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3. A trough in the business cycle occurs when: A. Cyclical unemployment is at a minimum point B. Employment and output reach their lowest levels C. The natural rate of unemployment is at a minimum point D. Structural and frictional unemployment are at their highest levels 4. In the expansion phase of a business cycle: A. The inflation rate decreases, but productive capacity increases B. The inflation rate and productive capacity decrease C. Employment increases, but output decreases D. Employment and output increase 5. A recession is defined as: A. A fall in the natural rate of unemployment B. A rise in the natural rate of unemployment C. A fall in real GDP that lasts six months or longer D. The minimum point in the business cycle before the recovery phase 6. Some economists prefer to use the term business fluctuations rather than business cycles to describe the historical growth record in the United States because: A. Cycles include a trough phase while fluctuations do not B. Cycles imply regularity while fluctuations do not C. Fluctuations include an expansion phase while cycles do not D. Fluctuations are relatively predictable events 7. In which industry or sector of the economy is output least likely to be affected by the business cycle? A. Housing construction B. Automobile production C. Agricultural commodities D. Capital goods production 8. Assuming the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, the unemployment rate is: A. 4 percent B. 6 percent C. 8 percent D. 10 percent 9. A nation has a population of 300 million people. Of these, 80 million are retired, in the military, in institutions, or under 16 years old. There are 210 million who are employed and 10 million who are unemployed. What is the unemployment rate? A. 3.3 percent B. 3.6 percent C. 4.5 percent D. 5.2 percent 10. The unemployment rate in an economy is 7.5 percent. The total population of the economy is 250 million and the size of the civilian labor force is 180 million. The number of employed workers in this economy is: A. 13.5 million B. 15.7 million C. 166.5 million D. 174.6 million

11. In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are: A. Excluded B. Included C. Treated the same as part-time workers D. Used to determine the size of the labor force

12. Official unemployment rate statistics may: A. Overstate the amount of unemployment by including part-time workers in the calculations B. Understate the amount of unemployment by excluding part-time workers in the calculations C. Overstate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment D. Understate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment 13. The best example of a "frictionally unemployed" worker is one who: A. Reduces productivity by causing frictions in a business B. Is laid off during a recessionary period in the economy C. Is in the process of voluntarily switching jobs D. Is discouraged and not actively seeking work 14. Kevin has lost his job in an automobile plant because of the use of robots for welding on the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is: A. Cyclical B. Frictional C. Structural D. Natural 15. Unemployment that occurs when there is deficient demand for the goods and services of an economy is called: A. Frictional unemployment B. Cyclical unemployment C. Structural unemployment D. Natural unemployment 16. Working as an elevator operator used to be a common job in the workforce four decades ago, but today few jobs remain. The unemployment created by the introduction of automatic elevators would be considered: A. Wait B. Cyclical C. Frictional D. Structural 17. The natural rate of unemployment: A. Means that the economy will always operate at its natural rate B. Means that the economy will always realize its potential output C. Is equal to the total of frictional and structural unemployment D. Is a fixed unemployment rate that does not change over time

18. The descriptions give the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. 1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month. 2. George works in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in several months when national economic conditions improve. 3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills. 4. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year, but was unsuccessful and quit looking for work Refer to the above information. Which individual is frictionally unemployed? Which individual is structurally unemployed? Which individual is cyclically unemployed? Which individual would be classified as a discouraged worker? 19. At the full-employment unemployment rate there is only: A. Cyclical and frictional unemployment B. Frictional and structural unemployment C. Demand-deficient unemployment D. "discouraged workers" unemployment 20. The GDP gap measures the amount by which: A. Nominal GDP exceeds real GDP B. Actual GDP exceeds potential GDP C. Potential GDP exceeds actual GDP D. Actual GDP exceeds national income 21. If the GDP gap is negative, then: A. The inflation rate is rising B. The unemployment rate is falling C. Potential GDP is less than actual GDP D. Actual GDP is less than potential GDP 22. If unemployment is above the natural rate of unemployment, then potential GDP is: A. Equal to the GDP gap B. Equal to actual GDP C. Less than actual GDP D. Greater than actual GDP 23. The higher the rate of unemployment: A. The larger is the GDP gap B. The smaller is the GDP gap C. The higher the level of actual GDP D. The higher the level of potential GDP 24. If the natural rate of unemployment was 6 percent, the current unemployment rate was 12 percent, and the nominal GDP was $4,000 billion, then according to Okun's law the economy would have sacrificed: A. $240 billion in potential output B. $480 billion in potential output C. $700 billion in potential output

