PEC2143 (JULY 2021) KPTM BANGI

5 Inflation &
Unemployment

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

MULTIPLE-CHOICE QUESTIONS

1. Inflation is _________.
A. a general yearly increase in the average level of prices.
B. a loss in disposable income due to increased government spending.
C. an increase in the purchasing power of ringgit.
D. the focus of macroeconomics analysis.

2. Inflation can be controlled by raising _________.

A. the money supply.
B. government expenditure.
C. income tax.
D. indirect tax.

3. The inflation rate can be measured by ________________.

A. change in the consumer price index
B. change in the price of a specific commodity
C. percentage change in the consumer price index
D. percentage change in the price of a specific commodity

4. Which of the following group is most likely to benefit from inflation?

A. Salaried workers.
B. Pensioners.
C. Debtors.
D. Creditors.

5. Increases in oil prices in 2008 will ________________.

A. increase aggregate demand and causing demand-pull inflation.
B. increase aggregate supply and causing demand-pull inflation.
C. increase aggregate supply and causing cost-push inflation.
D. decrease aggregate supply and causing cost-push inflation.

6. Which of the following is true about the effect of inflation?

A. Inflation promotes social harmony by uniting people against the government.
B. Inflation is more damaging if it is anticipated than if it is not anticipated.
C. Accurate anticipation of inflation is possible for everyone who is well informed about economic
events.
D. Those who have loaned money at an interest rate below the rate of inflation suffer economic
losses.

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

7. In an economy with persistent inflation ________________.

A. real GDP will grow faster than nominal GDP.
B. nominal GDP will grow faster than real GDP.
C. nominal and real GDP will grow at the same time.
D. nominal and real GDP will both fall.

8. Cost-push inflation may be caused by ________________.

A. an increase in productivity of labour.
B. lack of demand.
C. aggressive bargaining by trade unions.
D. an increase in the foreign exchange rate.

9. Cost-push inflation occurs when ________________.

A. the aggregate demand curve shift to the right
B. the aggregate demand curve shift to the left
C. the aggregate supply curve shift to the right
D. the aggregate supply curve shift to the left

10. If the consumer price index (CPI) in year 1 equals 100 and the CPI in year 2 equals 104.6, it can
be concluded that ________________.
A. the inflation rate from year 1 to year 2 is 4.6 percent.
B. the inflation rate from year 1 to year 2 is 104.6 percent.
C. there was no inflation from year 1 to year 2.
D. year 2 is the base year.

11. If the consumer price index (CPI) in year 1 = 300, and CPI in year @ = 315, it can be concluded
that inflation rate in year 2 is ________________.
A. 5%
B. 15%
C. 25%
D. 45%

12. Inflation that causes an increase in the price level and a reduction in output is ________________.
A. demand-pull inflation
B. fully anticipated inflation
C. cost-push inflation
D. hyperinflation

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

13. Borrowers benefit during periods on unexpected inflation because ________________.

A. interest rates fall.
B. inflation rate exceeds the increase in the wage rate.
C. the purchasing power of money borrowed is less than the purchasing power of money repaid
to lenders.
D. the purchasing power of the money borrowed is greater than the purchasing power of the
money repaid to lenders.

14. During inflation, the government will control the problem by imposing a surplus budget. This is done
by ______________.
A. reducing the tax and increasing the expenditure
B. reducing the expenditure and tax simultaneously
C. reducing the expenditure and increasing the tax
D. none of the above

15. Which of the following individual is included in the labor force?

A. Ali, who lost his job and gave up looking for work three months ago.
B. Sofia, a university graduate, but can only find part-time employment at a fast-food restaurant.
C. Jamie, who would like to work as a stockbroker but is now a housewife.
D. Sam, who thinks he could easily earn RM100 per year despite that he is now a patient.

16. Assuming the total population is 200 million, the labor force is 100 million, and 92 million workers
are employed, the unemployment rate is ________________.
A. 4%
B. 6%
C. 8%
D. 10%

17. The following statements are true, except ________________.

A. frictional unemployment occurs for a temporary period only
B. structural unemployment occurs because of a lack of skills in the labor
C. seasonal unemployment exists because some labor quit their job and search for another job
D. cyclical unemployment is a serious problem for any country and it exists because some labor
has lost their jobs during a recession.

