Attempt 1

If Rabi earned $30,000 in 2000, how much would that be worth in today's dollars? Suppose
the CPI was 160 in 2000 and is 220 today.
a. $11,250
b. $50,000
c. $21,818
d. $41,250
d

The group of goods and services used to compute the GDP deflator changes automatically
over time, but the group of goods and services used to compute the CPI does not.

a. True
b. False
a

If the cost of transportation increases by 20 percent, then, other things the same, the
CPI is likely to increase by about

a. 0.3 percent.
b. 1 percent.
c. 2 percent.
d. 10 percent.
c

The consumer price index is used to monitor changes in an economy’s production of

goods and services over time.

a. True
b. False
b

Minimum wages create unemployment in markets where they create a

a. shortage of labor. Unemployment of this type is called frictional.

 b. shortage of labor. Unemployment of this type is called structural.
c. surplus of labor. Unemployment of this type is called frictional.
d. surplus of labor. Unemployment of this type is called structural.
d

If 2019 is the base year, then the inflation rate for 2020 equals

a. [(CPI in 2020 – CPI in 2019) / CPI in 2019] x 100

b. [(CPI in 2020 – CPI in 2019) / CPI in 2020] x 100
c. [(CPI in 2019 – CPI in 2020) / CPI in 2019] x 100
d. [(CPI in 2019 – CPI in 2020 / CPI in 2020] x 100
a

Measuring the amount of unemployment in the economy is a straightforward task.

a. True
b. False
b

Disposable personal income is the income that households and noncorporate businesses have
left after satisfying all their obligations to the government.

a. True
b. False
a

If all workers and all jobs were the same such that all workers were equally well suited for all
jobs, then there would be no frictional unemployment.

a. True
b. False
a

Suppose the CPI was 108 in 1967 and suppose one must spend $936 today to obtain the same
basket of goods and services that could be bought for $200 in 1967. Then today’s CPI is

a. 116.67.
b. 131.08.
c. 397.44.
d. 505.44.
d

An American company operates a fast food restaurant in Paris, France. Which of the
following statements is accurate?
a. The value of the goods and services produced by the restaurant is included in both
French GDP and US GDP.
b. The value added by American workers and equipment in France is included in US GDP
and the value added by French workers and equipment is added to French GDP.
c. The value of the goods and services produced by the restaurant is included in French
GDP, but not in US GDP.
d. The value of the goods and services produced by the restaurant is included in US GDP,
but not in French GD
c

Attempt 2

Suppose that some people are counted as unemployed when, to maintain unemployment
compensation, they search for work only at places where they are unlikely to be hired. If
these individuals were counted as out of the labor force instead of as unemployed, then

a. both the unemployment rate and labor-force participation rate would be higher.
b. both the unemployment rate and labor-force participation rate would be lower.
 c. the unemployment rate would be lower and the labor-force participation rate would be
higher.
d. the unemployment rate would be higher and the participation rate would be lower.
b

In the absence of right-to-work laws, workers

a. that went on strike could be permanently replaced.

b. might be required to join the union if they worked for a unionized firm.
c. would not be able to unionize.
d. would not be able to strike.
b

Other things the same, an increase in wages above their equilibrium level

a. increases frictional unemployment but leaves the natural rate of unemployment

unchanged.
b. increases frictional unemployment and increases the natural rate of unemployment.
c. increases structural unemployment but leaves the natural rate of unemployment
unchanged.
d. increases structural unemployment and increases the natural rate of unemployment.
d

The price index was 128.96 in 2021, and the inflation rate was 24 percent between 2020 and
2021. The price index in 2020 was

a. 104.
b. 104.96.
c. 152.96.
d. 159.91.
a

If an economy’s GDP rises, then it must be the case that the economy’s

a. income rises and saving falls.

b. income and saving both rise.
c. income rises and expenditure falls.
d. income and expenditure both rise.
d

In order to include many different goods and services in an aggregate measure, GDP is
computed using, primarily,

a. values of goods and services based on surveys of consumers.

 b. market prices.
c. quantities purchased by a typical urban household.
d. profits from producing goods and services.
b

The US Air Force pays a Turkish citizen $30,000 to work on a US base in Turkey. As a
result,

a. US government purchases increase by $30,000; US net exports decrease by $30,000;

and US GDP is unaffected.
b. US government purchases increase by $30,000; US net exports are unaffected; and US
GDP increases by $30,000.
c. US government purchases, net exports, and GDP are unaffected.
d. US government purchases are unaffected; US net exports decrease by $30,000; and US
GDP decreases by $30,000.
a

Which of the following does not help reduce frictional unemployment?

a. Government-run employment agencies
b. Unemployment insurance
c. Public training programs
d. All of the answers help reduce frictional unemployment.
b