D. $840 billion in potential output 25. In an economy nominal GDP is $4,000 billion. The actual unemployment rate is 8 percent and the natural rate of unemployment is 6 percent. According to Okun's law there will be: A. $80 billion lost in potential output B. $100 billion lost in potential output C. $160 billion lost in potential output D. $300 billion lost in potential output 26. "Depression means idleness. And idleness means loss of skills, loss of self-respect, plummeting morale, family disintegration, and sociopolitical unrest." This quote describes some of the: A. Consequences of the hyperinflation that accompanies a recession B. Reasons for the natural rate of unemployment C. Noneconomic costs of unemployment D. Characteristics of structural unemployment 27. Inflation is a: A. Sustained decline in the general level of prices B. Sustained rise in the general level of prices C. One-time change in the general level of prices D. Movement of the economy toward full-employment 28. The Consumer Price Index was 115 one year and 120 the next year. The rate of inflation from one year to the next was approximately: A. 2.2 percent B. 2.9 percent C. 3.4 percent D. 4.3 percent

29. Over a ten-year period, the Consumer Price Index doubled. On the basis of this information we can say that the average annual rate of inflation over this period was approximately: A. 10 percent B. 9 percent C. 7 percent D. 5 percent 30. If the Consumer Price Index was 165 in one year and 175 in the next year, then the rate of inflation from one year to the next was approximately: A. 4.3 percent B. 5.7 percent C. 6.1 percent D. 7.5 percent 31. The price level has doubled in 35 years. The approximate annual percentage rate of increase in the price level over this period has been: A. 50 percent B. 20 percent C. 5 percent D. 2 percent 32. Inflation caused by an increase in aggregate spending is referred to as:

A. Cost-push inflation B. Demand-push inflation C. Demand-pull inflation D. Hyperinflation 33. Which is a correct statement? A. It is relatively easy to distinguish between cost-push and demand-pull inflation even if you don't know the source of the inflation B. A supply shock will cause a variation of demand-pull inflation that can lead to hyperinflation C. Demand-pull inflation will continue so long as there is excess total spending in the economy D. Cost-push inflation will continue because increased per unit cost will lead to a reduced supply 34. Inflation caused by a rise in per unit production costs is referred to as: A. Cost-push inflation B. Demand-pull inflation C. Unanticipated inflation D. Hyperinflation 35. In an economy, only two resources, capital and labor, are used to produce 50 units of output. If the total cost of capital resources is $125 and the total cost of labor resources is $25, then the per unit production costs are: A. $150 B. $100 C. $9 D. $3 36. The view that unions may be a source of inflation would be best associated with the: A. Supply-shock view of inflation B. Cost-push view of inflation C. Wage-push view of inflation D. Demand-pull view of inflation 37. If a person's nominal income increases by 5% while the price level increases by 2%, the person's real income: A. Increases by 3% B. Increases by 5% C. Decreases by 7% D. Decreases by 2% 38. If the price level increases by 15 percent while nominal income increases by 8 percent, then in percentage terms real income would: A. Rise by about 8 percent B. Fall by about 8 percent C. Fall by about 7 percent D. Fall by about 15 percent 39. The percentage change in one's real income can be approximated by: A. Dividing real income by the price level, expressed as an index number B. Dividing the price level, expressed as an index number, by nominal income C. The percentage change in price level minus the percentage change in nominal income D. The percentage change in nominal income minus the percentage change in the price level

40. Unanticipated inflation tends to penalize: A. People who save money in financial institutions B. Individuals who borrow money from financial institutions C. Businesses which borrow money from financial institutions D. Governments which have a progressive personal income tax

41. Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unanticipated inflation occurs in the economy, then: A. Both lenders and borrowers benefit B. Both lenders and borrowers are hurt C. Borrowers are hurt, but lenders benefit D. Lenders are hurt, but borrowers benefit 42. A worker would be hurt least by inflation when the: A. Worker anticipates inflation and increases savings at the bank B. Worker is protected by a cost-of-living adjustment clause in an employment contract C. Worker is protected by fixed annual increases in wages and benefits in an employment contract D. Government increases the level of social security retirement benefits to correct for the effects of anticipated inflacion 43. In what circumstances would lenders most benefit? A. When there is an unanticipated decrease in inflation B. When there is an anticipated increase in inflation C. When there is an unanticipated increase in inflation D. When there is an anticipated decrease in inflacion 44. With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6%. But, if the rate of inflation was anticipated to be 4%, the bank would most likely charge the firm an annual interest rate of: A. 2 percent B. 4 percent C. 6 percent D. 10 percent 45. In the 1920s, Germany experienced an economic condition which can be best described as: A. Hyperinflation B. Cost-push inflation C. Unanticipated inflation D. Anticipated inflation...