Module 5 Quiz

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Question #1

Which types of unemployment exist at all times and determine the natural rate of unemployment?

A frictional unemployment and structural unemployment

B cyclical and frictional unemployment

C structural unemployment and cyclical unemployment

Question #2

What does the unemployment rate measure?

A The percentage of unemployed working age adults

B The percentage of the labor force who do not have a job, but are looking for one.

C The percentage of employed working age adults.

D The percentage of unemployed working age adults who are not looking for work.

Question #3

Why are certain policy decisions (like those undertaken by the Federal Reserve) best informed by using the core inflation index as opposed to the CPI?

A Food and energy prices do not affect the cost of living for consumers.

B Food and energy prices are notoriously difficult to calculate.

C Fluctuations in food and energy prices can be transitory.

Question #4

The GDP Deflator is

A the growth rate of real GDP between two periods.

B the ratio of nominal GDP to real GDP.

C nominal GDP minus real GDP.

Question #5

In the last few decades the electronics manufacturing sector has found it difficult to compete with electronics from foreign competitors. High labor costs is one of the main reasons economist site as the lack of competitiveness for the electronics manufacturing industry. If there was modest inflation how could it possibly help the electronics manufacturing industry compete?

A It could allow real wages to downwardly adjust more easily.

B The consumers of the electronics have increased purchasing power.

C Business loans would cost less for the U.S. electronics manufacturers.

Question #6

Bill is a construction worker who was laid off because the market for new homes was adversely affected in the recession. Bill’s unemployment experience is referred to as

A cyclical unemployment.

B frictional unemployment.

C structural unemployment.

Question #7

After a prolonged period of high inflation the government of Atlantia decides to set a target of 0% inflation going forward. As the new assistant economic minister, you are tasked with critiquing this policy. Which criticism of the 0% inflation target is best supported by the economic literature?

A A 0% inflation target could lead to deflation.

B Moderate to high inflation is popular among consumers.

C It is undisputed that too little inflation interferes with the downward adjustment of real wages.

Question #8

With accelerated inflation In the 1980s middle-class Americans benefited primarily because

A in real terms, their home mortgage debts decreased in value.

B The middle class always benefits from inflation.

C nominal wages fell.

Question #9

The Campus Collective company, which creates unique apps for colleges, has recently lost three large university clients that made up 40% of its total revenue. This has hit the company hard and management finds it necessary to reduce staff or wages. The economy also appears to be headed toward a recession and gaining more clients will most likely be harder to accomplish. Because it is a smaller company everyone knows each other and knows there are tough choices ahead. Management brings up the idea of an across the board wage reduction so that no one be let go, but some employees don’t believe that a wage cut will be equally applied to all. The employees are also not sure if other people working their same jobs in the economy are getting reduced wages. They start to argue against wage reduction and things get a bit heated. Which of the following theories best illustrate this wage stickiness scenario?

A Implicit contract theory

B Relative wage coordination argument

C Insider-outsider model

Question #10

Identify which of the following answers in real terms, are made less valuable by inflation?

A Precious metals and real estate.

B A full college scholarship.

C Everything expressed in dollars.

Question #11

If economists design a way to eliminate the new goods bias in CPI calculations, how is the CPI likely to change as a result?

A The CPI will not be affected by this change.

B The CPI will grow at a slower rate.

C The CPI will grow at a faster rate.

Question #12

Which of the following goods is likely not to be included in CPI calculations that take 1982-1984 as the base year?

A baseballs

B motor Oil

C bread

D laptop Computers

Question #13

Which scenario could you use as an example of frictional unemployment when explaining it to a friend?

A A college student working at a copy center finishes his semester of school and quits his job at the copy center and goes traveling through South America for the summer

B George has a difference of opinion with his boss and the friction grows over time until his boss finds a few mistakes that George has made and fires him.

C An economics professor living and working in California accepts a new position at a college in New Jersey. She takes two months after finishing her current work to wrap things up and move out East.

Question #14

Tony’s grandfather is close to retirement from his job of 40 years at the automotive manufacturer. The grandfather has a defined benefit plan for his retirement and is looking forward to having that same amount coming to him for the rest of his life. Tony has just learned about inflation and its redistribution of purchasing power. Tony wants to give his grandfather good advice so that his grandfather’s purchasing power will be able to keep up with inflation. What can Tony advise his grandfather to do to minimize the purchasing power inflation impact over time?

A Tony advises his grandfather to take the fixed benefit plan option and have a fixed amount of money distributed to him over their lifetime with no worries.

B Tony advises his grandfather to retire early and take out all of his money, paying the early withdrawal penalty and move to Florida.

C Tony advises his grandfather to start a business with his retirement funds and keep his money working for him to keep up with inflation.

Question #15

In 1989-90 inflation in Poland reached over 600%. How did this high inflation affect market adjustments towards equilibrium quantity and price?

A Markets adjusted to equilibrium more erratically and slowly.

B Markets could not adjust to equilibrium.

C Markets adjusted to equilibrium faster than before.

Question #16

Which of the following BEST describes the effect inflation has on purchasing power in the United States over the past several decades?

A 15 today has the same purchasing power as $100 in 1972.

B $100 today has the same purchasing power as $80 in 1972.

C $100 today has the same purchasing power as $15 in 1972.