The price index was 110 in the first year, 100 in the second year and 96 in the third year. The
economy experienced

a. 9.1 percent deflation between the first and second years, and 4 percent deflation
between the second and third years.
b. 9.1 percent deflation between the first and second years, and 4.2 percent deflation
between the second and third years.
c. 10 percent deflation between the first and second years, and 4 percent deflation between
the second and third years.
d. 10 percent deflation between the first and second years, and 4.2 percent deflation
between the second and third years.
a

The inflation rate is the absolute change in the price level from the previous period.

a. True
b. False
b
Transfer payments are

a. included in GDP because they represent income to individuals.

b. included in GDP because they eventually will be spent on consumption.
c. not included in GDP because they are not payments for currently produced goods or
services.
d. not included in GDP because taxes will have to be raised to pay for them.
c

Economists would predict that, other things the same, the more generous unemployment
compensation a country has,

a. the shorter the duration of each spell of unemployment, and the higher the
unemployment rate.
b. the shorter the duration of each spell of unemployment, and the lower the
unemployment rate.
c. the longer the duration of each spell of unemployment, and the higher the
unemployment rate.
d. the longer the duration of each spell of unemployment, and the lower the unemployment
rate.
c

By far the largest category of goods and services in the CPI basket is

a. housing.
b. transportation.
c. education & communication.
d. food & beverages.
a

Which of the following is included in GDP?

a. The market value of rental housing services, but not the market value of owner-occupied
housing services.
b. The market value of owner-occupied housing services, but not the market value of
rental housing services
c. Both the market value of rental housing services and the market value of owner-
occupied housing services
d. Neither the market value of owner-occupied housing services nor the market value of
rental housing services.
c
Attempt 2
Public policy

a. can reduce both frictional unemployment and the natural rate of unemployment.
b. can reduce frictional unemployment, but it cannot reduce the natural rate of
unemployment.
c. cannot reduce frictional unemployment, but it can reduce the natural rate of
unemployment.
d. cannot reduce either frictional unemployment or the natural rate of unemployment.

What basket of goods and services is used to construct the CPI?

a. A random sample of all goods and services produced in the economy

b. The goods and services that are typically bought by consumers as determined by
government surveys
c. Only food, clothing, transportation, entertainment and education
d. The least expensive and the most expensive goods and services in each major category
of consumer expenditures
b
Suppose the cost of the basket at the end of Year 10 was $5,500 and at the end of Year 11 it
was $5,775. If the cost of the basket in the base year (Year 1) was $1,000, the inflation rate
for Year 11 was:
a. 10.0 percent
b. 27.5 percent
c. 25.0 percent
d. 5.0 percent
d

Which of the following policies would be most effective in reducing the unemployment rate?
a. Raising taxes on imports (tariffs) to protect local producers and workers.
b. Raising the minimum wage.
c. Reducing benefits for the unemployed (unemployment insurance).
d. Passing laws that require workers in firms to be unionized.
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c

If nominal GDP increased from $1.0 trillion in 2009 to $1.2 in 2011, we:
a. can say that output increased by 20 per cent in the economy compared to the base year.
b. don't have enough information from this to determine how much output actually
increased in the economy.
c. can say that output increased by 20 per cent in the economy through that period.
d. can say that prices increased by 20 per cent in the economy through that period.
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b
Consumer price index = (Price of basket of goods and services in base year / Price of basket
in current year) x 100.

a. True
b. False
b

The unemployment rate is the:

a. number of people unemployed divided by the number of people employed.
b. percentage of the labor force that is unemployed.
c. number of people unemployed in the nation.
d. percentage of the population that is unemployed.
b

The real interest rate is the interest rate corrected for inflation.

a. True
b. False
a

When a union bargains successfully with employers, in that industry,

a. both the quantity of labor supplied and the quantity of labor demanded increase.
b. both the quantity of labor supplied and the quantity of labor demanded decrease.
c. the quantity of labor supplied increases and the quantity of labor demanded decreases.
d. the quantity of labor demanded increases and the quantity of labor supplied decreases.
c

How is net national product (NNP) calculated?

a. Saving is subtracted from the total income of a nation’s citizens.

b. Saving is added to the total income of a nation’s citizens
c. Depreciation losses are subtracted from the total income of a nation’s citizens.
d. Depreciation losses are added to the total income of a nation’s citizens.
c

The goal of macroeconomics is to explain the economic changes that affect many households,
firms and markets simultaneously.

a. True
b. False
a
The $5-a-day wage paid by Henry Ford to his workers at the Ford Motor Company in the US
in the early 1900s:
a. was considered by many workers at the time to be a very attractive wage.
b. was described by Ford himself as "one of the finest cost-cutting moves we ever made".
c. produced many of the effects predicted by efficiency-wage theory.
d. All of the answers are correct.
d

The adult population must equal the sum of the employed and the unemployed.

a. True
b. False
b
GDP is the market value of all final goods and services produced by a country’s citizens in a
given period of time.

