BAM 223 Principles of Economics Unit 4 Examination Multiple Choice Questions (Enter your answers on the enclosed answer sheet)
Table 13-1
Total population 20,000 Working-age population 15,000 Employment 1,000 Unemployment
100
Consider the data above for a simple economy.
1. Refer to Table 13-1. The labor force participation rate for this simple economy equals:
a.
b.
c.
d. (1,100/15,000) × 100
(1,100/20,000) × 100
(1,000/15,000) × 100
(1,000/1,100) × 100
a.
b.
c.
d. (1,100/15,000) × 100
(1,100/20,000) × 100
(1,000/15,000) × 100
(1,000/1,100) × 100
2. In the modern U.S. economy, the typical unemployed person stays unemployed for:
a.
b.
c.
d. a relatively short time, less than six months
an amount of time that is hard to quantify
for a long time during expansions and short time during recessions
a relatively long time, over a year
a.
b.
c.
d. a relatively short time, less than six months
an amount of time that is hard to quantify
for a long time during expansions and short time during recessions
a relatively long time, over a year
3. Most of the unemployment that occurred during the Great Depression was __________
unemployment.
a.
b.
c.
d. frictional
core
cyclical
structural
unemployment.
a.
b.
c.
d. frictional
core
cyclical
structural
4. Which of the following is an example of a worker experiencing frictional unemployment?
a.
b.
c.
d. An employee is laid off because the economy is suffering a recession.
A United Airlines pilot loses her job because of lack of demand for air travel.
A computer programmer loses her job because it is outsourced to India.
A worker quits his job at the post office to find more interesting work.
a.
b.
c.
d. An employee is laid off because the economy is suffering a recession.
A United Airlines pilot loses her job because of lack of demand for air travel.
A computer programmer loses her job because it is outsourced to India.
A worker quits his job at the post office to find more interesting work.
5. An increase in cyclical unemployment will result in:
a.
b.
c.
d. 210 an increase in the unemployment rate
an increase in the natural rate of unemployment
an increase in structural unemployment
a decrease in frictional unemployment
a.
b.
c.
d. 210 an increase in the unemployment rate
an increase in the natural rate of unemployment
an increase in structural unemployment
a decrease in frictional unemployment
BAM 223 Principles of Economics Unit 4 Examination Figure 13-1
6. Refer to Figure 13-1. Based on the graph of the labor market above, if a minimum wage is set
at $5 per hour, which of the following will occur?
a. The level of unemployment will rise, but the percentage of the labor force unemployed will
not change.
b. The unemployment rate will rise.
c. The unemployment rate will fall.
d. None of the above will occur. Table 13-9
Year CPI
(1982-1984 =100) 2012 100 2013 113
at $5 per hour, which of the following will occur?
a. The level of unemployment will rise, but the percentage of the labor force unemployed will
not change.
b. The unemployment rate will rise.
c. The unemployment rate will fall.
d. None of the above will occur. Table 13-9
Year CPI
(1982-1984 =100) 2012 100 2013 113
7. Refer to Table 13-9. Suppose that the data in the table above reflects the price levels in the
economy. Given that data, we can say that the cost of living rose by ________ between 2012
and 2013?
a.
b.
c.
d.
e. 211 2%
5%
8%
11%
13%
economy. Given that data, we can say that the cost of living rose by ________ between 2012
and 2013?
a.
b.
c.
d.
e. 211 2%
5%
8%
11%
13%
BAM 223 Principles of Economics Unit 4 Examination
8. The base period for CPI calculations is generally 1982-84. In 2005, 50% of households
accessed the Internet through a broadband connection that would not have existed in the
1980s. This potential for bias in the CPI is referred to as ________ bias and results in
________.
a.
b.
c.
d. new product; the CPI overestimating the true change in the cost of living
net product; the CPI underestimating the true change in the cost of living
outlet bias; the CPI overestimating the true change in the cost of living
outlet bias; the CPI underestimating the true change in the cost of living Table 13-16
Year Nominal Average
Hourly Earnings CPI
(1982-1984 =100) 2011 $10 100 2012 10 105 2013 12 110
accessed the Internet through a broadband connection that would not have existed in the
1980s. This potential for bias in the CPI is referred to as ________ bias and results in
________.
a.
