Macro Chapter 8 study guide questions
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1. Frictional unemployment results from
a. not enough jobs in the economy.
b. not enough employers.
c. not enough employees.
d. scarce information about job opportunities and the time it takes to acquire that
information.
____
2. The definition of the unemployment rate is
a. the number of persons in the country who are not employed.
b. the number of persons in the civilian labor force who are not employed.
c. the percentage of persons in the country who are not employed.
d. the percentage of persons in the civilian labor force who are not employed.
____
3. Inflation is best described as
a. high prices.
b. a sustained increase in the general level of prices as indicated by a price index.
c. an increase in the purchasing power of money.
d. an increase in the price of a particular good or service that is necessary for all consumers.
____
4. The natural rate of unemployment equals
a. the sum of frictional and structural unemployment.
b. frictional unemployment.
c. full employment minus all those unemployed.
d. the sum of frictional and cyclical unemployment.
____
5. The labor force participation rate is
a. the number of persons employed divided by the number of persons unemployed.
b. the number of persons 16 years of age and older who are either employed or actively
seeking work divided by the total noninstitutional population 16 years of age and older.
c. the number of persons employed divided by the number of persons 16 years of age and
older.
d. the number of persons who are actively seeking work divided by the number of persons
who are employed.
____
6. Structural unemployment means that
a. employment in the construction industry is insufficient.
b. there are simply not enough jobs to go around.
c. worker qualifications do not match available jobs.
d. jobs are plentiful, but workers are scarce.
____
7. Actual GDP
a. is greater than potential GDP during recessions.
b. is less than potential GDP during recessions.
c. and potential GDP have identical meanings.
d. is equal to potential GDP during economic booms.
____
8. During periods of high and variable inflation, which of the following is unlikely to occur?
a. Resources will be diverted from economically productive activities toward activities
designed to protect individuals from inflation.
b. Individuals will find it difficult to know whether a price change is due to the general
inflation or due to shifts in supply or demand in a given market.
c. Individuals will want to make long-term contracts in order to enjoy the benefits of higher
prices.
d. Some resources will be wasted as suppliers have to reprint menus and price catalogues to
reflect the new, higher prices.
____
9. In a properly operating, dynamic economy,
a. the unemployment rate should remain near zero.
b. we would expect to have some unemployment due to normal structural and frictional
factors.
c. the rate of unemployment will be very high during economic booms.
d. the employment/population ratio should average 100 percent.
____ 10. The period of declining growth in real GDP between the peak of the business cycle and the trough is called
the
a. contractionary phase.
b. boom.
c. expansionary phase.
d. lost phase.
____ 11. Which of the following will most likely occur during the expansionary phase of a business cycle?
a. Real GDP rises and unemployment falls.
b. Real GDP declines and inflation rises.
c. Interest rates rise and the number of business failures rise.
d. Inflation rises and employment falls.
____ 12. In the early 1990s, the U.S. government substantially reduced defense expenditures. The resulting
unemployment of defense-related workers, who possessed skills no longer needed by the economy, is an
example of
a. cyclical unemployment.
b. frictional unemployment.
c. seasonal unemployment.
d. structural unemployment.
____ 13. Which of the following would be officially classified as unemployed?
a. a school administrator who has been working as a substitute teacher one day per week
while looking for a full-time job in administration
b. a mathematician who returned to graduate school after failing to find a job the last four
months
c. a 60-year-old former steel worker who would like to work but has given up actively
seeking employment
d. None of the above would be officially classified as unemployed.
Use the data below to answer the following question(s).
Table 8-3
Population
Number employed
Number unemployed
200 million
120 million
30 million
____ 14. Refer to Table 8-3. What is the labor force of the economy?
a. 30 million
b. 120 million
c. 150 million
d. 200 million
____ 15. Refer to Table 8-3. What is the unemployment rate of the economy?
a. 15 percent
b. 20 percent
c. 60 percent
d. 75 percent
____ 16. Refer to Table 8-3. What is the labor force participation rate of the economy?
a. 25 percent
b. 60 percent
c. 75 percent
d. 80 percent
____ 17. Which of the following is true?
a. During a boom, the natural rate of unemployment falls below the actual rate of
unemployment.
b. During a boom, the output of the economy will exceed its long-run potential output.
c. During a boom, there will be widespread unemployment.
d. During a boom, the actual rate of unemployment will exceed the natural rate of
unemployment.
____ 18. The natural rate of unemployment
a. is fixed; it cannot be changed with public policy.
b. fluctuates substantially over the business cycle.
c. is associated with the economy's maximum sustainable output rate.
d. declines when youthful workers (under age 25) become a larger proportion of the labor
force.
Critical Thinking and Application
19. Answer the following questions:
a. What are the three types of unemployment, and which two compose the natural rate?
b. Give an example of a person who would be counted in each type.
c. Would an economy with 2 percent actual unemployment be in a recession? Why or why not?
20. What is the natural rate of unemployment, and how does it relate to the concept of potential (or fullemployment) GDP?
21. Suppose there are 25,000 employed and 5,000 unemployed persons.
a. What is the unemployment rate?
b. If 2,000 of those unemployed became discouraged and quit actively seeking work, what would
happen to the unemployment rate? Calculate the new unemployment rate.
22. Answer the following questions:
a. What is meant by the term "business cycle"?
b. What economic indicators would indicate where the economy is in the business cycle? Explain.
c. Give the four phases of the business cycle in their order of occurrence.
d. What criterion must be met for our economy to be officially in a recession?
23. Discuss the dangers of inflation; that is, why may it hurt an economy?
24. Answer the following questions:
a. Describe the three types of unemployment.
b. Explain why economists believe some types of unemployment are efficient and some are not.
Which ones are which?
25. Evaluate the economic validity of the following statement: "Unemployed resources would not exist if the
economy were operating efficiently."
26. Virtually all economists and policy makers agree that, within limits, higher employment is better. If this is
true, couldn't the government create more employment by hiring people to dig holes and fill them in again? Is
this good economic policy?
27. Inflation isn't costly just because prices are going up. After all, inflation means salaries and wages are going
up as well. If higher prices are not the problem, discuss two important aspects of inflation that are costly.
Macro Chapter 8 study guide questions
Answer Section
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