Issues in Economics Today 8th Edition Guell Test Bank Download

Chapter 6
Every Macroeconomic Word You Ever Heard: Gross Domestic

Product, Inflation, Unemployment, Recession and Depression
Solution Manual for Issues in Economics Today 8th
Edition Guell 1259746399 9781259746390
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Multiple Choice
1. The reason that only final sales are counted in GDP is

A) to avoid double counting goods that are sold so as to be resold.
B) to not count production in other countries.
C) because the government can't get records on intermediate sales.
D) to simplify the computation and no other reason.
Answer: A
Learning Objective: 06-02
Topic: Measuring the Economy
Blooms: Remember
AACSB: Analytical Thinking
Difficulty: 1 Easy
2. One subject of study for macroeconomics is

A) inflation.
B) monopoly.
C) perfect competition.
D) the shape of an individual's demand curve.
Answer: A
Blooms: Remember
Difficulty: 1 Easy

A) unemployment.
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B) monopoly.
Answer: A
Blooms: Remember
Difficulty: 1 Easy

A) economic growth.
B) monopoly.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
5. In measuring Gross Domestic Product, goods produced by foreign firms in the United States
are
A) counted, and so are goods produced by American firms in foreign countries.
B) counted, but goods produced by American firms in foreign countries are not counted.
C) not counted, but goods produced by American firms in foreign countries.
D) not counted, and goods produced by American firms in foreign countries are also not
counted.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
6. Gross Domestic Product is counted using two methods: one which counts all the ways
people _____ money and another which counts all the ways people _____ money.
A) earn; spend
B) spend; save
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C) earn; save
D) loan; borrow
Answer: A
Blooms: Understand
Difficulty: 1 Easy
7. How does GDP deal with a Ford produced in Mexico?

A) It is fully counted.
B) It is not counted at all.
C) It is partially counted.
D) Is counted at twice the value.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
8. How does GDP deal with a Toyota produced in Kentucky?

A) It is fully counted.
B) It is not counted at all.
C) It is partially counted.
D) Is counted at twice the value.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
9. How does GDP account for something that was produced for sale in one year and sold in the
next year?
A) It is counted in the first year and anything that happens latter does not count.
B) It is counted in the second year.
C) It is counted as an addition to inventory (which is in business investment) in the year it.
was produced and the markup is counted in the year in which it is sold.
D) It is counted twice.
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Answer: C
Blooms: Understand
Difficulty: 1 Easy
10. Suppose an apple pie sells at a grocery store is for $5. Suppose that the grocery store
purchased it from a baking company for $4. Suppose the baking company paid $2 for
ingredients, $1 for labor, and made $1 in profit. What is the GDP contribution of the pie?
A) It is $4.
B) It is $5.
C) It is $11.
D) It is $12.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
11. Suppose a 1 pound steak sells at a grocery store is for $7. Suppose that the grocery store
purchased it from a butcher for $4. Suppose the butcher bought cattle from farmers for $2 per
sellable pound and paid their labor approximately $1 for pound of sellable beef labor, and
made $1 in profit. What is the GDP contribution of the steak?
A) It is $4.
B) It is $7.
C) It is $11.
D) It is $15.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
12. Suppose a DVR is bought from China for $200 and sold in the US for $250. GDP will count
this
A) as nothing.
B) as a net of $50 ($250 sale minus $200 import).
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C) as $200.
D) as $250.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
13. Suppose a Boeing 777 is sold to a Chinese company for $250 million and resells it to a Hong
Kong airline for $251 million. GDP will count this as
A) as nothing.
B) as $250 million.
C) as $251 million.
D) as $451 million.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
14. The reason that only final sales count in GDP is to

A) make it easier to do the accounting.
B) avoid double counting.
C) undervalue labor.
D) overvalue capital.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
15. Which of these goods will not be counted in GDP

A) the Ford manufactured in the US and sold in Canada.
B) the Ford manufactured in Mexico and sold in Mexico.
C) the Ford manufactured in the US in last year and sold in the US this year.
D) the spark plug sold by an auto parts store to go into a Ford when the original wears out.
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Answer: B
Blooms: Understand
Difficulty: 1 Easy
16. GDP can be calculated using

A) either the ways people earn money or the ways people spend money.
B) the way people spend money (but not the way people earn money).
C) the way people earn money (but not the way people spend money).
D) the difference between the way people earn money and the way they spend it.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
17. The expenditures approach to GDP equals

A) Employee Compensation + Profit + Net Property Income + Indirect Business Taxes +
Depreciation - Income Earned Abroad.
B) Consumption + Gross Investment + Government Purchases + Net Exports.
C) Consumption + Net Investment (Gross Investment-Depreciation) + Government
Purchases + Net Exports.
D) Employee Compensation - Profit - Net Property Income - Indirect Business Taxes-
Answer: B
Blooms: Remember
Difficulty: 1 Easy
18. The income approach to GDP equals

A) Employee Compensation + Profit + Net Property Income + Indirect Business Taxes +
B) Consumption + Gross Investment + Government Purchases + Net Exports.
C) Consumption + Net Investment (Gross Investment-Depreciation) + Government
Purchases + Net Exports.
D) Employee Compensation - Profit - Net Property Income - Indirect Business Taxes –
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Answer: A
Blooms: Remember
Difficulty: 1 Easy
19. Inflation is measured using _________ in a price index.