a. True
b. False
b

Suppose the CPI at the end of Year 3 was 150 and the CPI at the end of Year 2 was 165.
Calculate the inflation rate for Year 3.
a. 15 percent
b. 10 percent
c. 20 percent
d. 65 percent
b

Suppose that in 2020, the producer price index increases by 1.5 percent. As a result,
economists most likely will predict that

a. GDP will increase in 2021.

b. the producer price index will increase by more than 1.5 percent in 2021.
c. interest rates will decrease in the future.
d. the consumer price index will increase in the future.
d

Sally purchases a classic 1964 car she saw for sale on someone’s lawn. She then purchases
some new parts and spends 120 hours refurbishing the car, which she keeps. Which of the
following is included in GDP?

a. The amount she paid to buy the car

b. The amount she paid to buy new parts
c. The value of her time repairing the car
d. All of the above are included
b

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was
3 percent. It follows that

a. the value of savings increased at 5 percent, and the purchasing power of savings
increased at 2 percent.
b. the value of savings increased at 5 percent, and the purchasing power of savings
increased at 8 percent.
c. the value of savings increased at 8 percent, and the purchasing power of savings
increased at 2 percent.
d. the value of savings increased at 8 percent, and the purchasing power of savings
increased at 5 percent.
d

Suppose that some people are counted as unemployed when, to maintain unemployment
compensation, they search for work only at places where they are unlikely to be hired. If
these individuals were counted as out of the labor force instead of as unemployed, then

a. both the unemployment rate and labor-force participation rate would be higher.
b. both the unemployment rate and labor-force participation rate would be lower.
c. the unemployment rate would be lower and the labor-force participation rate would be
higher.
d. the unemployment rate would be higher and the participation rate would be lower.
b

The normal rate of unemployment around which the unemployment rate fluctuates is called
the ? rate of employment
Natural

Economists would predict that, other things the same, the more generous unemployment
compensation a country has,

a. the shorter the duration of each spell of unemployment, and the higher the
unemployment rate.
b. the shorter the duration of each spell of unemployment, and the lower the
unemployment rate.
c. the longer the duration of each spell of unemployment, and the higher the
unemployment rate.
d. the longer the duration of each spell of unemployment, and the lower the
unemployment rate.
c

Monique is the newly appointed CEO of a company that manufactures external hard drives
on an assembly line. Her staff has told her that the output the firm produces, given the
number of workers employed, indicates that some workers may be shirking. According to
efficiency wage theory, what should she do?

a. Pay all workers more than the equilibrium wage rate

b. Pay all workers below the equilibrium wage rate to make up for the loss from shirking
c. Make sure that workers are getting paid exactly the equilibrium wage rate
d. Pay bonuses to workers who report the shirking of other workers

a
If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent, then the
inflation rate is

a. -2.5 percent.
b. 0.45 percent.
c. 2.5 percent.
d. 13.5 percent.
c

Assume households purchase only greeting cards. In calculating GDP, the government will
include the value of:
a. both the paper used to produce the cards and the greeting cards produced in the
economy.
b. all the greeting cards purchased but none of the paper used to produce the cards nor the
greeting cards that remain unsold.
c. the greeting cards produced and any paper that is added to inventories (stock).
d. all the paper used to produce greeting cards, but none of the greeting cards themselves.
c

If the consumer price index was 100 in the base year and 107 in the following year, then the
inflation rate was
 a. 1.07 percent.
b. 7 percent.
c. 10.7 percent.
d. 107 percent.
b

To fix the basket for the CPI, a country's national statistics service does the following,
EXCEPT:
a. surveying a large number of consumers to find what they buy and consume.
b. collecting data on prices of goods over several years.
c. setting up a committee that decides, based on its own experience, what items will be in
the basket.
d. choosing a random year against which to measure changes in the cost of living.

c
 Attempt 3

When a union bargains successfully with employers, in that industry:

a. the quantity of labor demanded and the quantity of labor supplied fall.
b. the quantity of labor demanded rises and the quantity of labor supplied falls.
c. the quantity of labor demanded falls and the quantity of labor supplied rises.
d. the quantity of labor demanded and the quantity of labor supplied rise.
c

Which of the following statements is CORRECT? The GDP deflator:

a. includes imports, while the CPI does not.
b. measures the inflation of everything produced in the nation, while the CPI measures the
inflation of the goods typically bought by households.
c. uses a fixed bundle of goods, while the CPI uses a changing bundle of goods.
d. considers only a basket of goods, while the CPI considers everything produced.
b

The value of goods added to a firm's inventory in a certain year is treated as

a. consumption, since the goods will be sold to consumers in another period.

b. intermediate goods, and so is not included in that year’s GDP.
c. investment, since GDP aims to measure the value of the economy's production that year.
d. spending on durable goods, since the goods could not be inventoried unless they were
durable.
c

Unemployment insurance causes workers to be less likely to seek guarantees of job security
when they negotiate with employers over the terms of employment.

