$$\frac{200-190}{200} \times 100 = 5\%$$

$$\text{Price Index} = \frac{\text{Cost of market basket in current year}}{\text{Cost of market basket in base year}} \times 100$$

$$\frac{600}{500} \times 100 = 120$$

Question 1

Which of the following individuals would be classified as a 'discouraged worker' according to the U.S. government's definition of unemployment?

Accepted Answer

A person who has stopped looking for work because they believe no suitable jobs are available

Question 2

Suppose the labor force in a country is 200 million people, and 190 million are employed. What is the official unemployment rate?

Accepted Answer

$$\frac{200-190}{200} 	imes 100 = 5\%$$

Question 3

Which type of unemployment is most likely to increase during a recession?

Accepted Answer

Cyclical unemployment

Question 4

A price index is calculated as follows:

Accepted Answer

$$	ext{Price Index} = \frac{	ext{Cost of market basket in current year}}{	ext{Cost of market basket in base year}} 	imes 100$$

Question 5

If the nominal interest rate is 8% and the anticipated inflation rate is 3%, what is the real interest rate?

Accepted Answer

$$8\% - 3\% = 5\%$$

Question 6

Which of the following best describes 'structural unemployment'?

Accepted Answer

Unemployment caused by a mismatch between workers' skills and job requirements

Question 7

A country experiences a sustained decrease in the average price level of goods and services. This phenomenon is known as:

Accepted Answer

Deflation

Question 8

Which of the following is NOT included in the calculation of the Consumer Price Index (CPI)?

Accepted Answer

Prices of capital goods purchased by businesses

Question 9

If a worker's nominal wage increases by 4% but inflation is 6%, what happens to the worker's real wage?

Accepted Answer

The real wage decreases by 2%

Question 10

Which of the following best describes the GDP deflator?

Accepted Answer

A price index measuring the changes in prices of all new goods and services produced in the economy

Question 11

Suppose the cost of a market basket in the base year is $$500, and in the current year it is 600. $$What is the price index for the current year?

Accepted Answer

$$\frac{600}{500} 	imes 100 = 120$$

Question 12

Which of the following is an example of a 'flow' variable?

Accepted Answer

The number of people hired each month

Question 13

During a period of unanticipated inflation, which of the following groups is most likely to lose?

Accepted Answer

Lenders who have made fixed-rate loans

Question 14

Which of the following best describes the 'natural rate of unemployment'?

Accepted Answer

The rate of unemployment that prevails in long-run macroeconomic equilibrium

Question 15

A contract includes a cost-of-living adjustment (COLA) clause. What is the main purpose of this clause?

Accepted Answer

To automatically increase nominal wages to keep up with inflation

Question 16

Which of the following is a leading indicator of business fluctuations?

Accepted Answer

An increase in new building permits issued

Question 17

If the labor force participation rate increases, which of the following must be true, all else equal?

Accepted Answer

A higher percentage of the working-age population is either employed or seeking employment

Question 18

Which of the following best describes 'menu costs'?

Accepted Answer

The costs associated with changing prices and printing new price lists during inflation

Question 19

During an economic expansion, which of the following is most likely to occur?

Accepted Answer

The pace of national economic activity speeds up

Question 20

A person who has never worked a full-time job for two weeks or longer and is actively seeking employment is classified as which type of unemployed?

Accepted Answer

New entrant

Unemployment, Inflation, and Deflation: Key Concepts in Macroeconomics

Study Guide - Practice Questions