A) the absolute increase
B) a multi-year weighted average increase
C) the percentage year-to-year increase
D) logarithm adjusted absolute increase
Answer: C
Blooms: Remember
Difficulty: 1 Easy
20. If a market basket was defined in 2014 and it cost $10,000 to purchase the items in that
basket in 2014, while it cost $11,000 to purchase those identical goods in 2015, then the base
year is
A) 2013.
B) 2014.
C) 2015.
D) none of these.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
basket in 2014, while it cost $11,000 to purchase those identical goods in 2015, then the price
index for the base year is
A) 100.
B) (10000/11000)*100=90.9.
C) (11000/10000)*100=110.
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D) none of these
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
index for 2015 is
A) 100.
B) (10000/11000)*100=90.9.
C) (11000/10000)*100=110.
D) unknown given this data.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
basket in 2014, while it cost $11,000 to purchase those identical goods in 2015, then the
inflation rate from 2013 to 2014 is
A) (100-100)/100*100%=0%.
B) (100-90.9)/100*100%=9.1%.
C) (110-100)/100*100%=10%.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
A) (100-100)/100*100%=0%.
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B) (100-90.9)/100*100%=9.1%.
C) (110-100)/100*100%=10%.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
index for the base year is
A) 100.
B) (10000/12000)*100=83.33.
C) (12000/10000)*100=120.
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
index for 2015 is
A) 100.
B) (10000/12000)*100=83.33.
C) (12000/10000)*100=120.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
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A) (100-100)/100*100%=0%.
B) (100-83.3)/100*100%=16.7%.
C) (120-100)/100*100%=20%.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
A) (100-100)/100*100%=0%.
B) (100-83.3)/100*100%=16.7%.
C) (120-100)/100*100%=20%.
D) unknown given this data
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
29. Using Table 6.1, the inflation rate for 1999 would be
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A) 68.3% (168.3-100).
B) 2.7% (((168.3-163.9)/163.9)*100 %).
C) 4.4% (168.3-163.9).
D) 3.0% (174-163.9)/(2*163.9)*100%).
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
30. Using Table 6.1, from the 1982-1984 base to 2002, prices increased
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A) 80.9%.
B) 80.9 times.
C) by 80.9 dollars per week on monthly bills.
D) 180.9%.
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
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A) 74.0% (174.0-100).
B) 3.3% (((174.0-168.3)/168.3)*100 %).
C) 5.7% (174.0-168.3).
D) 3.1% (174-163.9)/(2*163.9)*100%).
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
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A) 76.7% (176.7-100).
B) 1.6% (((176.7-174.0)/174.0)*100 %).
C) 2.7% (176.7-174.0).
D) 2.0% (180.9-174.0)/(2*174.0)*100%).
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
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A) 80.9% (180.9-100).
B) 2.4% (((180.9-176.7)/176.7)*100 %).
C) 4.2% (180.9-176.7).
D) 2.2% (184.3-176.7)/(2*176.7)*100%).
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
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A) 84.3% (184.3-100).
B) 1.9% (((184.3-180.9)/180.9)*100 %).
C) 4.4% (184.3-180.9).
D) 3.0% (190.3-180.9)/(2*180.9)*100%).
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
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A) 90.3% (190.3-100).
B) 3.3% (((190.3-184.3)/184.3)*100 %).
C) 6.0% (190.3-184.3).
D) 2.6% (190.3-180.9)/(2*180.9)*100%).
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
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A) 84.3%.
B) 84.3 times.
D) 184.3%.
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
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A) 90.3%.
B) 90.3 times.
D) 190.3%.
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
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A) 221.1%.
B) 121.1%.
D) 121.1 times.
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
39. Using Table 6.1, were there to have been deflation during this time period you would have
seen
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A) a slower rate of increase in the CPI.
B) a stationary CPI.
C) a more rapid rate of increase in the CPI.
D) a decrease in the CPI.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
40. Suppose there are only two goods (Good A and Good B) and the average person buys 4 of
Good A in a year and 3 of Good B. If the Price of Good A is $5 and the Price of Good B is
$10, the price of the market basket
A) is 100.
B) is 20.
C) is 30.
D) is 50.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
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41. Suppose this is the base year and there are only two goods (Good A and Good B) and the
average person buys 4 of Good A in a year and 3 of Good B. If the Price of Good A is $5 and
the Price of Good B is $10, the price index
A) is 100.
B) is 20.
C) is 30.
D) is 50.
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
Good A in a year and 3 of Good B. If, in the base year, the Price of Good A is $5 and the
Price of Good B is $10, and in the next year the Price of Good A is $6 and the Price of Good
B is $9, the price index in the second of the two years
A) is 51.
B) is 100.
C) is 101.
D) is 102.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
B is $9, the inflation that occurred in the second year is
A) is 51%.
B) is 100%.
C) is 1%.
D) is 2%.
Answer: D
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Blooms: Evaluate
Difficulty: 3 Hard
Good A in a year and 6 of Good B. If the Price of Good A is $8 and the Price of Good B is
$6, the price of the market basket
A) is 100.
B) is 64.
C) is 36.
D) is 50.
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
45. Suppose this is the base year and there are only two goods (Good A and Good B) and the
average person buys 8 of Good A in a year and 6 of Good B. If the Price of Good A is $8 and
the Price of Good B is $6, the price index
A) is 100.
B) is 64.
C) is 36.
D) is 50.
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
B is $5, the price index in the second of the two years
A) is 10.
B) is 100.
C) is 110.
D) is 120.
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Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
B is $9, the inflation that occurred in the second year is
A) is 50%.
B) is 100%.
C) is 10%.
D) is 20%.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
48. Suppose there are two good types (Type 1 and Type 2) and suppose the weights for the types
are 80% for Type 1 and 20% for Type 2. Suppose the Price Index for Type 1 is 125 and the
Price Index for Type 2 is 120. The overall price index is
A) is 116.
B) is 122.5.
C) is 124.
D) is 128.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
A) Is 140.
B) Is 175.
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C) Is 180.
D) Is 350.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
A) is 140.
B) is 150.
C) is 170.
D) is 300.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
51. Suppose the price of gasoline has increased from $3 per gallon to $4 per gallon at the same
time that the overall price index increased from 200 to 300 then you know that the inflation
adjusted price of gasoline has
A) increased.
B) decreased.
C) remained constant.
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
A) increased.
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B) decreased.
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
time that the overall price index increased from 200 to 266.66 then you know that the
inflation adjusted price of gasoline has
A) increased.
B) decreased.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
A) increased.
B) decreased.
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
A) increased.
B) decreased.
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Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
A) increased.
B) decreased.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
57. In early 2005, inflation increased unexpectedly due to an increase oil prices. This helped
A) borrowers.
B) lenders.
C) people on fixed incomes.
D) workers.
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
58. Deflation occurs only when

A) some prices fall but average prices still rise.
B) all prices for all goods fall.
C) the average price level (CPI) falls.
D) the average price level increases but at a slower rate than before.
Answer: C
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Blooms: Remember
Difficulty: 1 Easy
59. Economists consider deflation

A) to be generally healthy for the economy.
B) to be a normal part of the economy, not necessarily healthy or unhealthy.
C) dangerous, as it can lead to a depression.
D) to be no better and no worse than inflation.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
60. With deflation people will