a. True
 b. False
a

GDP is defined as the

a. value of all goods and services produced within a country in a given period of time.
b. value of all goods and services produced by the citizens of a country, regardless of
where they are living, in a given period of time.
c. value of all final goods and services produced within a country in a given period of
time.
d. value of all final goods and services produced by the citizens of a country, regardless of
where they are living, in a given period of time.
c

Gross domestic product (GDP) measures:

a. the total income in the economy, but not the total expenditure on the economy's output.
b. the total expenditure on the economy's output, but not the total income in the economy.
c. both the total income in the economy and the total expenditure on the economy's output.
d. neither the total income in the economy nor the total expenditure on the economy's
output.
c

Consumers decide to ride bikes more and drive cars less. Bicycle companies expand
production while car companies fire workers. This is an example of

a. frictional unemployment created by sectoral shifts.

b. frictional unemployment created by efficiency wages.
c. structural unemployment created by efficiency wages.
d. structural unemployment created by sectoral shifts.
a

A decrease in the price of domestically produced industrial robots will be reflected in

a. both the GDP deflator and the consumer price index.

b. neither the GDP deflator nor the consumer price index.
c. the GDP deflator but not in the consumer price index.
d. the consumer price index but not in the GDP deflator.
c
There are always some workers without jobs, even when the overall economy is doing well.

a. True
b. False
a

If total spending rises from one year to the next, then which of the following could not be
true?

a. The economy is producing a smaller output of goods and services, and goods and
services are selling at higher prices
b. The economy is producing a larger output of goods and services, and goods and services
are selling at lower prices
c. The economy is producing a larger output of goods and services, and goods and services
are selling at higher prices
d. The economy is producing a smaller output of goods and services, and goods and
services are selling at lower prices
d

In 1970, Professor Plum earned 12,000 dinars; in 1980, he earned 24,000; and in 1990, he
earned 36,000. If the CPI was 40 in 1970, 60 in 1980, and 100 in 1990, then in real terms,
Professor Plum's salary was highest in

a. 1980 and lowest in 1970.

b. 1980 and lowest in 1990.
c. 1990 and lowest in 1970.
d. 1990 and lowest in 1980.
a
(real wage= wage/CPI *100)
If nominal GDP is $10 trillion and real GDP is $8 trillion, the GDP deflator is:
a. 125, and this indicates that the price level has increased by 25 per cent since the base
year.
b. 80, and this indicates that the price level has increased by 80 per cent since the base
year.
c. 125, and this indicates that the price level has decreased by 25 per cent since the base
year.
d. 80, and this indicates that the price level has decreased by 20 per cent since the base
year.
a

The statistics office of a small economy reports that in the previous quarter I = 400, NX =
200, and G = 300, all in nominal terms. If for the same quarter they also report a real GDP of
2000 and a GDP deflator of 125, what was the nominal value of consumption?
a. 2,000
b. 1,600
c. 1,100
d. 600
b

If the number of people unemployed rose but the number of people employed and the adult
population stayed the same, then the labor force participation rate would rise.

a. True
b. False
a

Which of the following statements about recessions is true?

a. An old rule of thumb defining recession is two consecutive quarters of falling nominal
GDP.
b. Recessions occur at regular intervals and last standard amounts of time.
c. There is no ironclad rule for the declaration of recessions.
d. Recessions are associated with low unemployment and high income.
c

If nominal GDP is $12 trillion and real GDP is $10 trillion, then the GDP deflator is

a. 83.33, and this indicates that the price level has decreased by 16.67 percent since the
base year.
b. 83.33, and this indicates that the price level has increased by 83.33 percent since the
base year.
c. 120, and this indicates that the price level has increased by 20 percent since the base
year.
 d. 120, and this indicates that the price level has increased by 120 percent since the base
year.
c

An economy’s income is the same as its expenditure because every transaction has a buyer
and a seller.

a. True
b. False
a

Suppose the CPI at the end of Year 3 was 150 and the CPI at the end of Year 2 was 165.
Calculate the inflation rate for Year 3.
a. 10 percent
b. 20 percent
c. 15 percent
d. 65 percent
a

Suppose a water engineer earned $10,000 per year in 1963. If the CPI was 50 in 1936 and
was 200 in 2020, how much was the engineer's 1960 salary worth in 2020?
a. $45,000
b. $30,000
c. $20,000
d. $40,000
d

If people who report being unemployed are not, in fact, trying hard to find a job, then the
reported unemployment rate will be biased upward.

a. True
b. False
a
The substitution bias in the consumer price index refers to the
a. substitution by consumers toward new goods and away from old goods.
b. substitution by consumers toward a smaller number of high-quality goods and away
from a larger number of low-quality goods.
c. substitution by consumers toward goods that have become relatively less expensive and
away from goods that have become relatively more expensive.
d. substitution of new prices for old prices in the CPI basket of goods and services from one
year to the next.
c

