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Name: __________________________ Date: _____________

A)
B)
C)
D)

1.Economic growth is best defined as an increase in:


either real GDP or real GDP per capita.
nominal GDP.
total consumption expenditures.
wealth in the economy.

A)
B)
C)
D)

2.Real GDP per capita is found by:


adding real GDP and population.
subtracting population from real GDP.
dividing real GDP by population.
dividing population by real GDP.

A)
B)
C)
D)

3.The rate of economic growth is best defined as the:


increase in investment as a percentage of GDP over time.
percentage increase in nominal GDP over time.
percentage increase in real GDP over time.
percentage increase in the quantity and quality of capital, human, and natural
resources which occurs over time.

A)
B)
C)
D)

4.Suppose nominal GDP in 1996 was $100 billion and in 1998 it was $260 billion. The
general price index in 1996 was 100 and in 1998 it was 180. Between 1996 and 1998 the
real GDP rose by:
160 percent.
44 percent.
37 percent.
12 percent.

A)
B)
C)
D)

5.Over a year, a nation's GDP at current prices rose by 15 percent while the price index
increased from 100 to 110. GDP at constant prices rose by about:
3 percent.
5 percent.
7 percent.
9 percent.

A)
B)
C)
D)

6.The phase of the business cycle in which real domestic output declines is called:
the peak.
an expansion.
a recession.
the trough.
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A)
B)
C)
D)

7.A peak in the business cycle:


occurs when the unemployment rate is its greatest.
occurs when the inflation rate is its lowest.
is a temporary maximum point.
is a temporary minimum point.

A)
B)
C)
D)

8.In the expansion phase of a business cycle:


the inflation rate decreases, but productive capacity increases.
the inflation rate and productive capacity decrease.
employment increases, but output decreases.
employment and output increase.

A)
B)
C)
D)

9.To be officially unemployed a person must:


be in the labour force.
be 21 years of age or older.
have just lost a job.
be waiting to be called back from a layoff.

A)
B)
C)
D)

10.The labour force includes:


employed workers and persons who are officially unemployed.
employed workers, but excludes persons who are officially unemployed.
full-time workers, but excludes part-time workers.
permanent employees, but excludes temporary employees.

A)
B)
C)
D)

11.The official unemployment rate:


involves people over 15 years of age who are not currently seeking employment.
is the ratio of unemployed to employed workers.
is the percentage of the labour force which is unemployed.
is the percentage of the total population which is not working.

A)
B)
C)
D)

12.The unemployment rate in an economy is 12 percent. The civilian labour force is 50


million. The number of employed workers in the economy is:
38 million.
40 million.
42 million.
44 million.
13.A nation has a population of 260 million people. Of these, 60 million are retired, in the
military, in institutions, or under 16 years old. There are 188 million who are employed

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A)
B)
C)
D)

and 12 million who are unemployed. What is the unemployment rate?


4 percent
6 percent
9 percent
27 percent

D)

14.The presence of discouraged workers:


increases the size of the labour force, but does not affect the unemployment rate.
reduces the size of the labour force, but does not affect the unemployment rate.
may cause the official unemployment rate to understate the amount of
unemployment.
may cause the official unemployment rate to overstate the amount of unemployment.

A)
B)
C)
D)

15.Kevin has lost his job in an automobile plant because of the use of robots for welding on
the assembly line. Kevin plans to go to technical school to learn how to repair
microcomputers. The type of unemployment Kevin is faced with is:
cyclical.
frictional.
structural.
natural.

A)
B)
C)
D)

16.The natural rate of unemployment:


is fixed over time.
is found by adding the cyclical and structural unemployment rates.
may change from one decade to another.
cannot be changed through public policy.

A)
B)
C)
D)

17.If the unemployment rate is 12 percent, we can infer that:


the economy is in the expansion phase of the business cycle.
potential GDP is in excess of actual GDP.
actual GDP is in excess of potential GDP.
actual GDP is equal to potential GDP.

A)
B)
C)
D)

18.If the natural rate of unemployment was 6 percent, the current unemployment rate was 12
percent, and the nominal GDP was $4,000 billion, then according to Okun's law the
economy would have sacrificed:
$240 billion in potential output.
$480 billion in potential output.
$700 billion in potential output.
$840 billion in potential output.

A)
B)
C)

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19.The consumer price index (CPI):


is an average of the prices of all consumer goods purchased each year.
measures changes in the prices of a market basket of some 300 goods and services
purchased by urban consumers.
C)
measures prices of goods, but not services since services don't fit into a market
basket.
D)
is also known as the GDP price index.
A)
B)

A)
B)
C)
D)

20.If the Consumer Price index rises from 300 to 333 in a particular year, the rate of
inflation in that year is:
11 percent.
33 percent.
91 percent.
10 percent.

A)
B)
C)
D)

21.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:
fall by about 20 percent.
fall by about 2 percent.
rise by about 15 percent.
rise by about 25 percent.

A)
B)
C)
D)

22.Inflation is undesirable because it:


arbitrarily redistributes real income and wealth.
always is cumulative; that is, creeping inflation invariably causes hyperinflation.
always tends to make the distribution of income less equal.
reduces everyone's standard of living.

A)
B)
C)
D)

23.Recently a teachers' union argued that the standard of living of teachers working for the
school district was falling. The negotiating team for the school board replied that this was
not true because the teachers had received significant increases in nominal income
through collective bargaining. Could the union statement be correct?
No, because real income may rise if price increases are proportionately greater than
the increases in nominal income.
Yes, because real income may fall if price increases are proportionately smaller than
the increases in nominal income.
Yes, because real income may fall if price increases are proportionately greater than
the increases in nominal income.
No, because real income may rise if price increases are proportionately greater than
declines in income.

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A)
B)
C)
D)

24.Which is included in GDP?


used autos purchased by consumers
transfer payments
telephone service for a home
bread for a restaurant

A)
B)
C)
D)

25.If intermediate goods and services were included in GDP:


the GDP would then have to be deflated for changes in the price level.
nominal GDP would exceed real GDP.
the GDP would be overstated.
the GDP would be understated.

A)
B)
C)
D)

26.In calculating GDP by expenditure approach, we sum up:


consumption, investment, government purchases, exports, and imports.
investment, government purchases, consumption, and net exports.
consumption, investment, wages, and rents.
consumption, investment, government purchases, and imports.

A)
B)
C)
D)

27.In national income accounting, G stands for:


government purchases.
gross investment.
government transfer payments.
gross saving.

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Answer Key
1.A
2.C
3.C
4.B
5.B
6.C
7.C
8.D
9.A
10.A
11.C
12.D
13.B
14.C
15.C
16.C
17.B
18.B
19.B
20.A
21.C
22.A
23.C
24.C
25.C
26.B
27.A

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