structure of the economy.

D) an increase in the number of people entering the labor force.

54. According to the following scenarios: a) Tim just graduated and is looking for a job; b) a recession causes a local factory to lay off 30 workers; c) thousands of bus and truck drivers permanently lose their job when driverless vehicles make human drivers redundant; d) hundreds of New York legal jobs permanently disappear when a lot of legal work gets outsourced to lawyers in India. Scenario a represents ______________unemployment, while scenario d _________________unemployment.

A) frictional; structural B) structural; cyclical

C) cyclical; structural D) frictional; technological

55. The unemployment rate would be higher if:

A) members of the armed services were included in the labor force.

B) discouraged workers were classified as unemployed.

C) underemployed workers were considered employed.

D) marginally attached workers were not considered as part of the labor force.

56. Which of the following people would notbe considered unemployed?

A) A construction worker laid off because of a slowdown in home building.

B) A person who has given up trying to find a job after an unsuccessful search.

C) An executive who quit one job but is still looking for another.

D) A recent college graduate who has not yet found a job.

57. Full employment is said to exist when:

a. no one is unemployed, the unemployment rate is zero,

b. there is only some cyclical unemployment,

c. there is some frictional and structural unemployment,

d. there is no structural and frictional unemployment.

58. If the rate of unemployment equals the natural rate of unemployment or target rate of unemployment,

then ______________, and the economy operates ____________ its PPF.

A) actual output exceeds potential output; above

B) potential output equals actual output; along.

C) real output equals nominal output; along.

D) real output exceeds nominal output; below.

59. If the official unemployment rate in the economy were 9.8%, then the real unemployment rate

would be______, it follows that the real unemployment rate is usually ______________

the official unemployment rate, and it shows some ______________ unemployment in the

economy.

A)9.8%; equal to; cyclical unemployment B) 4.4%; lower than; frictional and hidden

C) 19.6%; higher than; hidden D) about 12.4%; higher than; structural and hidden

60. The unemployment that cannot be avoided by the use of macroeconomic policy is:

A) frictional B) structural C) structural and frictional D) cyclical

61. The level of real GDP (output) that would materialize at the target rate of unemployment (NRU) is called:

A) nominal output. B) actual output. C)potential output. D) utilized output.

Year	1	2	3
Unemployment rate U	8%	6%	7%

62. Refer to the table above. Given the data on actual unemployment rate U and assuming the natural rate of unemployment NRU 6 percent, in year _________ the economy operated at full employment ______________ and produced the real GDP ______ the potential Real GDP; the output gap was_

A) year 1; above; 2% b) in year 2, equal to; 0% c) in year 3; below; -3% d) year 1; above; 4%

63. Refer to the table above. Given the data on actual unemployment rate U and assuming the natural rate of unemployment NRU 6 percent, the output gap in year 1 was_______, while the output gap in year 3 was _________.

a) positive 2%; positive 1% b) negative 4%; negative 2%

c) negative 2%; positive 1% d) positive 4%; negative 6.5%

64. CPI is used to measure:

a. the size of GDP,

b. the relationship between labor and output produced,

c. the price level in economy,

d. the responsiveness of quantity demanded to the change in price.

65. Which of the following price indexes comes closest to measuring the cost of living of the typical household.

a. GDP deflator b. PPI c. CPI d. Household Price Index.

66. In constructing the CPI, it is assumed that:

A) the quantity of the goods purchased remained constant between the base year and the year in question.

B) both the prices and the quantities of the goods purchased remained constant between the base year and the year in question.

C) neither the prices nor the quantities of the goods purchased remained constant between the base year and the year in question.

D) the prices of the goods purchased remained constant between the base year and the year in question

67. If 2000 is the base year, then the price index in that year:

A) is always greater than 100.

B) is always equal to 100.

C) is always less than 100.

D) cannot be determined without more information.

68. The GDP deflator gives the average rate of change in the prices of all:

A) raw materials. C) consumer goods.

B)intermediate goods. D)final goods and services

69. Suppose you are a senator writing a bill to index Social Security and federal pensions. That is, your bill will adjust these benefits to offset changes in the cost of living. Will you use:

A) the GDP Deflator B) the CPI C) the PPI D) Household Price Index.

Year	Consumer Basket Cost
2005	$425
2006	$445
2007	$475

70. Refer to the table above and assume year 2005 as base-year. The CPI in year 2006 was _________,

in 2007 the CPI was ___________; and the consumer price inflation rate in 2007 was ___________ ., the

cost of living in 2007 _________________ compared to the base year.

A) 445; 106; 6.7%; increased by 6% B) 115; 11.3%; decreased by 15

C) 100; 106; 9.3%, increased by 9.3% D) 104.70; 111.76; 6.3%; increased by 11.76%

71. A consumer price index of 160 in 1996 with a base year of 1982-1984 would mean that the cost of the market basket:

a. equaled $160 in 1996

b. equaled $160 in 1983

c. rose 160% from the cost of the market basket in the base year

d. rose 60% from the cost of the market basket in the base year.

72. Officially, inflation occurs when there is:

A) a one-time increase in the general price level.

B) a one-time increase in wages.

C) a sustained increase in the general price level.

D)a sustained increase in wages

73. Inflation is measured by calculating

A) a price level.

B) a price index.

C) the percentage difference between the price level and a price index.