There are a number of government programs designed to facilitate job search. These include:
a. government paying unemployment benefits.
b. government agencies disseminating information on job vacancies.
c. government introducing minimum-wage laws.
d. government requiring unemployed workers to pay more taxes.
b

Which of the following statements about GDP is correct?

a. GDP measures two things at once: the total income of everyone in the economy and the
total expenditure on the economy’s output of goods and services.
b. Money continuously flows from households to firms and then back to households, and
GDP measures this flow of money.
c. GDP is generally regarded as the best single measure of a society’s economic well-
being.
d. All of the above are correct.
d
For an imaginary economy, the consumer price index was 115.00 in 2014, 126.50 in 2015,
and 136.62 in 2016. Which of the following statements is correct?
a. For this economy, the base year must be 2014.
b. If the basket of goods that is used to calculate the CPI cost $75.00 in the base year, then
that basket of goods cost $115.00 in 2014.
c. This economy’s rate of inflation for 2016 is 10.12 percent.
d. None of the above is correct.
d

The theory of efficiency wages explains why:

a. it is efficient for firms to set wages at the equilibrium level.
b. firms may increase productivity and profits by setting wages above the equilibrium
level.
c. setting wages at the equilibrium level may increase unemployment.
d. the most efficient way to pay workers is to pay them according to their skills and any
risks they take.
b

The GDP deflator for years subsequent to the base year measures the change in

a. nominal GDP from the base year that cannot be attributable to a change in real GDP.
b. real GDP from the base year that cannot be attributable to a change in nominal GDP.
c. nominal GDP from the base year that cannot be attributable to a change in prices.
d. real GDP from the base year that cannot be attributable to a change in prices.
a
Suppose the cost of the basket at the end of Year 10 was $5,500 and at the end of Year 11 it
was $5,775. If the cost of the basket in the base year (Year 1) was $1,000, the inflation rate
for Year 11 was:
a. 5.0 percent
b. 25.0 percent
c. 10.0 percent
d. 27.5 percent
a

The natural rate of unemployment is defined as:

a. the normal rate of unemployment around which the unemployment rate fluctuates.
b. the percentage obtained by averaging the unemployment rates of the world's major
industrialized countries.
c. the rate of unemployment that would be observed if the labor force participation rate
were 100 per cent.
d. the rate of unemployment that would be observed if all unemployment were voluntary.
a

When an Egyptian firm purchases a cement mixer from Slovakia,

a. Egyptian investment does not change, Egyptian net exports decrease, Egyptian GDP
decreases, Slovakian net exports increase, and Slovakian GDP increases.
b. Egyptian investment increases, Egyptian net exports decrease, Egyptian GDP is
unaffected, Slovakian net exports increase, and Slovakian GDP increases.
c. Egyptian investment decreases, Egyptian net exports increase, Egyptian GDP is
unaffected, Slovakian net exports decrease, and Slovakian GDP decreases.
d. Egyptian investment increases, Egyptian net exports do not change, Egyptian GDP
increases, Slovakian net exports do not change, and Slovakian GDP is unaffected.
b

Which of the following statements is correct about the relationship between inflation and
interest rates?

a. There is no relationship between inflation and interest rates.

b. The interest rate is determined by the rate of inflation.
c. In order to fully understand inflation, we need to know how to correct for the effects of
interest rates.
d. In order to fully understand interest rates, we need to know how to correct for the effects
of inflation.
d
Attempt 4
A newspaper article informs you that most businesses reduced production in the last
quarter but also sold from their inventories during the last quarter. Based on this
information GDP likely

a. increased.
b. decreased.
c. stayed the same.
d. may have increased, decreased, or stayed the same.
b
The CPI is a measure of the overall cost of the goods and services bought by
a. a typical consumer, and the CPI is computed and reported by a country’s treasury.
b. typical consumers and typical business firms, and the CPI is computed and reported by
a country’s treasury.
c. a typical consumer, and the CPI is computed and reported by a country’s national
statistics service.
d. typical consumers and typical business firms, and the CPI is computed and reported by
a country’ national statistics service.
c

GDP excludes most items that are produced and sold illegally and most items that are
produced and consumed at home because

a. the quality of these items is not high enough to contribute value to GDP.
b. measuring them is so difficult.
c. the government wants to discourage the production and consumption of these items.
d. these items are not reported on income tax forms.
b

Which of the following are expenditures included in the calculation of the GDP?

i. Investment

ii. Government purchases

iii. Net exports

iv. Consumption

a. Only ii, iii, and iv

b. Only i, ii, and iii
c. Only i, iii, and iv
d. i, ii, iii and iv
d
Foreign citizens earn more income in Ireland than Irish citizens earn in foreign
countries.

a. Ireland’s net factor payments from abroad are positive, and its GDP is larger than its
GNP.
b. Ireland’s net factor payments from abroad are positive, and its GNP is larger than its
GDP.
c. Ireland’s net factor payments from abroad are negative, and its GDP is larger than its
GNP.
d. Ireland’s net factor payments from abroad are negative, and its GNP is larger than its
GDP.
c