A) buy goods earlier than they had originally planned.
B) feel compelled to borrow money.
C) delay their purchases of goods in hopes prices will fall further.
D) see their paycheck rise as bosses seek to reward high performers.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
61. Economists generally believe that relative to the true cost of living, the CPI
A) is perfectly measured.
B) overstates it by a factor of 2 (meaning that inflation is really only half as bad as the
government states).
C) overstates it by a difference of about .8% (meaning that an official inflation rate of 1.8%
is really only about 1%).
D) understates it by a factor of 2 (meaning that inflation is actually twice as bad as the
government states).
Answer: C
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Blooms: Understand
Difficulty: 1 Easy
62. The Consumer Price Index (CPI) is a heavily criticized measure of inflation because
A) the government does nothing to fix its known deficiencies.
B) it consistently understates the increase in the cost-of-living.
C) it consistently overstates the increase in the cost-of-living.
D) the government constantly makes adjustments in it without warrant.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
63. Which of the following is not a reason that the CPI overstates the cost of living?
A) There are too frequent updates of the market basket.
B) Quality improvements are not adequately incorporated.
C) The location of typical purchases is not adequately updated.
D) The tendency to substitute to nearly equivalent goods is not adequately accounted for.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
64. Which of the following is not a reason that the CPI overstates the cost of living?
A) There are too infrequent updates of the market basket.
B) Quality improvements are not adequately incorporated.
C) The location of typical purchases is not adequately updated.
D) Substitution into nearly-equivalent goods is assumed to be more common than it is.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
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65. According to the Bureau of Labor Statistics, the Consumer Price Index was
A) always intended to measure increases in the cost of living and does precisely that.
B) never intended to measure increases in the cost of living and no one uses it that way.
C) never intended to measure increases in the cost of living but many use it that way.
D) only intended to measure increases in the cost of living for a small segment of society.
Answer: C
Blooms: Remember
Difficulty: 1 Easy
66. The majority of economists believe that the Consumer Price Index
A) overstates the increase in the cost of living.
B) understates the increase in the cost of living.
C) precisely measures the increase in the cost of living.
D) overstates the increase in the cost of living in some years and understates it in others.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
67. A reason given why the CPI overstates the cost of living is it
A) only measures the effects of inflation on the poor.
B) makes no attempt to ascertain what average people buy.
C) makes no attempt to update the market basket.
D) makes no attempt to control for substitution to cheaper goods.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
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D) makes no attempt to control for the fact that sales often occur on holidays.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
D) makes no attempt to control for quality improvements except in consumer goods
Answer: D
Blooms: Understand
Difficulty: 1 Easy
D) inadequately deals with updates in product lines for existing goods.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
D) updates the market basket infrequently thereby missing the steep price decline in the
early adoption period.
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Answer: D
Blooms: Understand
Difficulty: 1 Easy
72. A reason given why the CPI overstates the cost of living is that the
A) CPI only measures the effects of inflation on the poor.
B) CPI makes no attempt to ascertain what average people buy.
C) CPI makes no attempt to update the market basket.
D) BLS audits prices in the same types of stores, rather than shift to cheaper outlets.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
73. In the 1970s and 1980s Wal-Mart entered several markets outside of its home base of
Arkansas. As a result it brought lower prices on a variety of goods. That the Bureau of Labor
Statistics did not send its shoppers into these new stores until there was a new survey led to
the CPI
A) overstating inflation because they were missing “when people shop”.
B) understating inflation because they were missing “when people shop”.
C) overstating inflation because they were missing “where people shop”.
D) understating inflation because they were missing “where people shop”.
Answer: C
Blooms: Apply
AACSB: Knowledge Application
Difficulty: 2 Medium
74. In the 1990s and 2000s Wal-Mart entered the grocery sector in several U.S. cities and as a
result it brought lower prices on food. That the Bureau of Labor Statistics did not send its
shoppers into these new stores in a timely fashion led to the CPI
A) overstating inflation because they were missing “when people shop”.
B) understating inflation because they were missing “when people shop”.
C) overstating inflation because they were missing “where people shop”.
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D) understating inflation because they were missing “where people shop”.
Answer: C
Blooms: Apply
75. DVD writers allow people to record TV shows in a high quality format. They entered the
market in 2002 at a price of $1000. By 2003 they were under $500. By the time they had
become part of the CPI market basket they are likely to be less than $250. Economists will
argue that this type of issue
A) leads to the CPI overstating the rate of inflation.
B) leads to the CPI understating the rate of inflation.
C) is well handled the by the BLS as they determine the CPI.
D) is irrelevant to CPI calculations.
Answer: A
Blooms: Apply
76. Suppose people on diets buy the bulk of the ground chicken and ground turkey sold in the
U.S. and they use either interchangeably as a substitute in recipes for ground beef. If the
price of ground turkey rises and the price of ground chicken does not the then CPI will
A) understate inflation because of the issue of substitution.
B) overstate inflation because of the issue of substitution.
C) overstating inflation because of the issue of missing “where people shop”.
D) understating inflation because of the issue of missing “where people shop”.
Answer: B
Blooms: Apply
77. The magnitude of the annual overstatement of the CPI is approximately

A) one-tenth of one percentage point.
B) one-half of one percentage point.
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C) one percentage point.
D) five percentage point.
Answer: C
Blooms: Apply
78. One of the consequences of the overstatement of the CPI is that

A) Social Security taxes are higher than they would otherwise be.
B) personal income taxes are higher than they would otherwise be.
C) Social Security payments are lower than they would otherwise be.
D) the poverty line is lower than it would otherwise be.
Answer: A
Blooms: Understand
Difficulty: 1 Easy

A) Social Security taxes are lower than they would otherwise be.
B) personal income taxes are lower than they would otherwise be.
Answer: B
Blooms: Understand
Difficulty: 1 Easy

A) Social Security taxes are lower than they would otherwise be.
C) Social Security payments are higher than they would otherwise be.
Answer: C
Page 34
Blooms: Understand
Difficulty: 1 Easy

A) the poverty line is higher than it would otherwise be.
D) Social Security taxes are lower than they would otherwise be.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
82. Over the years the consequences of the biased-measurement of the CPI
A) increase linearly.
B) decrease steadily.
C) increase exponentially.
D) decrease dramatically.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
83. The consumer price index is computed by