D) the percentage change in a price index from one year to the next.

74. If the CPI in year 2 equals 104 and the CPI in year 3 equals 108, it can be concluded that consumer

prices:

A) rose from year 2 to year 3 by about 4. C) rose from year 2 to year 3 by about 8.

B) rose from year 2 to year 3 by about 4%. D) rose from year 2 to year 3 by about 8%.

75. If the cost of living for retirees on social security rises more than the cost of living adjustment used by government, retirees:

a) are helped for inflation b) are not helped or hurt by inflation because of the government's inflation adjustment

c) benefit from using the government's cost of living adjustment d) are hurt by inflation.

76. The CPI was 110 the last year and it is 121 this year. In contrast, suppose that the CPI was 110 the last year and 108 this year, the last year inflation was ______ while this year inflation rate inflation was ________, the economists describe this second outcome as ____________

A) 11%; 1.5%; low inflation. B) 10%; -1.8%; deflation

C) -11%; 108%; hyperinflation D) 2.7%; - 2.7%; cost-push inflation.

77. Refer to the graph above. The purchasing power of the dollar was the greatest in year_____, shown in the graph, the lowest in the year in__________ shown in the graph. It follows that nominal interest rates were the highest in year__________ shown in the graph.

a) 1970; 1990; 1997 b) 2016; 1980; 1980 c) 1980; 2010; 2022 d) 1990; 2000; 2010

78. Refer to the graph above. Suppose if you received a 5 percent raise in pay. In which year would that represent an increase in your real earnings and you would be better off with inflation?

a) 1970; 1980; 2020 b) 1975; 1990; 2000 c)1986; 2002; 2020 d) 1965; 1975; 2006

Year	Nominal Wage Per Hour	Price Level
Year 1	$22.00	110.0
Year 2	$23.00	120.0

79. Refer to the table above. Inflation in year 2 was ____________ and the real wage in year 2 was ______________________

a) 10; $23.00 b) 10%; $2.77 c) 8.3%; $19.16 d) 9.09%; $20.90

80. Refer to the table above. In year 2 workers were __________ with inflation because their _________income ______________ by ___________, while inflation in year 2 was ________.

a) better off; real; increased; 2%; 10. b) worse off; nominal; increased; 4.5%; 8.3%

c) worse off; real, decreased; 4%; 9.09% d) better off, nominal; increased; $1.00; 10

81. Assume that you lent $1,000 in year 1 to be paid back in year 2, you desired a real return of 4%, and you charged the borrower interest rate of 10%. You expected inflation in year 2 _______, but if the actual inflation in year 2 was 8.3%, you earned real interest of ___________ .

a) 4%; 6% b) 6%; 1.7% c) 14%; 5.7% d) 10%; 6%.

82. If national income will go up by 10 percent next year, inflation is expected to be -2 percent, by how much will real income change next year?

a) -2 percent b) 8 percent c) 10 percent d) 12 percent

83. Kaitlin has $10,000 of savings that she may deposit with her local bank. She wants to earn a real rate of return of at least 4 percent and she is expecting inflation to be exactly 3 percent. The lowest nominal interest rate Kaitlin would be willing to accept from her local bank is _______, but if inflation turns to be 5 percent, her real rate of return would be

a) 4 percent; 5 percent. b) 5 percent; 0 percent.

c) 1 percent; 6 percent. c ) 7 percent; 2 percent.

84.When inflation is less than expected ________are hurt, but if inflation is more than expected_____ are hurt.

a) lenders; borrowers b) lenders and borrowers; neither lenders nor borrowers

c) borrowers; lenders d) neither borrowers and lenders; lenders and borrowers

85. If prices rose by 5% and your nominal income rose by 3%, your real income _________ and you are

__________ with inflation.

A) fell by 2%, worse off B) rose by 2%, better off.

C) rose by 8%, better off D) fell by 8%; worse off.

Year	Prime Interest Rate%	Inflation Rate %
1970	7.9%	5.7%
1974	10.8%	11.0%
1978	9.1 %	7.6%
1981	18.9%	10.3%

86. Refer to the table above. The prime interest rate is the rate that banks charged their best customers. Based on the data in the table, to be a lender, the best would have been in a year __________, to be a borrower, the best would have been in a year _____________.

a) 1974; 1970 b) 1981; 1974 c) 1978; 1970 d) 1970; 1978

87. A cost of inflation is that:

A) it makes everyone rich.

B) it makes the poor poorer but the rich richer.

C)there are no costs of inflation because inflation does not make the society as a whole poorer.

D) it may reduce the real income.

88. Suppose that a bank expects inflation to be 2 percent and charges borrowers an interest rate

of 4 percent accordingly.Now suppose that inflation is actually 2 percent. In this case, inflation:

A) does not affect the distribution of income.

B) redistributes income from the bank to the bank's borrowers.

C) redistributes income from the bank's borrowers to the bank.

D) redistributes income from the bank to the bank's lenders.

89. Suppose that a bank expects inflation to be 3 percent and charges borrowers an interest rate

of 5 percent accordingly.Now suppose that inflation is actually 4 percent. In this case, inflation:

A) does not affect the distribution of income.

B) redistributes income from the bank to the bank's borrowers.

C) redistributes income from the bank's borrowers to the bank.

D) redistributes income from the bank to the bank's lenders.