Expenditures by households on education are included in the consumption component of

GDP.

a. True
b. False
a

The labor-force participation rate tells us the fraction of the population that:
a. is of working age.
b. has chosen to participate in the labor market.
c. has chosen not to participate in the labor market.
d. has ever been employed.
b

Which of the following is correct?

a. The GDP deflator is better than the CPI at reflecting the goods and services bought by
consumers.
b. The CPI is better than the GDP deflator at reflecting the goods and services bought by
consumers.
c. The GDP deflator and the CPI are equally good at reflecting the goods and services
bought by consumers.
d. The GDP deflator is more commonly used as a gauge of inflation than the CPI is.
b
A decrease in the price of domestically produced industrial robots will be reflected in

a. both the GDP deflator and the consumer price index.

b. neither the GDP deflator nor the consumer price index.
c. the GDP deflator but not in the consumer price index.
d. the consumer price index but not in the GDP deflator.
c

If 2019 is the base year, then the inflation rate for 2020 equals

a. [(CPI in 2020 – CPI in 2019) / CPI in 2019] x 100

b. [(CPI in 2020 – CPI in 2019) / CPI in 2020] x 100
c. [(CPI in 2019 – CPI in 2020) / CPI in 2019] x 100
d. [(CPI in 2019 – CPI in 2020 / CPI in 2020] x 100
a

Suppose that the adult population is four million, the number of unemployed is 0.25 million,
and the labor-force participation rate is 75 percent. What is the unemployment rate?

a. 6.25 percent
b. 8.3 percent
c. 9.1 percent
d. 18.75 percent
b

Which of the following is correct?

a. Nominal and real interest rates always move together.

b. Nominal and real interest rates never move together.
c. Nominal and real interest rates do not always move together.
d. Nominal and real interest rates always move in opposite directions.
c

If outsiders had more say in union contracts, then it is likely that union wages would be

a. higher so unemployment would be higher.

b. higher so unemployment would be lower.
c. lower so unemployment would be higher.
d. lower so unemployment would be lower.
d

Indexation refers to

a. a process of adjusting the nominal interest rate so that it is equal to the real interest rate.
b. using a law or contract to automatically correct a dollar amount for the effects of
 inflation.
c. using a price index to deflate dollar values.
d. an adjustment made by the national statistic service to the CPI so that the index is in line
with the GDP deflator.
b

An increase in the minimum wage

a. increases both the quantity demanded and the quantity supplied of labor.
b. decreases both the quantity demanded and the quantity supplied of labor.
c. increases the quantity of labor demanded but decreases the quantity of labor supplied.
d. decreases the quantity of labor demanded but increases the quantity of labor supplied.
d

The goal of macroeconomics is to explain the economic changes that affect many households,
firms and markets simultaneously.

a. True
b. False
a

International data on GDP and socioeconomic variables

a. are inconclusive about the relationship between GDP and the economic well-being of
citizens.
b. suggest that poor nations actually might enjoy a higher standard of living than rich
nations.
c. leave no doubt that a nation's GDP is closely associated with its citizens' standard of
living.
d. indicate that there are few real differences in living standards around the world, in spite
of the large differences in GDP between nations.
c

If nominal GDP is $1.6 trillion and the real GDP is $1.0 trillion, the GDP deflator is:
a. 37.5
b. 62.5
c. 160
d. 60
c
The group of goods and services used to compute the GDP deflator changes automatically
over time, but the group of goods and services used to compute the CPI does not.

a. True
b. False
a

Frictional unemployment is inevitable because

a. sectoral shifts are always happening.

b. there is a minimum-wage law
c. some people do not want to be employed.
d. unions are very popular
a

If an economy’s GDP rises, then it must be the case that the economy’s

a. income rises and saving falls.

b. income and saving both rise.
c. income rises and expenditure falls.
d. income and expenditure both rise.
d
Which of the following questions is more likely to be studied by a microeconomist than a
macroeconomist?

a. Why do prices in general rise by more in some countries than in others?

b. Why do wages differ across industries?
c. Why do national production and income increase in some periods and not in others?
d. How rapidly is GDP currently increasing?
b

When the CPI is computed, the base year is always the first year among the years being
considered.

a. True
b. False
b

When looking at a graph of nominal and real interest rates you notice that nominal rates
always lie above real rates. From this you conclude

a. there were serious episodes of deflation in the time frame represented on the graph.
b. consumer prices were always rising in the time frame represented on the graph.
c. the economy never experienced a recession in the time frame represented on the graph.
d. GDP was always increasing for the time frame represented on the graph.
b

The 'government purchases' category of GDP includes all government spending on goods and
services,
a. excluding local government spending.
b. except transfer payments.
c. including transfer payments.
d. excluding state government spending
b

GDP does not make adjustments for leisure time, environmental quality or volunteer work.
a. True
b. False
a
Attempt 5