A) the Bureau of Price Indexes.
B) Health and Human Services.
C) the Bureau of Labor Statistics.
D) the White House Office of Management and Budget.
Answer: C
Blooms: Remember
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Difficulty: 1 Easy
84. The political problems associated with fixing the CPI are that
A) personal income taxes would rise.
B) benefits to the poor would rise.
C) Social Security taxes would rise.
D) Social Security benefits would rise.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
A) personal income taxes would fall.
B) benefits to the poor would fall.
D) Social Security benefits would rise.
Answer: B
Blooms: Remember
Difficulty: 1 Easy
A) personal income taxes would fall.
B) benefits to the poor would rise.
D) Social Security benefits would fall.
Answer: D
Blooms: Remember
Difficulty: 1 Easy
87. Estimates of the overstatement of cost of living by the CPI suggest the magnitude of the
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overstatement is roughly
A) 5.0 percentage points.
B) 0.3 percentage points.
C) 1.0 percentage points.
D) 0.1 percentage points.
Answer: C
Blooms: Remember
Difficulty: 1 Easy
88. If the CPI were fixed then the fact that it is wrong by 0.8 percentage points means that over a
ten year period it is wrong by
A) 1.1 percentage points.
B) between 1.1 and 11 percentage points.
C) 11 percentage points.
D) more than 11 percentage points.
Answer: D
Blooms: Remember
Difficulty: 1 Easy
89. A CPI miscalculation that overstates its increase by 0.8 percentage points will cause
A) the price of goods to rise.
B) the price of services rise.
C) the personal exemption to rise too slowly.
D) the personal exemption to rise too quickly.
Answer: D
Blooms: Remember
Difficulty: 1 Easy
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C) Social Security's Maximum Taxable Earnings to rise too slowly.
D) Social Security's Maximum Taxable Earnings to rise too quickly.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
B) the poverty line to rise too slowly.
C) the price of services rise.
D) the poverty line to rise too quickly.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
B) standard deduction to rise too slowly.
C) the price of services rise.
D) standard deduction to rise too quickly.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
C) tax brackets cutoffs to rise too slowly.
D) tax brackets cutoffs to rise too quickly.
Answer: D
Page 38
Blooms: Understand
Difficulty: 1 Easy
94. Because the CPI overstates the rate of inflation, Cost of Living Adjustments for wages that
are based on it will
A) cause these wages to rise more slowly that they otherwise would.
B) cause these wages to rise more quickly that they otherwise would.
C) be correct.
D) never have to account for this to get it right.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
95. If the inflation rate turns out to be greater than was is expected to be, the clear winners are
A) lenders.
B) borrowers.
D) businesses.
Answer: B
Blooms: Remember
Difficulty: 1 Easy
96. If the inflation rate turns out to be less than was is expected to be, the clear winners are
A) lenders.
B) borrowers.
D) businesses.
Answer: A
Blooms: Remember
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Difficulty: 1 Easy
97. If the inflation rate turns out to be greater than was is expected to be, the clear losers are
A) lenders.
B) borrowers.
C) people on incomes adjusted by a COLA.
D) businesses.
Answer: B
Blooms: Remember
Difficulty: 1 Easy
98. If the inflation rate turns out to be less than was is expected to be, the clear losers are
A) lenders.
B) borrowers.
C) people on incomes adjusted by a COLA.
D) businesses.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
99. Inflation, whether or not it is expected, hurts

A) lenders.
B) borrowers.
D) businesses.
Answer: C
Blooms: Remember
Difficulty: 1 Easy
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100. The reason that the expected inflation rate matters in determining the impact on borrowers
or lenders is that
A) interest rates depend on expected inflation, rather than actual inflation.
B) interest rates depend on actual inflation, rather than expected inflation.
C) higher interest rates mean higher payments.
D) lower interest rates mean lower payments.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
101. The “core rate” of inflation

A) adds in food and energy to the price index.
B) removes food and energy from the price index.
C) only includes the price of food and energy in the price index.
D) is a price index associate with the important things people buy.
Answer: B
Blooms: Remember
Difficulty: 1 Easy
102. The annualized monthly CPI numbers are

A) more volatile than the Core CPI.
B) less volatile than the Core CPI.
C) different, but no more or less volatile than the Core CPI.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
103. The Personal Consumption Expenditures Index

A) strips out the cost of food and energy.
B) also includes producer prices (like the cost of iron ore).
C) includes all goods and services people buy (not just what “average” people buy).
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D) only includes food and energy.
Answer: C
Blooms: Remember
Difficulty: 1 Easy
104. The Core Personal Consumption Expenditures Index

A) strips out the cost of food and energy from the PCE.
B) also includes producer prices (like the cost of iron ore).
C) includes all goods and services people buy (not just what “average” people buy).
D) only includes food and energy.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
105. The Federal Reserve is most concerned with

