Economics 210
Review Questions Chapter 10 - The Business Cycle
(1) Which of the following should increase during the expansion phase of the business cycle?
(a) Unemployment.
(b) Full employment.
(c) Real GDP.
(d) All of the above.
(2) Who of the following would be counted as a member of the labor force?
(a) A full time housewife who works 12 hours per day to take care of her children, cooks for her family, and cleans and maintains the home.
(b) An unemployed steelworker actively looking for work.
(c) A student attending college full time.
(d) A retired member of the armed forces living in a nursing home.
(3) If the population of a country is 400,000, its labor force is 200,000, and 10,000 people are unemployed, the unemployment rate is:
(a) 2.5 percent.
(b) 5.0 percent.
(c) 50.0 percent.
(d) Additional information is needed to compute the unemployment rate.
(4) When migrant farm workers seek employment after the crops have been picked, the unemployment rate goes up. This situation is an example of:
(a) structural unemployment.
(b) seasonal unemployment.
(c) cyclical unemployment.
(d) frictional unemployment.
(5) A teenager without a high school diploma is unable to find work because all of the available jobs require a certain minimum reading skill level. Which of the following best characterizes the teenager=s circumstances?
(a) Frictionally unemployed.
(b) Structurally unemployed.
(c) Cyclically unemployed.
(d) Seasonally unemployed.
(6) A decrease in the average level of prices of goods and services is:
(a) deflation.
(b) recession.
(c) depression.
(d) inflation.
(7) Suppose at the start of this year you got a salary increase of 10 percent from your employer. If the prices of goods and services you typically purchase increase 10 percent during the year, you would find for the year that you have experienced on balance:
(a) higher real income and nominal income.
(b) higher real income but lower nominal income.
(c) no change in real income.
(d) no change in nominal income.
(8) Jane Dough’s nominal annual income in 1998 was $40,000. Suppose that during the 1998-2000 period the total rate of inflation was 10 percent. To keep Jane’s real income constant, her nominal income in the year 2000 should be:
(a) $40,000.
(b) $4,000.
(c) $44,000.
(d) $80.000.
Consider the information in the table below in answering Question (9).
Number per
Week 1985 1998
Canned soft drinks (per can) 5 $0.20 $0.40
Comic books (per book) 4 $0.25 $1.00
(9) Suppose some 10 year olds make only two types of purchases each week with their allowances: 5 canned soft drinks, and 4 comic books. From the perspective of hese 10 year olds, what is the inflation rate over the whole period as outlined in the table above?
(a) 3.0 percent.
(b) 33.0 percent.
(c) 200.0 percent.
(d) 300.0 percent
(10) If the Consumer Price Index (CPI) will have a value of 182.0 by the end of 2002, this means that during the period between the base year and 2002:
(a) all prices increased by 82 percent.
(b) all prices increased by 182 percent.
(c) prices of goods and services that the typical consumer buys increased by an average of 82 percent.
(d) prices of goods and services that businesses require to produce goods and services increased by an average of 82 percent.
(11) Inflation functions as a redistribution mechanism because people:
(a) buy different goods and services for which relative prices change during inflation.
(b) own different kinds of assets for which relative market values change with inflation.
(c) have differing abilities to raise their incomes.
(d) All of the above.
(12) Generally speaking, which of the following groups would tend to gain real income from the wealth effects of inflation?
(a) People who invest in long-term bonds when interest rates are low.
(b) People who have passbook savings accounts.
(c) People who own assets that are appreciating faster than the inflation rate.
(d) People who hold all of their assets in the form of cash.
(13) A Hershey's candy bar cost $0.15 in 1975 and $0.50 in 2001. Suppose during the same period a price index rose from 150 to 300. Buyers of Hershey's chocolate, relative to non-buyers, would experience:
(a) A lower real income as a result of the price effect.
(b) A higher real income as a result of the price effect.
(c) A lower nominal income as a result of the wealth effect.
(d) A lower nominal income as a result of the income effect.
(14) Which of the following is likely to occur if the unemployment rate is less than the rate at which "full employment" is achieved?
(a) The threat of recession.
(b) Increased inflationary pressures.
(c) An increase in discouraged workers.
(d) Political upheaval.