The United States' economy is considered to be at full employment when:
A) 90 percent of the total population is employed.
B) 90 percent of the labor force is employed.
C) about 4-5 percent of the labor force is unemployed.
D) 100 percent of the labor force is employed.
Answer: C
The unemployment rate of:
A) women greatly exceeds that of men.
B) whites is roughly equal to that of blacks.
C) white-collar workers exceeds that of blue-collar workers.
D) teenagers is much higher than that of adults.
Answer: D
The natural rate of unemployment is the:
A) unemployment rate experienced at the depth of a depression.
B) full-employment unemployment rate.
C) unemployment rate experienced by the least-skilled workers in the economy.
D) unemployment rate experienced by the most-skilled workers in the economy.
Answer: B
Structural unemployment:
A) is also known as frictional unemployment.
B) is the main component of cyclical unemployment.
C) is said to occur when people are waiting to be called back to previous jobs.
D) may involve a locational mismatch between unemployed workers and job openings.
Answer: D
A large negative GDP gap implies:
A) an excess of imports over exports.
B) a low rate of unemployment.
Answer: C
Okun's law:
C) a high rate of unemployment.
D) a sharply rising price level.
A) measures the tradeoff between the rate of inflation and the rate of unemployment.
B) indicates the number of years it will take for a constant rate of inflation to double the price level.
C) quantifies the relationship between nominal and real incomes.
D) shows the relationship between the unemployment rate and the size of the negative GDP gap.
Answer: D
The aggregate demand curve:
A) is upsloping because a higher price level is necessary to make production profitable as production costs rise.
B) is downsloping because production costs decline as real output increases.
C) shows the amount of expenditures required to induce the production of each possible level of real output.
D) shows the amount of real output that will be purchased at each possible price level.
Answer: D
The real-balances effect indicates that:
A) an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending.
B) a lower price level will decrease the real value of many financial assets and therefore reduce spending.
C) a higher price level will increase the real value of many financial assets and therefore increase spending.
D) a higher price level will decrease the real value of many financial assets and therefore reduce spending.
Answer: D
If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign

goods and fewer U.S. goods. This statement describes:
A) the output effect. C) the real-balances effect.
B) the foreign purchases effect.
Answer: B
D) the shift-of-spending effect.
Which one of the following would not shift the aggregate demand curve?
A) a change in the price level
B) depreciation of the international value of the dollar
C) a decline in the interest rate at each possible price level
D) an increase in personal income tax rates
Answer: A
Other things equal, a reduction in personal and business taxes can be expected to:
A) increase aggregate demand and decrease aggregate supply.
B) increase both aggregate demand and aggregate supply.
C) decrease both aggregate demand and aggregate supply.
D) decrease aggregate demand and increase aggregate supply.
Answer: B
An increase in input productivity will:
A) shift the aggregate supply curve leftward.
B) reduce the equilibrium price level, assuming downward flexible prices.
C) reduce the equilibrium real output.
D) reduce aggregate demand.
Answer: B
Shifts in the aggregate supply curve are caused by changes in:
A) consumption spending.
B) the quantity of real output demanded.
C) the quantity of real output supplied.
D) one or more of the determinants of aggregate supply.
Answer: D
Productivity measures:
A) real output per unit of input.
B) per unit production costs.
C) the changes in real wealth caused by price level changes.
D) the amount of capital goods used per worker.
Answer: A
The CPI was 140 in one year and 144 the following year. Approximately how much did prices rise between the two years? a.
2.85 percent b.
2.78 percent c.
0.03 percent d.
1.03 percent e.
none of the above
ANS: A
In year 1 the CPI is 141, and in year 2 the CPI is 149. If Dennis's salary was $65,000 in year 1, what is the minimum salary he must earn in year 2 to "more than keep up with inflation"? a.
$96,850 b.
$68,685 c.
$91,650 d.
$63,625

ANS: B
Persons who are retired or engaged in own-home housework are considered to be in which of the following categories? a.
in the civilian labor force b.
not in the labor force c.
employed d.
unemployed
ANS: B
One of the reasons why the AD curve slopes downward is that as the a.
price level rises, purchasing power rises.
b.
price level falls, purchasing power rises.
c.
nation's income level rises, purchasing power rises.
d.
nation's income level rises, purchasing power falls.
e.
This is a trick question, because the curve is upward sloping.
ANS: B
4. If some of a person's wealth is in money form, it follows that a.
this person's wealth will change as the price level changes.
b.
this person's wealth will not change as the price level changes.
c.
this person is wealthier than a person who holds all his wealth in nonmonetary form.
d.
a and c e.
b and c
ANS: A
The level of Real GDP that the economy produces in long-run equilibrium is Natural Real GDP.
ANS: T
5. Some of the factors that can shift the short-run aggregate supply curve can also cause a shift in the longrun aggregate supply curve.
ANS: T
Natural Real GDP is __________ full-employment Real GDP. a.
less than b.
equal to c.
greater than d.
independent of
ANS: B
If the SRAS curve intersects the AD curve to the right of Natural Real GDP, the economy is a.
in a recessionary gap.
b.
at Natural Real GDP.
c.
in an inflationary gap.
d.
at full-employment Real GDP.
ANS: C

When the economy is producing Real GDP at a level at which the LRAS curve intersects the AD curve, the economy is a.
in a recessionary gap.
b.
in long-run equilibrium.
c.
in an inflationary gap.
d.
operating at less than full-employment output.
ANS: B
If the economy is in long-run equilibrium the actual unemployment rate is less than the natural unemployment rate.
ANS: F
2. It is possible for the economy to be producing at a point that lies beyond its institutional production possibilities frontier (PPF), but not its physical PPF.
ANS: T