A) the CPI.
B) the PCE.
C) the Core PCE.
D) the PPI.
Answer: C
Blooms: Remember
Difficulty: 1 Easy
B is $9, one problem with the CPI way of calculating inflation is
A) it understates the importance of Good A in the budget.
B) it understates the importance of Good B in the budget.
C) it fails to recognize that people will substitute (to some degree) Good B for Good A and
therefore overstates the degree of inflation.
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D) it fails to recognize that people will substitute (to some degree) Good B for Good A and
therefore understates the degree of inflation.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
B is $12, one problem with the CPI way of calculating inflation is
C) it fails to recognize that people will substitute (to some degree) Good A for Good B and
therefore overstates the degree of inflation.
D) it fails to recognize that people will substitute (to some degree) Good A for Good B and
therefore understates the degree of inflation.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
Price of Good B is $10, and in the next year the Price of Goods A and B both increase by 5%
at the same stores but new business starts to sell B for $9 what is the problem with the CPI
way of calculating inflation that is apparent
C) it fails to recognize that people will start to buy Good B in the new store and therefore the
CPI overstates the degree of inflation.
D) it fails to recognize that people will start to buy Good B in the new store and therefore the
CPI understates the degree of inflation.
Answer: C
Blooms: Evaluate
Page 43
Difficulty: 3 Hard
Price of Good B is $10, and in the next year the Price of Goods A and B both increase by 5%
at the same stores but Good A is much less likely to make you sick than it had been, what is
the problem with the CPI way of calculating inflation that is apparent
C) it fails to recognize the quality increase in Good A and therefore the CPI overstates the
degree of inflation.
D) it fails to recognize the quality increase in Good A therefore the CPI understates the
degree of inflation.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
110. One problem with using Real Gross Domestic Product as a measure of social welfare is that
A) it fails to count home production.
B) it fails to count services, a growing part of the economy.
C) it double, triple, and sometimes quadruple counts goods that are produced in stages.
D) it fails to account for imports, a growing part of the economy.
Answer: A
Topic: Real Gross Domestic Product and Why It is Not Synonymous with Social Welfare
Blooms: Understand
Difficulty: 1 Easy
111. One of the reasons that Real Gross Domestic Product is not synonymous with social welfare
is
A) people substitute between goods.
B) things produced by people under 18 are not counted.
C) domestic production (cooking, laundry and such) are not counted.
D) quality has remained steady.
Answer: C
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Blooms: Understand
Difficulty: 1 Easy
is
C) it ignores the value of leisure.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
is
C) it treats all spending the same (spending on military hardware is treated the same as
spending on education).
Answer: C
Blooms: Understand
Difficulty: 1 Easy
is
C) environmental quality is ignored.
Answer: C
Page 45
Blooms: Understand
Difficulty: 1 Easy
is
C) the underground economy (unreported and illegal income and sales) is not counted.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
116. In Figure 6.1, which area represents a peak?
A) A
B) B
C) C
D) D
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Answer: A
Topic: Business Cycles
Blooms: Remember
Difficulty: 1 Easy
117. In Figure 6.1, which area represents a recession?
A) A
B) B
C) C
D) D
Answer: B
Blooms: Remember
Difficulty: 1 Easy
118. In Figure 6.1, which area represents an expansion?
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A) A
B) C
C) D
D) E
Answer: D
Blooms: Remember
Difficulty: 1 Easy
119. In Figure 6.1, which area represents a trough?
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A) A
B) B
C) C
D) D
Answer: C
Blooms: Remember
Difficulty: 1 Easy
120. In Figure 6.1, which area represents a recovery?
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A) A
B) B
C) C
D) D
Answer: D
Blooms: Remember
Difficulty: 1 Easy
121. The period of growth from a trough that brings Real GDP back to its previous peak is called
a
A) recession.
B) recovery.
C) expansion.
Answer: B
Blooms: Remember
Difficulty: 1 Easy
122. The period of growth from the level of the previous peak to a new peak in Real GDP is
called a
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A) recession.
B) recovery.
C) expansion.
Answer: C
Blooms: Remember
Difficulty: 1 Easy
123. The period of negative growth in Real GDP is called a

A) recession.
B) recovery.
C) expansion.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
124. If Real GDP contracted by more than 10%, economists would label that a
A) Recession.
B) Expansion.
C) Recovery.
D) Depression.
Answer: D
Blooms: Remember
Difficulty: 1 Easy
125. A double-dip recession occurs when

A) a recession is twice as long as a typical recession.
B) a recession results in twice the reduction in Real GDP as a typical recession.
C) shortly after coming out of a recession, the economy falls back into another one.
D) a recession results in twice the increase in unemployment as a typical recession.
Answer: C
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Blooms: Remember
Difficulty: 1 Easy
126. Economic contractions during the period from 1950 to 2007

A) were deeper (in terms of Real GDP) than prior contractions.
B) produced larger increases in unemployment than did prior contractions.
C) were shorter than prior contractions.
D) were more frequent than prior contractions.
Answer: C
Blooms: Remember
Difficulty: 1 Easy
127. Economic contractions during the period from 1950 to 2007

A) were deeper (in terms of Real GDP) than prior contractions.
B) produced larger increases in unemployment than did prior contractions.
C) were longer than prior contractions.
D) were less frequent than prior contractions.
Answer: D
Blooms: Remember
Difficulty: 1 Easy
128. Since the end of World War II, the rate of growth during expansions
A) has been rising.
B) has been falling.
C) is about what it was prior to World War II.
D) constant.
Answer: B
Blooms: Remember
Page 52
Difficulty: 1 Easy
129. The period from 1984-2007 has been labeled

A) the Great Depression.
B) the Great Moderation.
C) the Great Slow Down.
D) the Great Recession.
Answer: B
Blooms: Remember
Difficulty: 1 Easy
130. The recession of 2007-2009 has been

A) typical of post-World War II recessions.
B) one of (if not) the worst post-World War II recession.
C) less severe than most post-World War II recessions.
Answer: B
Blooms: Remember
Difficulty: 1 Easy
131. A depression is different from a recession in that

A) a recession is much worse.
B) a depression is much worse.
C) a recession has inflation and a depression does not.
D) a depression has inflation and a recession does not.
Answer: B
Blooms: Remember
Difficulty: 1 Easy
132. As women entered the force in the 1950s through the 1990s, the
A) unemployment rate steadily rose.
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B) unemployment rate steadily fell.
C) labor for participation rate steadily fell.
D) labor for participation rate steadily rose.
Answer: D
Topic: Measuring and Describing Unemployment
Blooms: Remember
Difficulty: 1 Easy
133. As the baby boom starts to retire, you would expect to see the
A) unemployment rate steadily rise.
B) unemployment rate steadily fell.
C) labor for participation rate steadily fell.
D) labor for participation rate steadily rise.
Answer: C
Blooms: Remember
Difficulty: 1 Easy
134. The highest post World War II unemployment rate occurred

