Macroeconomics
Instructor Miller
GDP and Inflation Practice Problems
1. The Bureau of Labor Statistics would categorize a retiree who is not working as
A) employed.
B) unemployed.
C) a discouraged worker.
D) out of the labor force.
2. The labor force equals the number of people
A) employed.
B) unemployed.
C) employed plus unemployed.
D) in the working-age population.
Total population
Working-age population
Employment
Unemployment
20,000
15,000
1,000
100
3. Refer to the table above. The unemployment rate for this simple economy equals
A) (100/1,000) × 100.
B) (100/1,100) × 100.
C) (100/15,000) × 100.
D) (100/20,000) × 100.
4. Refer to the table above. The labor force participation rate for this simple economy equals
A) (1,000/1,100) × 100.
B) (1,000/15,000) × 100.
C) (1,100/15,000) × 100.
D) (1,100/20,000) × 100.
5. Suppose the labor force stays constant, and the working-age population stays constant, but a
greater number of persons who were unemployed become employed. The labor force
participation rate will
A) increase.
B) decrease.
C) remain constant.
D) not change in a way that can be predicted.
6. The unemployment rate equals the number of unemployed divided by the ________, all times
100.
A) number of employed
B) labor force
C) working-age population
D) total population
7. Someone who is available for work but has not actively looked for work in the previous four
weeks would be classified as
A) employed.
B) unemployed.
C) not in the labor force.
D) not in the working-age population.
8. Which of the following labor market statistics best indicates the amount of labor that is
available to the economy from a given working-age population?
A) unemployment rate
B) discouraged-worker ratio
C) labor force participation rate
D) the ratio of minimum wage to inflation
9. Which of the following cause the unemployment rate (U-3) as measured by the Bureau of
Labor Statistics to understate the true extent of joblessness?
A) inflation
B) discouraged workers
C) people employed in the underground economy
D) unemployed persons falsely report themselves to be actively looking for a job
10. The advice to "keep searching, there are plenty of jobs around here for which you are
qualified", would be most appropriate for which of the following types of unemployment?
A) frictional unemployment
B) structural unemployment
C) cyclical unemployment
D) seasonal unemployment
11. Cyclical unemployment is the result of
A) a persistent mismatch between the skills and characteristics of workers and the requirements
of the jobs.
B) the search process of matching workers with jobs.
C) the ups and downs in inflation.
D) a slowdown in the economy.
12. Economists consider full employment to occur when
A) everyone who wants a job has a job.
B) frictional unemployment equals zero.
C) the sum of frictional unemployment and structural unemployment equals zero.
D) the unemployment rate consists of only frictional and structural unemployment.
13. A lumberjack loses his job because timber cutting restrictions were imposed by the EPA to
protect the spotted owl habitat. This lumberjack would be
A) frictionally unemployed.
B) cyclically unemployed.
C) structurally unemployed.
D) seasonally unemployed.
14. Workers laid off as a result of a recession suffer
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) seasonal unemployment.
15. The average price of goods and services in the economy is also known as
A) the price level.
B) the inflation rate.
C) a market basket.
D) the cost of living.
16. Which of the following is true about the consumer price index?
A) It accounts for people switching to goods whose prices have fallen.
B) It assumes that consumers purchase the same amount of each product in the market basket
each month.
C) It frequently updates the price changes of new products added to the market basket, as these
have a tendency to fall.
D) It filters out the part of price increases that occurs because of quality improvements in
products.
17. Which of the following price indices comes closest to measuring the cost of living of the
typical household?
A) GDP deflator
B) producer price index
C) consumer price index
D) household price index
18. The consumer price index is the
A) cost of a market basket of goods and services typically consumed in the base year.
B) cost of a market basket of goods and services typically consumed in the current period.
C) average of the prices of the goods and services purchased by a typical urban family of four.
D) average of the prices of new final goods and services produced in the economy over a period
19. Which of the following would be the best measure of the cost of living?
A) real GDP
B) real GDP per person
C) GDP deflator
D) consumer price index
Product
Milk
Bread
Base Year (2006)
Quantity
Price
50
$1.20
100
1.00
2011
Price
$1.50
1.10
20. Refer to the above table. Assume the market basket for the consumer price index has two
products — bread and milk — with the following values in 2006 and 2011 for price and
quantity: The Consumer Price Index for 2011 equals
A) 118.
B) 116.
C) 86.
D) 85.
21. The percent increase in the CPI from one year to the next is a measure of the
A) GDP deflator.
B) unemployment rate.
C) real interest rate.
D) inflation rate
22. Assume the average annual CPI values for 2010 and 2011 were 207.3 and 215.3,
respectively. What was the percent increase in the CPI between these two years?
A) 0.96
B) 1.04
C) 3.86
D) 8.0
23. The substitution bias in the consumer price index refers to the idea that consumers ________
the quantity of products they buy in response to price, and the CPI does not reflect this and
________ the cost of the market basket.
A) change; over-estimates
B) change; under-estimates
C) do not change; over-estimates
D) do not change; under-estimates
24. If your nominal wage rises faster than the price level, we can say your real wage has
________ and the purchasing power of your income has ________.
A) fallen; fallen
B) fallen; risen
C) risen; risen
D) risen; fallen
Year
1965
2010
Nominal Average
Hourly Earnings
$2.65
22.59
CPI (1982-1984 =
100)
32
219
The table above reports the nominal average hourly earnings in private industry and the
consumer price index for 1965 and 2010.
25. Refer to the above table. The real average hourly earnings for 1965 in 1982-1984 dollars
equal
A) $1.28.
B) $6.49.
C) $8.28.
D) $15.45.
26. Refer to the above table. The percentage change in real average earnings from 1965 to 2010
equals
A) 2.0 percent
B) 19.7 percent.
C) 24.5 percent.
D) 80.3 percent.
27. Refer to the above table. The real average hourly earnings for 1965 in 2010 dollars equal
A) $3.87.
B) $5.80.
C) $12.10.
D) $18.14.
28. The stated interest rate on a loan is the
A) real interest rate.
B) nominal interest rate.
C) actual inflation rate.
D) expected inflation rate.
29. If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of
interest?
A) -9.5%
B) -3.5%
C) 1.5%
D) 3.5%
30. Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000
plus $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid?
A) 16 percent
B) 12 percent
C) 8 percent
D) 6 percent
Key
1. D
2. C
3. B
4. C
5. C
6. B
7. C
8. C
9. B
10. A
11. D
12. C
13. C
14. C
15. A
16. B
17. C
18. C
19. D
20. B
21. D
22. C
23. A
24. C
25. C
26. C
27. D
28. B
29. D
30. C