18. When workers are over-qualified for their current jobs, we say they are ________________.
A. unemployed.
B. discouraged workers.
C. over-employed
D. underemployed

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

19. Assume Ahmad is temporarily unemployed because he has voluntarily quit his job with company A
and will begin a better job next week with company B. Ahmad will be considered as
________________.
A. cyclically unemployed
B. frictionally unemployed
C. partially unemployed
D. seasoned unemployed

20. If the government wants to reduce unemployment, government spending should be

________________.
A. decreased.
B. increased.
C. constant.
D. none of the above.

21. Consider a factory that is permanently closed because of foreign competition. If the factory’s
workers cannot find new jobs because their skills are no longer marketable, they are classified as
________________.
A. seasonally unemployed.
B. frictionally unemployed.
C. structurally unemployed.
D. cyclically unemployed.

22. Frictional unemployment is best described as ________________.

A. unemployment related to the certain economy
B. workers who are between jobs
C. people who are out of a job for a long period
D. people who have no job skills

23. Structural unemployment is unemployment caused by ________________.

A. discrimination
B. a temporary change in jobs
C. the time required to match employers and workers
D. a mismatch between worker skills and employer requirements

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

24. Which of the following types of unemployment is generally of the shortest duration?
A. Structural.
B. Disguised.
C. Frictional.
D. Cyclical.

25. Malaysia experienced an economic crisis in 1997 and 1998. What would best describe the stage
of the business cycle experienced during that period?
A. A trough.
B. A recovery.
C. A recession.
D. A peak.

26. Labour force includes ________________.

A. 16 years of age and older.
B. 16 years of age and older who are working or actively seeking jobs.
C. 21 years of age and older.
D. between 15 to 64 age group.

27. In the year 2000, the adult population of an economy was 46.5 million, the labor force participation
rate was 63.5 %, and the unemployment rate was 5.8%. What was the number of people
unemployed?
A. 29.5 million
B. 27.5 million
C. 2.7 million
D. 1.7 million

28. The unemployment rate is ________________.

A. The percentage of the total population which is out of work
B. The percentage of the labor force which is out of work
C. The ratio of unemployed to employed workers
D. The percentage of employed workers out of the total population

29. Contractionary fiscal policy has the following effects except to

A. reduce aggregate demand.
B. overcome inflationary pressure
C. increase the money supply.
D. increase government revenue.

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

30. The federal budget deficit occurs when ________________.

A. there is deflation.
B. there is inflation.
C. federal government purchases exceed net taxes.
D. aggregate demand is greater than aggregate supply.

31. Which of the following would increase the real GDP of an economy?
A. Cutting tax revenues and raising government expenditures.
B. Cutting government expenditures and raising tax revenues.
C. Raising both tax revenues and government expenditures.
D. Cutting both government expenditures and tax revenues.

32. The government can reduce unemployment or reduce inflation by ________________.

A. manipulating aggregate demand.
B. manipulating the availability of natural resources.
C. manipulating the availability of capital goods.
D. curbing the level of immigration.

33. If government expenditure is greater than revenue, the budget is a ___________.

A. maximum budget.
B. minimum budget.
C. deficit budget.
D. surplus budget.

34. A budget deficit occurs when ______________.

A. export is more than import
B. import is more than export
C. government purchasing is more than government revenue
D. government revenues are more than government expenses

35. A budget deficit exists when ______________.

A. government spending equals government revenue
B. government spending exceeds government revenue
C. the public debts decrease
D. tax revenue exceeds government spending

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

36. The intended goal of expansionary fiscal and monetary policy is ______________.
A. to have an equal distribution of income
B. to increase in interest rates
C. to increase the price level
D. to increase the level of aggregate output

37. The effect of budget deficit on an economy is to ______________.

A. reduce inflation
B. reduce borrowing
C. increase aggregate demand
D. increase spending

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

STRUCTURED QUESTIONS
QUESTION 1

a. If the Consumer Price Index (CPI) is currently 125, by what percentage have price raised
since the base year? (2 points)

b. Suppose the CPI increase from 135 to 155, calculate the inflation rate. (2 points)

c. The table below shows the total labor force, the number of employed and unemployed
people for a country.
Table 2

Total Labor Force Employed Unemployed

Year (‘000)
(‘000) (‘000)

2010 7,200 ________ 890

2011 ______ 9,200 1,350

i. Fill in the blanks with appropriate answers. (2 points)

ii. Calculate the unemployment rate for 2010 and 2011. (2 points)

iii. Give two (2) implications on unemployment. (2 points)

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 2

a. Define under-employment. (2 points)

b. Complete the following table by calculating labour force participation rate and unemployment
rate. (3 points)

Table 2

Years Consumer Working- Labour Employed Labour force Unemployment

price index age force (million) participation rate (%)
(CPI) population (million) rate (%)
(million)

2012 100 35 30 25

2013 135 40 38 26.5

2014 150 44 40 28

c. Calculate the rate of inflation for the year 2014. (2 points)

d. Identify THREE (3) effects of unemployment. (3 points)

10

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 3

Table 2 shows the total labor force, the number of employed and unemployed people for the
Bahamas.