A) in 1974.
B) in 1982.
C) in 2001.
D) in 2009.
Answer: B
Blooms: Remember
Difficulty: 1 Easy
135. Which of the following can make the unemployment rate fall?
A) An increase in the number of people who are looking for work.
B) A decrease in the number of people who are looking for work.
C) An increase in the number of people with jobs.
D) A decrease in the number of people who are looking for work and an increase in the
number of people with jobs.
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Answer: D
Blooms: Understand
Difficulty: 1 Easy
136. Which of the following can make the unemployment rate rise?
A) A decrease in the number of people who are looking for work.
B) An increase in the number of people who are looking for work.
C) A decrease in the number of people with jobs.
D) An increase in the number of people who are looking for work and an decrease in the
Answer: D
Blooms: Understand
Difficulty: 1 Easy
137. If the unemployment rate falls because the number of people not working but searching for
work falls, economists would attribute this to the
A) fallacy of composition.
B) encouraged worker effect.
C) discouraged worker effect.
D) none of the options are correct.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
138. If the unemployment rate rises because the number of people not working but searching for
work rises, economists would attribute this to the
B) encouraged worker effect.
C) discouraged worker effect.
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Answer: B
Blooms: Understand
Difficulty: 1 Easy
139. If a person is laid-off from a job and told that they will be brought back as soon as the
economy picks up and demand for their product rises, then economists call this person
A) underemployed.
B) structurally unemployed.
C) frictionally unemployed.
D) cyclically unemployed.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
140. If a person is unemployed because their industry has moved to another country, economists
refer to the person as
A) underemployed.
B) structurally unemployed.
C) frictionally unemployed.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
141. A 15 year old that wants a job but can’t find one is
A) underemployed.
B) unemployed.
C) not counted at all.
Answer: C
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Blooms: Understand
Difficulty: 1 Easy
142. In 2005, General Motors announced a 20% reduction in its staffing levels and the closure of
many assembly plants. Those laid off as a result would likely be classified as
A) seasonally unemployed.
B) frictionally unemployed.
C) cyclically unemployed.
D) structurally unemployed.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
143. With 125 million people working, 8 million out of work and looking for work, and 147
million neither working nor looking for work the unemployment rate would be
A) 6.4% (8/125)*100%.
B) 2.9% (8/(125+8+147)*100%.
C) 6.0% (8/(125+8)*100%.
D) 55.5% (8+147)/(125+8+147)*100%.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
million neither working nor looking for work, the “discouraged worker effect” would be
illustrated by people in the
A) 125 million losing their jobs.
B) 8 million giving up in their search for work.
C) 147 million seeking and attaining employment.
D) 147 million seeking but not attaining employment.
Answer: B
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Blooms: Evaluate
Difficulty: 3 Hard
million neither working nor looking for work, the “encouraged worker effect” would be
illustrated by people in the
B) 8 million ending their search for work.
C) 147 million seeking and attaining employment.
D) 147 million seeking but not attaining employment.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
million neither working nor looking for work, “underemployment” would be illustrated by
C) part of the 125 million holding part time jobs when they were qualified for only part-time
jobs.
D) part of the 125 million holding part time jobs when they were qualified for full-time jobs.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
million neither working nor looking for work, “underemployment” would be illustrated by
C) part of the 125 million holding low-skill jobs when they were qualified for only low-skill
jobs.
D) part of the 125 million holding low-skill jobs when they were qualified for high-skill
jobs.
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Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
148. Which of the following can make the unemployment rate fall?
A) An increase in the number of people neither working nor looking for work.
B) A decrease in the number of people who are looking for work.
C) An increase in the number of people with jobs.
D) A decrease in the number of people who are looking for work and an increase in the
Answer: D
Blooms: Understand
Difficulty: 1 Easy
149. Which of the following can make the unemployment rate rise?
A) A decrease in the number of people neither working nor looking for work.
B) An increase in the number of people who are looking for work.
C) A decrease in the number of people with jobs.
D) An increase in the number of people who are looking for work and a decrease in the
Answer: D
Blooms: Understand
Difficulty: 1 Easy
150. If the unemployment rate falls because the number of people not working but searching for
work falls, economists would attribute this to the
B) discouraged worker effect.
C) encouraged worker effect.
D) none of the above
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Answer: B
Blooms: Understand
Difficulty: 1 Easy
151. If the unemployment rate rises because the number of people not working but searching for
work rises, economists would attribute this to the
B) discouraged worker effect.
C) encouraged worker effect.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
152. To an economist a "market basket" is made up of

A) the goods average people buy and the quantities in which they buy them.
B) the goods people should buy and the quantities they should buy them in.
C) only things like cars and not services like cell phone service.
D) the goods and services people will buy next year.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
153. A price index

A) is a mechanism to compare all prices in two different years.
B) is the ratio of the price of a market basket in one year to the price of the market basket in
the previous year times 100.
C) is the ratio of the price of a market basket in one year to the price of the market basket in
a base year times 100.
D) is a mechanism to compare all prices in two different years and the ratio of the price of a
market basket in one year to the price of the market basket in the previous year times 100.
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Answer: D
Blooms: Remember
Difficulty: 1 Easy
154. The inflation rate is

A) the percentage increase in the price index from one year to the next.
B) the percentage increase in the price index from the base year.
C) the price index in one year minus the price index in the previous year.
D) the percentage increase in the price index from one year to the next as well as the price `
index in one year minus the price index in the previous year.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
155. Real Gross Domestic Product is Gross Domestic Product

A) after eliminating sales of intangible things like services.
B) adjusted for inflation.
C) adjusted for changes in interest rates.
D) adjusted for the impact of pollution.
Answer: B
Blooms: Remember
Difficulty: 1 Easy
156. If a person is laid-off from a job and told that they will be brought back as soon as the
economy picks up and demand for their product rises, then economists call this person.
A) underemployed.
C) structurally unemployed.
Answer: D
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Blooms: Remember
Difficulty: 1 Easy
157. If a person is unemployed because their industry has moved to another country, economists
refer to the person as
A) underemployed.
C) structurally unemployed.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
158. A 15 year old that wants a job but can't find one is
A) underemployed.
B) not included at all in the unemployment rate.
C) unemployed.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
159. Of these, economists consider this the worst