b.
c.
d. new product; the CPI overestimating the true change in the cost of living
net product; the CPI underestimating the true change in the cost of living
outlet bias; the CPI overestimating the true change in the cost of living
outlet bias; the CPI underestimating the true change in the cost of living Table 13-16
Year Nominal Average
Hourly Earnings CPI
(1982-1984 =100) 2011 $10 100 2012 10 105 2013 12 110
9. Refer to Table 13-16. Looking at the table above, real wages ________ from 2011 to 2012,
and real wages ________ from 2012 to 2013.
a.
b.
c.
d. fell; rose
fell; fell
rose; rose
rose; fell
and real wages ________ from 2012 to 2013.
a.
b.
c.
d. fell; rose
fell; fell
rose; rose
rose; fell
10. The real rate of interest is the ____________.
a.
b.
c.
d. nominal interest rate minus the inflation rate
nominal interest rate
nominal interest rate plus the inflation rate
interest rate determined by the supply and demand in the money market
a.
b.
c.
d. nominal interest rate minus the inflation rate
nominal interest rate
nominal interest rate plus the inflation rate
interest rate determined by the supply and demand in the money market
11. Which of the following individuals would be most negatively affected by anticipated inflation?
a. a retired railroad engineer who receives a fixed income payment every month
b. a union contractor whose pay is adjusted based on changes in the CPI
c. a student who borrows $10,000 at a nominal interest rate of 5% to finance educational
expenses
d. a full-time employee at a pizza parlor who makes more than the minimum wage 212
a. a retired railroad engineer who receives a fixed income payment every month
b. a union contractor whose pay is adjusted based on changes in the CPI
c. a student who borrows $10,000 at a nominal interest rate of 5% to finance educational
expenses
d. a full-time employee at a pizza parlor who makes more than the minimum wage 212
BAM 223 Principles of Economics Unit 4 Examination
12. If real GDP per capita doubles between 2005 and 2020, what is the average annual growth
rate of real GDP per capita?
a.
b.
c.
d. 4.7%
10.5%
15%
21%
rate of real GDP per capita?
a.
b.
c.
d. 4.7%
10.5%
15%
21%
13. If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required
to double real GDP will decrease from __________ years to __________ years.
a.
b.
c.
d. 23.3;
11.2;
23.3;
28.0; 20.6
10.8
17.5
21.0
to double real GDP will decrease from __________ years to __________ years.
a.
b.
c.
d. 23.3;
11.2;
23.3;
28.0; 20.6
10.8
17.5
21.0
14. Which of the following will increase investment spending in the economy, holding everything
else constant?
a.
b.
c.
d. an
an
an
an increase
increase
increase
increase in
in
in
in the budget deficit
transfer payments
the federal government surplus
consumer dissavings
else constant?
a.
b.
c.
d. an
an
an
an increase
increase
increase
increase in
in
in
in the budget deficit
transfer payments
the federal government surplus
consumer dissavings
15. An increase in the demand for loanable funds will occur if there is:
a.
b.
c.
d. a decrease in the real interest rate.
an increase in the real interest rate.
an increase in expected profits from firm investment projects.
an increase in the nominal interest rate accompanied by an equal increase in inflation.
a.
b.
c.
d. a decrease in the real interest rate.
an increase in the real interest rate.
an increase in expected profits from firm investment projects.
an increase in the nominal interest rate accompanied by an equal increase in inflation.