Which of the following is the price index that reflects the prices of all goods and services
produced domestically?
a. Paasche index
b. Consumer prices index
c. Producer prices index
d. GDP deflator
b

A country reported nominal GDP of $100 billion in 2020 and $75 billion in 2019. It also
reported a GDP deflator of 125 in 2020 and 120 in 2019. Between 2019 and 2020,

a. real output and the price level both rose.

b. real output rose and the price level fell.
c. real output fell and the price level rose.
d. real output and the price level both fell.
a

Which of the following is included in the investment category of GDP?

a. Neither changes in inventory nor purchases of new capital equipment by firms.
b. Changes in inventory, but not purchases of new capital equipment by firms.
c. Both changes in inventory and purchases of new capital equipment by firms.
d. Purchases of new capital equipment by firms, but not changes in inventory.
c

The consumer prices index (CPI) is calculated:

a. monthly.
b. yearly.
c. quarterly.
d. weekly.
a

When the quantity of labor supplied exceeds the quantity of labor demanded, the result is
called:
a. the natural rate of unemployment.
b. job search unemployment.
c. structural unemployment.
d. sectoral unemployment.
c

Minimum-wage laws and unions are similar to each other but different from efficiency wages
in that minimum-wage law and unions

a. cause unemployment, but efficiency wages do not.

b. cause the quantity of labor supplied to exceed the quantity of labor demanded, but
efficiency wages do not.
c. cause wages to be above the equilibrium level.
d. prevent firms from lowering wages in the presence of a surplus of workers.
d
German citizen buys a car produced in the United States by a Japanese company. As a
result,

a. US net exports increase, US GDP is unaffected, Japanese GNP increases, German net
exports decrease, and German GNP and GDP are unaffected.
b. US net exports and GDP increase, Japanese GNP increases, German net exports
decrease, German GNP is unaffected, and German GDP decreases.
c. US net exports and GDP increase, Japanese GNP increases, German net exports
decrease, and German GNP and GDP are unaffected.
d. US net exports and GDP are unaffected, Japanese GNP increases, and German net
exports, GNP, and GDP decrease.
c

Cyclical unemployment is caused by

a. frictional and structural unemployment

b. frictional but not structural unemployment
c. structural but not frictional unemployment
d. neither frictional nor structural unemployment
d

When an Egyptian firm purchases a cement mixer from Slovakia,

a. Egyptian investment does not change, Egyptian net exports decrease, Egyptian GDP
decreases, Slovakian net exports increase, and Slovakian GDP increases.
b. Egyptian investment increases, Egyptian net exports decrease, Egyptian GDP is
unaffected, Slovakian net exports increase, and Slovakian GDP increases.
c. Egyptian investment decreases, Egyptian net exports increase, Egyptian GDP is
unaffected, Slovakian net exports decrease, and Slovakian GDP decreases.
d. Egyptian investment increases, Egyptian net exports do not change, Egyptian GDP
increases, Slovakian net exports do not change, and Slovakian GDP is unaffected.
b

Macroeconomic statistics include GDP, the inflation rate, the unemployment rate, retail sales
and the trade deficit.

a. True
b. False
a

2019 Labor data for adults (age 16 and older) in Meditor

Males not in labor force 45 million

Females not in labor force 35 million
Males unemployed 5 million
Females unemployed 5 million
Males employed 85 million
Females employed 65 million

What is the adult female labor-force participation rate in Meditor?

a. 38.1 percent
b. 61.9 percent
c. 66.7 percent
d. 95.2 percent

Paying efficiency wages means that wages are

a. above equilibrium and profits are higher than otherwise.

b. above equilibrium and profits are lower than otherwise.
c. below equilibrium and profits are higher than otherwise.
d. below equilibrium and profits are lower than otherwise.
a

Efficiency wages

a. create a shortage of labor, and so reduce unemployment.

b. create a shortage of labor, and so raise unemployment.
c. create a surplus of labor, and so reduce unemployment.
d. create a surplus of labor, and so raise unemployment.
d

There are a number of government programs designed to facilitate job search. These include:
a. government introducing minimum-wage laws.
b. government agencies disseminating information on job vacancies.
c. government paying unemployment benefits.
d. government requiring unemployed workers to pay more taxes.
b

The GDP deflator can be used to take inflation out of nominal GDP.

a. True
b. False
a

Which of the following is not included in GDP?

a. Carrots grown in your garden and eaten by your family

b. Carrots purchased at a farmer’s market and eaten by your family
c. Carrots purchased at a grocery store and eaten by your family
d. None of the above are included in GDP.
a

The GDP deflator for years subsequent to the base year measures the change in

a. nominal GDP from the base year that cannot be attributable to a change in real GDP.
b. real GDP from the base year that cannot be attributable to a change in nominal GDP.
c. nominal GDP from the base year that cannot be attributable to a change in prices.
d. real GDP from the base year that cannot be attributable to a change in prices.
a