A) inflation of 5%.
B) recession.
C) deflation of 5%.
D) depression.
Answer: D
Blooms: Understand
Page 62
Difficulty: 1 Easy
160. On a graph of real gross domestic product over time, recessions appear as
A) relatively short and shallow drops on an otherwise increasing path.
B) long, sharp declines on an otherwise increasing path.
C) the dips on a path that increases and decreases equally.
D) the periods where the rate of grow, while still positive, slows.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
161. The BLS has recently made explicit adjustments in its CPI calculations to control for
A) consumer electronics quality improvement issue.
B) food safety quality issues.
C) substitution between goods.
D) purchase location adjustments.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
162. The BLS has recently made explicit adjustments in its CPI calculations to control for
A) issues relating to the frequency of market basket updates.
B) food safety quality issues.
C) substitution between goods.
D) purchase location adjustments.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
163. The device used by the BLS to adjust the market basket more frequently while still
Page 63
retaining the ability to make inflation calculations is
A) chain-mail indexing.
B) envelop indexing.
C) chain-based indexing.
D) automatic indexing.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
164. The adjustments made recently by the BLS to mitigate the overstatement of the cost-of-
living by the CPI
A) completely eliminated the problem.
B) over compensated for the problem.
C) reduced the estimated overstatement from 1.1% to .8%.
D) had no impact on the problem.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
165. A price index based upon the items purchased by firms is the
A) PCE.
B) CPI.
C) core PCE.
D) Producer Price Index.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
166. A consumer price index that has had the impact of food and energy prices removed is the
A) PCE.
B) CPI.
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C) core CPI.
D) Producer Price Index.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
167. When estimating GDP using the income approach, aggregate income is adjusted by
A) subtracting depreciation.
B) subtracting net income earned abroad.
C) adding net income earned abroad.
D) subtracting indirect business taxes.
Answer: B
Topic: National Income and Product Accounting
Blooms: Understand
Difficulty: 1 Easy
A) adding depreciation.
B) adding net income earned abroad.
C) subtracting indirect business taxes.
D) subtracting depreciation.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
A) adding net income earned abroad.
B) subtracting depreciation.
C) subtracting indirect business taxes.
D) adding indirect business taxes.
Answer: D
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Blooms: Understand
Difficulty: 1 Easy
170. If members of the labor force who had been classified as “unemployed” fail to find a
suitable job and stop looking for work, their decision tends to make the unemployment rate
A) decrease as the labor force decreases.
B) decrease as the labor force increases.
C) increase as the labor force decreases.
D) increase as the labor force increases.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
171. When recent college graduates begin looking for their first professional work in June, the
unemployment rate
A) decreases as the labor force increases.
B) increases as the labor force increases.
C) decreases as the labor force decreases.
D) increases as the labor force decreases.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
172. Traditionally, a recession of defined by declining Real GDP over a period of at least
A) one calendar quarter.
B) one calendar year.
C) two consecutive calendar quarters.
D) two consecutive calendar years.
Answer: C
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Blooms: Understand
Difficulty: 1 Easy
173. In the recession of 2007-2009, the National Bureau of Economic Research's Business Cycle
Dating Committee
A) applied the traditional definition of a recession, marking the beginning in late 2007.
B) applied the traditional definition of a recession, but marking the beginning only in early
2009.
C) ignored the traditional definition of a recession, claiming that no recession had in fact
occurred.
D) ignored the traditional definition of a recession, marking the beginning in late 2007.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
174. An educated guess at what the price of some good might be, based upon its characteristics,
is called
A) a hedonic price.
B) a manufacturer's suggested retail price (MSRP).
C) an inflated price.
D) a market equilibrium price.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
175. One major source of difficulty in measuring inflation arises because

A) prices of newly-introduced products typically are held constant after the introductory
period.
B) BLS employees can obtain only hedonic prices from retailers.
C) improvements in product quality are usually associated with increased prices.
D) the BLS currently can afford to update its market basket only once every ten years.
Answer: C
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Blooms: Understand
Difficulty: 1 Easy
176. If GDP is $10 trillion, Personal Consumption Expenditure is $6.5 trillion, Gross Private
Investment is $2.0 trillion, and Government Consumption and Investment Expenditures
together are $2.0 trillion
A) Net Exports are $0.5 trillion.
B) Depreciation is $0.5 trillion.
C) Indirect Business Taxes are $0.5 trillion.
D) Net Exports are -$0.5 trillion.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
177. The GDP Deflator is different than the CPI in that

A) the GDP deflator includes everything while the CPI only includes what average people
buy.
B) the GDP deflator doesn’t include food and energy prices.
C) the CPI includes things businesses buy while the GDP deflator does not.
D) the CPI is chain-based.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
178. The GDP Deflator is different than the CPI in that

A) the GDP deflator uses last year’s prices and the present year’s production whereas the
CPI uses present prices.
B) the GDP deflator doesn’t include food and energy prices.
C) the CPI includes things businesses buy while the GDP deflator does not.
D) the CPI is chain-based.
Answer: A
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Blooms: Understand
Difficulty: 1 Easy
179. The data on Real GDP shows that

A) real GDP rises and falls. It has tended to rise and fall equally and has remained roughly
constant over time.
B) real GDP rises and falls. It has tended to rise for longer periods and more quickly than it
has fallen and therefore has risen through time.
C) real GDP rises and falls. It has tended to fall for longer periods and more quickly than it
has risen and therefore has fallen through time.
D) Real GDP growth is almost exactly constant
Answer: B
Blooms: Understand
Difficulty: 1 Easy
is
C) domestic production (cooking, laundry and such) are not counted.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
is
C) it ignores the value of leisure.
Answer: C
Page 69
Blooms: Understand
Difficulty: 1 Easy
is
C) it treats all spending the same (spending on military hardware is treated the same as
spending on education).
Answer: C
Blooms: Understand
Difficulty: 1 Easy
is
C) environmental quality is ignored.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
is
C) the underground economy (unreported and illegal income and sales) is not counted.
Answer: C
Page 70
Blooms: Understand
Difficulty: 1 Easy
185. The percentage of the population over 16 that is employed or seeking employment is called
the
A) Labor Force Participation Rate
B) Employment Rate
C) Employment-Population Ratio
D) Unemployment Rate
Answer: A
Blooms: Remember
Difficulty: 1 Easy
186. If a society has 100 million people over the age of 16, 58 million who are working and 2
million who are looking for work with 40 million others neither working nor looking for
work the labor force participation rate is
A) 40% (40/100)
B) 58% (58/100)
C) 60% (60/100)
D) 42% ((2+40)/100
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
187. If a society has 250 million people over the age of 16, 145 million who are working and 5
million who are looking for work with 100 million others neither working nor looking for
work the labor force participation rate is
A) 40% (145/250)
B) 58% (145/250)
C) 60% (150/250)
D) 42% ((5+100)/250
Answer: C
Page 71
Blooms: Evaluate
Difficulty: 3 Hard
188. During the period from 1950 to 2000 the Labor Force Participation Rate
A) Increased due largely to women entering the labor force
B) Remained remarkably constant
C) Increased due largely to teens entering the labor force
D) Fell.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
189. During the period from 2000 to today the Labor Force Participation Rate
A) Increased due largely to women entering the labor force
B) Remained remarkably constant
C) Increased due largely to teens entering the labor force
D) Fell.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
190. Which population group is largely responsible for the increase in the labor force
participation rate during the period from 1950 to 2000
A) Women
B) Men
C) Teens
D) The elderly (delaying their retirement)
Answer: A
Blooms: Understand
Difficulty: 1 Easy
Page 72
191. Which measure of productivity is calculated as a residual
A) Labor force productivity
B) Total factor (or multifactor) productivity
C) Real GDP
D) Labor force participation
Answer: B
Topic: Productivity
Blooms: Remember
Difficulty: 1 Easy
192. If there is an increase in the number of worker hours that results in an increase in output,
what will happen to the measure labor force productivity
A) It may rise or fall depending on which rose at a faster rate
B) It will rise
C) It will rall
D) It will remain constant.
Answer: D
Topic: Productivity
Blooms: Remember
Difficulty: 1 Easy
193. If a worker produces more because they have more (but not necessarily better) capital with
which to work that will
A) Increase labor force productivity but not necessarily total factor productivity
B) Increase labor force productivity and total factor productivity
C) Increase neither labor force productivity nor total factor productivity
D) Increase labor force productivity but decrease total factor productivity
Answer: A
Topic: Productivity
Blooms: Apply
194. The brief spike in productivity during the 1990s and 2000s was attributable to
A) Robotic production alone
B) The substitution of automatic interactions for human ones (like ATMs and phone trees)
alone
C) Both robotic production and the substitution of automatic interactions for human ones
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D) Early retirement of baby boomers
Answer: C
Topic: Productivity
Blooms: Remember
Difficulty: 1 Easy
195. There were large decreases in productivity during

