MACROECONOMICS REVIEW FOR EXAM #1. 1. Real GDP is better than nominal GDP in making comparisons of GDP over time because:

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1 MACROECONOMICS REVIEW FOR EXAM #1 1. Real GDP is better than nominal GDP in making comparisons of GDP over time because: A. Nominal GDP can increase simply because of price increases over time. B. Real GDP is not affected by output changes. C. Nominal GDP is the hypothetical output that would be produced at full-employment. D. Real GDP is not affected by changes in productivity. 2. Suppose real GDP in a given year is $1 trillion. If nominal GDP in that same year is $500 billion, then it is true that: A. Prices in the given year are twice as high as in the base period. B. The GDP deflator for the given year is 500. C. Prices in the given year are only half as high as in the base period. D. The CPI for the given year is When economic data expressed in dollars are adjusted for price-level changes, the data are said to be expressed in terms of: A. Historical dollars. B. Average dollars. C. Current dollars. D. Constant dollars. 4. If nominal GDP in 1989 is greater than nominal GDP in 1988, then we can conclude that A. The quantity of goods and services produced has increased. B. The quantity of goods and services produced has decreased. C. The quantity of goods and services produced has not changed. D. That the price level in 1989 is higher than the price level in 1988.

2 5. Suppose that nominal GDP was $300B in 1974, $450B in 1978 and $650B in 1982 and that real GDP was $400B in 1978 and $520B in If the price index for 1974 was 10, which of the following is true? A. The price index for 1978 is B. The price index for 1982 is 250. C. The price index for 1982 is 225. D. Both A and C are true. 6. The term "labor force" refers to: A. All those who are employed. B. All employed persons 16 years of age and over. C. All persons in the non-institutional population. D. All persons over 16 years of age who are either employed or unemployed. 7. A type of unemployment that results from recessions and depressions is known as: A. Seasonal unemployment. B. Cyclical unemployment. C. Frictional unemployment. D. Transitional unemployment. 8. Suppose 100 million people are in the labor force and 93 million of them are employed when the overall population is 200 million. The unemployment rate is: A. 93%. B. 7%. C. 10%. D. 3.5%. 9. Suppose total employment and the unemployment rate both increase in April relative to March. Assuming the number of unemployed persons is constant, which of the following would be the best explanation for this occurrence? A. The labor force must have decreased in size. B. The labor force must have increased in size. C. The non-institutional population must have increased. D. The above result is impossible.

3 USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT 3 QUESTIONS In May, suppose 10 million people are counted as being unemployed in a labor force of 97 million. In June, 3 million college students begin looking for summer employment and 2 million of these are hired. 10. Total employment for June is: A. 89 million. B. 100 million. C. 99 million. D. 107 million. 11. The labor force in June is: A. 89 million. B. 100 million. C. 99 million. D. 107 million. 12. The unemployment rate for June is: A. 9.7%. B. 10%. C. 11%. D. 12.1% 13. A college student who wants summer work and cannot find any keeps looking for work in the month of June; this person is: A. Out of the labor force. B. Considered to be unemployed during the month of June. C. Considered to be a discouraged worker. D. Considered to be part of the underground economy. 14. The population in Lower Slobovia is 1200, of which 600 are employed and 400 are not in the labor force. The unemployment rate in Lower Slobovia is A percent. B percent. C percent. D percent.

4 15. Persons in the process of changing jobs are accounted for by which of the following categories? A. Frictional unemployment. B. Involuntary unemployment. C. Cyclical unemployment. D. Structural unemployment. 16. From the point of view of the overall economy, inflation which is decreasing in an unexpected manner: A. Penalizes the federal government. B. Causes arbitrary transfers of wealth. C. Penalizes net debtors. D. All the above. 17. Inflation is: A. A rise in the average level of prices for goods and services. B. A reduction in the purchasing power of money. C. More common than deflation since WWII. D. All of the above. 18. If an index of the general price level is 50, the corresponding purchasing power of $1 is: A. $0.50. B. $1.50. C. $2.00. D. $ A lender wants an 8% real interest and expects a 10% inflation rate; if the actual inflation rate was 12% which of the following is true? A. The lender earns a 10% real interest rate. B. The lender earns a 6% real interest rate. C. Wealth is redistributed from lender to borrower. D. Both B and C are true.

5 20. If all prices were to rise at the same rate during inflation, relative prices would: A. Increase. B. Decrease. C. Remain unchanged. D. Redistribute real income throughout the economy. 21. If the prices of goods and services you typically purchase increase faster than your nominal income: A. Your real income falls. B. Your nominal income falls. C. Your real income rises. D. Your real income remains the same. 22. If everyone in the economy correctly anticipates and fully adjusts to the rate of inflation, then: A. There will be no redistribution of income between lenders and borrowers. B. Currency holders still experience losses. C. There is no certainty concerning the future price level. D. All the above. 23. Suppose the consumer price index increased from 200 in 1979 to 220 in The rate of inflation between 1979 and 1980 is: A. 120%. B. 10%. C. 20%. D. 5%. 24. Lucy earned $15,000 this year but received a 10 percent raise for next year. Her standard of living will improve next year A. Only if the price level stays the same. B. Regardless of what happens to the price level. C. Only if the price level increases by less than 10 percent. D. Only if the price level decreases by at least 10 percent.

6 25. If an index of the general price is 80, the corresponding purchasing power of $1 is: A. $0.50. B. $1.25. C. $1.50. D. $ If the price of automobiles increases by 3 percent, while the general price level increases by 6 percent, then we can predict that A. Fewer autos will be purchased because the price of autos has increased. B. The quantity of autos purchased will not be affected. C. More autos will be purchased because the relative price of autos is lower. D. The demand for autos will decrease by 3 percent. 27. If someone asked to borrow $800 from you and offered to repay the $800 plus $60 in one year from today, you would not make the loan (assuming you had the money) if you anticipated a 10% inflation rate for the next year because: A. Your anticipated real return would be only 2.5%. B. Your anticipated real return would be zero. C. Your anticipated real return would be -2.5%. D. Your anticipated real return cannot be calculated. 28. Suppose the price of a TV is $300 while the price of a college textbook is $50 in 1990; if the price of a TV is $324 and the price of a college textbook is $53 in 1991, then: A. The relative price of TV's has risen. B. The relative price of TV's has fallen. C. Inflation has occurred between 1990 and D. Deflation has occurred between 1990 and 1991.

7 29. Joe was being paid $15 an hour when the price index was 220 in If the price index was 242 in 1983 and in 1984 and Joe's wages are fully indexed, then his wages will be A. $16.50 in B. $18.98 in C. $16.50 in D. Both A and B. ANSWERS 01.-A 11.-C 21.-A 02.-C 12.-B 22.-D 03.-A 13.-B 23.-B 04.-E 14.-C 24.-C 05.-E 15.-A 25.-B 06.-D 16.-D 26.-C 07.-B 17.-D 27.-A 08.-B 18.-C 28.-C 09. E 19.-D 29.-D 10.-C 20.-C