The statistics office of a small economy reports that in the previous quarter I = 400, NX =
200, and G = 300, all in nominal terms. If for the same quarter they also report a real GDP of
2000 and a GDP deflator of 125, what was the nominal value of consumption?
a. 2,000
b. 1,600
c. 1,100
d. 600
b

The group of goods and services used to compute the GDP deflator changes automatically
over time, but the group of goods and services used to compute the CPI does not.
 a. True
b. False
a

In the calculation of the CPI, books are given greater weight than magazines if

a. consumers buy more books than magazines.

b. the price of books is higher than the price of magazines.
c. it costs more to produce books than it costs to produce magazines.
d. books are more readily available than magazines to the typical consumer.
a

Which of the following statements about GDP is correct?

a. GDP measures two things at once: the total income of everyone in the economy and the
total expenditure on the economy’s output of goods and services.
b. Money continuously flows from households to firms and then back to households, and
GDP measures this flow of money.
c. GDP is generally regarded as the best single measure of a society’s economic well-
being.
d. All of the above are correct.
d

The consumer price index is used to

a. monitor changes in the level of wholesale prices in the economy.

b. monitor changes in the cost of living over time.
c. monitor changes in the level of real GDP over time.
d. monitor changes in the stock market.
b

In a simple circular-flow diagram, total income and total expenditure are

a. never equal because total income always exceeds total expenditure.

b. seldom equal because of the ongoing changes in an economy’s unemployment rate.
c. equal only when the government purchases no goods or services.
d. always equal because every transaction has a buyer and a seller.
d
The adult population must equal the sum of the employed and the unemployed.

a. True
b. False
b

GDP excludes the value of intermediate goods because their value is included in the value of
final goods.

a. True
b. False
a

Gross domestic product (GDP) measures:

a. the total income in the economy, but not the total expenditure on the economy's output.
b. the total expenditure on the economy's output, but not the total income in the economy.
c. both the total income in the economy and the total expenditure on the economy's output.
d. neither the total income in the economy nor the total expenditure on the economy's
output.
c

If all workers and all jobs were the same such that all workers were equally well suited for all
jobs, then there would be no frictional unemployment.
 a. True
b. False
a

The CPI was 120 in 2018 and 126 in 2019. Phil borrowed money in 2018 and repaid the loan
in 2019. If the nominal interest rate on the loan was 8 percent, then the real interest rate was

a. -2 percent.
b. 3 percent.
c. 5 percent.
d. 13 percent
b

The CPI is a measure of the overall cost of the goods and services bought by

a. a typical consumer, and the CPI is computed and reported by a country’s treasury.
b. typical consumers and typical business firms, and the CPI is computed and reported by
a country’s treasury.
c. a typical consumer, and the CPI is computed and reported by a country’s national
statistics service.
d. typical consumers and typical business firms, and the CPI is computed and reported by a
country’ national statistics service.
c

The value of goods added to a firm's inventory in a certain year is treated as

a. consumption, since the goods will be sold to consumers in another period.

b. intermediate goods, and so is not included in that year’s GDP.
 c. investment, since GDP aims to measure the value of the economy's production that year.
d. spending on durable goods, since the goods could not be inventoried unless they were
durable.
c

Inflation can be measured using either the GDP deflator or the CPI.

a. True
b. False
a

In a typical circular flow diagram, which of the following would be an example of the flow of
dollar from households to firms through the markets for goods and services?
a. Lodgefire Restaurants pays dividends to its shareholders.
b. Yazmin pays for new blinds for her house.
c. Akram is hired by a local restaurant.
d. A mattress company produces a new mattress.
b

When the CPI is computed, the base year is always the first year among the years being
considered.

a. True
b. False
b

Changes in nominal GDP reflect

a. only changes in prices.
b. only changes in the amounts being produced.
c. both changes in prices and changes in the amounts being produced.
d. neither changes in prices nor changes in the amounts being produced.

The content of the basket of goods and services used to compute the CPI changes every
month.

a. True
b. False
b

Which of the following statements is true?

a. Even if we know the values of the consumer price index for the years 2019 and 2020,
 we cannot calculate the inflation rate for 2020 if we do not know which year is the base
year.
b. If we know the base year is 2000, and if we know the value of the consumer price index
for the year 2020, then we have all the information we need to calculate the inflation rate
for 2020.
c. If we know the base year is 2015, and if we know the value of the consumer price index
for the year 2010, then we have all the information we need to calculate the inflation rate
for 2010.
d. If we know the base year is 2015, and if we know the value of the consumer price index
for the year 2010, then we have all the information we need to calculate the percentage
change in the cost of living between 2010 and 2015.
d

In general, when comparing the consumer prices index and the GDP deflator, it can be seen
that the two indexes:
a. are inversely related.
b. measure the same thing.
c. appear to move together.
d. typically move in different directions.
c