Table 2

Year Total labor force(‘000) Employed (‘000) Unemployed (‘000)

2016 (i) 6,500 840

2017 8,600 (ii) 920

a. Define discourage workers. (2 points)

b. Calculate:

i) Total labor force for 2016

ii) Total employed for 2017

c. Calculate the unemployment rate for 2016 and 2017. (4 points)

d. If Consumer Price Index (CPI) for 2016 is 170 and for 2017 is 185, calculate
the inflation rate for 2017. (2 points)

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Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 4

Table 2 shows the total population, total labor force, and the number of employed in Malaysia for
2016 and 2017.

Table 2

Year / Items 2016 2017

Total population 30 000 30 500

Total labor force 10 000 11 000

Employed 9 000 9 500

a. Define unemployment. (2 points)

b. Calculate the unemployment rate for 2016 and 2017. (4 points)

c. If the Consumer Price Index (CPI) for 2016 is 110 and for 2017 is 115, (2 points)
calculate the inflation rate.

d. List TWO (2) groups of people that will benefit during inflation. (2 points)

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Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 5

Table 2 shows the statistics of labor in Malaysia.

Table 2

Labor statistic Million

Employed 12 000
Unemployed 400
Full-time student 90
Housewive 12
Pensioners 110
Discourage worker 10

a. Calculate :

i) Number of people in the labor force (2 points)

ii) Unemployment rate (2 points)

iii) Total number of people NOT in the labor force (2 points)

b. Define discourage workers. (2 points)

c. List TWO (2) types of unemployment (2 points)

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Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 6

Table 2 shows the total number of labor force, employed and unemployed person in Karachi
for 2016 and 2017.

Table 2

Year Total Labor Force Employed Unemployed

2016 10,200 10,000 i.

2017 ii. 12,800 200

a. Calculate:

i. The number of unemployed persons in 2016. (1 point)

ii. The total number of the labor force in 2017. (1 point)

iii. Calculate the unemployment rate for 2017. (2 points)

b. If the Consumer Price Index (CPI) for 2017 is 220 and for 2016 is 200, (2 points)
calculate the inflation rate for 2017.

c. List FOUR (4) effects of unemployment. (4 points)

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Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 7

Table 2 shows the total number of the labor force, employed and unemployed people in California.

Table 2

Year Total Labor Employed Unemployed Unemployment

Force Rate
(%)
2015 14,000 13,000 (i) 7.14

2016 15,000 14,200 (ii) 5.33

2017 (iii) 15,200 400 (v)

2018 (iv) 16,000 300 (vi)

a. Complete the above table by calculating column (i) until column (vi). (6 points)

b. Calculate the inflation rate if the Consumer Price Index (CPI) for 2018 (2 points)
is 140 and for 2017 is 130.

c. List TWO (2) policies to overcome the problem of inflation. (2 points)

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Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 8

Table 2 shows the total number of labor force, employed and unemployed person in Ireland for 2017
and 2018.

Table 2

Year Total Labor Force Employed Unemployed

2017 i. 12,000 600
2018 13,000 ii. 600

a. Based on the above data, calculate:

i. The number of the labor force in 2017. (1 point)

ii. The number of employed persons in 2018. (1 point)

iii. The unemployment rate for 2017. (2 points)

iv. The unemployment rate for 2018. (2 points)

b. If the Consumer Price Index (CPI) is 170 for 2017 and 180 for 2018, (2 points)
calculate the inflation rate for 2018.

c. List TWO (2) tools to control unemployment by using monetary policy. (2 points)

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Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

SHORT ESSAY QUESTIONS

1. Define labor force. (2 points)

2. Explain any TWO (2) types of unemployment with example. (4 points)

3. Explain TWO (2) instruments of monetary policy to reduce inflation. (4 points)

4. Define inflation. (2 points)

5. List FOUR (4) factors that cause cost-push inflation. (4 points)

6. List FOUR(4) effects of unemployment. (4 points)

7. By using diagrams, explain the Demand-Pull Inflation. (6 points)

8. Explain TWO (2) instruments of fiscal policy to reduce inflation. (4 points)

9. Explain THREE (3) instruments of monetary policy to reduce inflation. (6 points)

10. Define the following terms:

i. Under-employment (2 points)

ii. Discouraged worker (2 points)

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Compiled by: haslin hs