16. As the economy nears the end of a recession, which of the following do we typically see?
a.
b.
c.
d. 213 increased spending on capital goods by firms
increasing interest rates
further decreases in consumer spending
all of the above
a.
b.
c.
d. 213 increased spending on capital goods by firms
increasing interest rates
further decreases in consumer spending
all of the above
BAM 223 Principles of Economics Unit 4 Examination
17. A recession begins with a(n) ________ in spending by firms on capital goods and a(n) ________
in spending on durable goods by households.
a.
b.
c.
d. increase; increase
increase; decrease
decrease; increase
decrease; decrease
in spending on durable goods by households.
a.
b.
c.
d. increase; increase
increase; decrease
decrease; increase
decrease; decrease
18. Inflation is measured:
a.
b.
c.
d. as the percentage change in the consumer price index
using the level of the consumer price index
using the level of real GDP
as the percentage change in real GDP
a.
b.
c.
d. as the percentage change in the consumer price index
using the level of the consumer price index
using the level of real GDP
as the percentage change in real GDP
19. If you spend more of your income on consumption goods, which of the following will occur?
a.
b.
c.
d. The production of investment goods will fall.
Investments in education will rise.
For every dollar you spend on consumption, real GDP will fall by a dollar.
Economic growth will be stimulated. Figure 15-1
a.
b.
c.
d. The production of investment goods will fall.
Investments in education will rise.
For every dollar you spend on consumption, real GDP will fall by a dollar.
Economic growth will be stimulated. Figure 15-1
20. Refer to Figure 15-1. Ceteris paribus, a decrease in personal income taxes would be
represented by a movement from:
a.
b.
c.
d. 214 AD1 to AD2
AD2 to AD1
point A to point B
point B to point A
represented by a movement from:
a.
b.
c.
d. 214 AD1 to AD2
AD2 to AD1
point A to point B
point B to point A
BAM 223 Principles of Economics Unit 4 Examination
21. If stricter immigration laws are imposed and many foreign workers in the United States are
forced to go back to their home countries, what would be the effect on the long-run aggregate
supply curve?
a.
b.
c.
d. The long-run aggregate supply curve will shift to the left.
We will move down along the long-run aggregate supply curve.
The long-run aggregate supply curve will shift to the right.
We will move up along the long-run aggregate supply curve.
forced to go back to their home countries, what would be the effect on the long-run aggregate
supply curve?
a.
b.
c.
d. The long-run aggregate supply curve will shift to the left.
We will move down along the long-run aggregate supply curve.
The long-run aggregate supply curve will shift to the right.
We will move up along the long-run aggregate supply curve.
22. If potential GDP is equal to $600 billion, what does the long-run aggregate supply curve look
like?
a.
b.
c.
d. It
It
It
It is
is
is
is a
a
a
a vertical line at a level of GDP above $600 billion.
horizontal line at $600 billion of GDP.
vertical line at $600 billion of GDP.
vertical line at a level of GDP below $600 billion. Figure 15-3 23. Refer to Figure 15-3. Suppose the economy is at point A. If the economy experiences a supply
shock, where will the eventual short-run equilibrium be?
a.
b.
c.
d. 215 A
B
C
D
like?
a.
b.
c.
d. It
It
It
It is
is
is
is a
a
a
a vertical line at a level of GDP above $600 billion.
horizontal line at $600 billion of GDP.
vertical line at $600 billion of GDP.
vertical line at a level of GDP below $600 billion. Figure 15-3 23. Refer to Figure 15-3. Suppose the economy is at point A. If the economy experiences a supply
shock, where will the eventual short-run equilibrium be?
a.
b.
c.
d. 215 A
B
C
D
BAM 223 Principles of Economics Unit 4 Examination
24. Which of the following is considered a negative supply shock?
a.
b.
c.
d. a decline in wages
increasing investment in the economy causes the capital stock to rise
an unexpected increase in the price of natural gas
an improvement in technology
a.
b.
c.
d. a decline in wages
increasing investment in the economy causes the capital stock to rise
an unexpected increase in the price of natural gas
an improvement in technology
25. The new Keynesians emphasize the importance of:
a.
b.
c.
d. 216 the monetary growth rule
rational expectations
sticky wages and prices
real causes of the business cycle
a.
b.
c.
d. 216 the monetary growth rule
rational expectations
sticky wages and prices
real causes of the business cycle
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