A) The 1990s and early 2000s
B) The late 1970s and the 2010s
C) The 1950s and 1960s
D) The late 1980s
Answer: B
Topic: Productivity
Blooms: Remember
Difficulty: 1 Easy
196. If the seasonally unadjusted unemployment rate rises from December to January, you
A) Can be assured that the seasonally adjusted rate has risen as well
B) Can be assured that the seasonally adjusted rate has fallen.
C) Have no knowledge as to what will have happened to the seasonally adjusted rate.
D) Know that the seasonally adjusted rate remained the same.
Answer: C
Topic: Seasonal adjustment
Blooms: Remember
Difficulty: 1 Easy
197. The process of seasonal adjustment is important because

A) Economic variables predictably change from season to season, so to understand the
economic importance of month-to- month changes you need to account for it.
B) Economic variables may predictably change from season to season, but those changes are
not significant.
C) Economic variables rarely change from season to season
D) Economic variables are politically determined.
Answer: A
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Blooms: Remember
Difficulty: 1 Easy
198. Which of the following variables is likely to require seasonal adjustment

A) Housing starts
B) Unemployment rates
C) Food Prices
D) All of these require seasonal adjustment
Answer: D
Blooms: Apply
199. Housing starts increase dramatically in the spring and decrease dramatically in the winter.
For this reason, it is best to
A) Seasonally adjust the data
B) Politically adjust the data
C) Focus on Winter to Spring declines
D) Focus on Spring increases.
Answer: D
Blooms: Apply
200. Gasoline prices typically increase in March and October because of required maintenance at
refineries. For this reason, it is best to
C) Focus on March/October increases
D) Focus on April/November decreases.
Answer: D
Blooms: Apply
Page 75
201. Unemployment rates typically increase dramatically from December to January because the
holiday sales season ends. For this reason, it is best to
C) Focus on January increases
D) Focus on November/December decreases.
Answer: D
Blooms: Apply
Page 76

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Issues in Economics Today 8th Edition Guell Test Bank Download

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Chapter 6

Every Macroeconomic Word You Ever Heard: Gross Domestic

1. The reason that only final sales are counted in GDP is

2. One subject of study for macroeconomics is

3. One subject of study for macroeconomics is

4. One subject of study for macroeconomics is

7. How does GDP deal with a Ford produced in Mexico?

8. How does GDP deal with a Toyota produced in Kentucky?

14. The reason that only final sales count in GDP is to

15. Which of these goods will not be counted in GDP

16. GDP can be calculated using

17. The expenditures approach to GDP equals

18. The income approach to GDP equals

19. Inflation is measured using _________ in a price index.

58. Deflation occurs only when

59. Economists consider deflation

60. With deflation people will

77. The magnitude of the annual overstatement of the CPI is approximately

78. One of the consequences of the overstatement of the CPI is that

79. One of the consequences of the overstatement of the CPI is that

80. One of the consequences of the overstatement of the CPI is that

81. One of the consequences of the overstatement of the CPI is that

83. The consumer price index is computed by

99. Inflation, whether or not it is expected, hurts

101. The “core rate” of inflation

102. The annualized monthly CPI numbers are

103. The Personal Consumption Expenditures Index

104. The Core Personal Consumption Expenditures Index

105. The Federal Reserve is most concerned with

116. In Figure 6.1, which area represents a peak?

117. In Figure 6.1, which area represents a recession?

118. In Figure 6.1, which area represents an expansion?

119. In Figure 6.1, which area represents a trough?

120. In Figure 6.1, which area represents a recovery?

123. The period of negative growth in Real GDP is called a

125. A double-dip recession occurs when

126. Economic contractions during the period from 1950 to 2007

127. Economic contractions during the period from 1950 to 2007

129. The period from 1984-2007 has been labeled

130. The recession of 2007-2009 has been

131. A depression is different from a recession in that

134. The highest post World War II unemployment rate occurred

152. To an economist a "market basket" is made up of

153. A price index

154. The inflation rate is

155. Real Gross Domestic Product is Gross Domestic Product

159. Of these, economists consider this the worst

175. One major source of difficulty in measuring inflation arises because

177. The GDP Deflator is different than the CPI in that

178. The GDP Deflator is different than the CPI in that

179. The data on Real GDP shows that

195. There were large decreases in productivity during

197. The process of seasonal adjustment is important because

198. Which of the following variables is likely to require seasonal adjustment

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