Indicate the answer choice that best completes the statement or answers the question.

1.A healthy economy would be characterized by a relatively ____ unemployment rate and a relatively ____ labor force participation rate.

a.

low; low

b.

low; high

c.

high; low

d.

high; high

2.Why do economists prefer using the term economic fluctuation rather than business cycle?

a.

political correctness

b.

number of parameters involved

c.

excessive volatility of the cycles

d.

lack of regularity of a cycle

3.Which of the following is not a leading economic indicator?

a.

Prices of common stock

b.

Number of new businesses formed

c.

Unemployment rate

d.

New orders for plants and equipment

4.If the population older than 16 years of age equals 150 million, the labor force equals 110 million, and the total number of persons employed equals 98 million, then the unemployment rate is:

a.

8 percent.

b.

38 percent.

c.

10.9 percent.

d.

28 percent.

5.If the minimum wage law is repealed and employers begin using efficiency wages far less frequently, it would ___ unemployment and ____ the natural rate of unemployment:

a.

Increase; increase.

b.

Increase; not change.

c.

Decrease; decrease.

d.

Decrease; not change.

6.If postal workers lose their positions because of the widespread e-mailing, texting, and faxing, it would likely _______ the natural rate of unemployment.

a.

increase.

b.

not change.

c.

decrease

d.

Have an unpredictable effect on.

7.Suzie Homemaker works in her home as a full-time caretaker and homemaker. Officially, she is:

a.

employed.

b.

unemployed.

c.

not in the labor force.

d.

a discouraged worker.

8.Say that initially the nominal interest rate is 6% and prices are stable, but the inflation rate the following year rises to 3%. If the real rate of interest is to remain unchanged, the nominal interest rate in the second year must:

a.

rise by 9 percentage points.

b.

rise by 6 percentage points.

c.

rise by 3 percentage points.

d.

remain unchanged.

9.If the number of employed persons equals 180 million, the number of unemployed persons equals 15 million, and the number of persons over age 16 in the population equals 210 million, the unemployment rate equals ____ and the labor force participation rate equals ____.

a.

7.1%; 85.7%

b.

7.7%; 85.7%

c.

7.1%; 92.9%

d.

7.7%; 92.9%

10.The Natural rate of unemployment equals

a.

The sum of the frictional and structural unemployment rates.

b.

The sum of the frictional and cyclical unemployment rates.

c.

The sum of the structural and cyclical unemployment rates.

d.

None of the above.

11.____ experience lower rates of unemployment than do ____.

a.

High school graduates; college graduates

b.

College graduates; high school graduates

c.

Adult females; adult males

d.

Black males; white males

12.Since 1950, there has been ____ in the labor force participation rate.

a.

no change

b.

an increase

c.

a decrease

d.

first an increase and then a significant decrease

13.The term full employment implies an unemployment rate of:

a.

zero

b.

approximately 5%

c.

approximately 10%

d.

100%

14.If the real interest rate is 3% and the inflation rate is 6%, the nominal interest rate is

a.

2%

b.

3%

c.

9%

d.

18%

15.The period of declining growth in real GDP, between the peak of the business cycle and the trough, is called the:

a.

contractionary phase.

b.

boom.

c.

expansionary phase.

d.

static phase.

16.A federal program aimed at retraining the unemployed workers of the declining auto and steel industries is designed to reduce which type of unemployment?

a.

seasonal

b.

cyclical

c.

structural

d.

frictional

17.Which of the following groups are typically harmed by unexpected inflation?

a.

lenders

b.

borrowers

c.

pensioners on fixed incomes

d.

both (a) and (c).

18.The costs imposed on a firm from changing listed prices is termed:

a.

the nominal cost of inflation.

b.

the shoe-leather cost of inflation.

c.

the menu cost of inflation.

d.

the implied cost of inflation.

19.Which of the following statements is incorrect?

a.

Job losers typically account for 50 to 60 percent of the unemployed.

b.

Unemployment rates in the United States during the Great Depression exceeded 50 percent.

c.

The labor force participation rate is the percentage of the non-institutional population over age 16 that is in the labor force.

d.

The increase in the labor force participation rate since 1950 can be partly attributed to the entry of baby boomers into the labor force.

20.Which of the following people is most likely to be structurally unemployed?

a.

Brendan left his job as a short-order cook in New Jersey to become a short-order cook in Madrid, New Mexico. He was unemployed for six weeks during the transition.

b.

Mildred quit her job after giving birth to a child.

c.

Clem, a skilled corset maker, lost his job when his factory shut down due to a permanent reduction in the demand for corsets.

d.

Danielle lost her job when the electronics assembly plant was shut down temporarily due to low product sales in a slumping economy.

21.The current cost of a market basket of goods is $800. The cost of the same basket of goods in the base year was $1,000. The current price index is:

a.

120.

b.

100.

c.

80.

d.

-20.

22.Which of the following is true?

a.

At below the natural rate of unemployment, the economy is considered to be beyond full employment.

b.

At above full employment, the economy is producing more than potential output.

c.

At above full employment, unemployment would be below its natural rate.

d.

All of the above are true.

23.Unemployment caused by a contraction in the economy is called:

a.

frictional unemployment.

b.

cyclical unemployment.

c.

structural unemployment.

d.

seasonal unemployment.

24.Bill looked for work for six months but could not find a job to his liking. He now spends his time at the beach. For purposes of employment he is considered:

a.

out of the labor force.

b.

unemployed.

c.

employed in the underground economy.

d.

underemployed.

25.High rates of unemployment are undesirable because:

a.

they cause increased levels of societal tension.

b.

society loses potential production of goods and services.

c.

families of the unemployed may find it difficult to survive.

d.

all of the above.