1.

Inflation refers
A. Rise in the general price level
B. When lots of people are unemployed

C. Recessionary spending
D. Negative GDP growth

2. The Unemployment Rate measures the percentage of

A. people in the labor force who do not have jobs
A. the total population who are not working
B. people who do not have jobs and have stopped looking for work
C. people in the adult population who do not have jobs
3. The business cycle depicts the
A. change in labor over time
B. evolution of technology over time
C. stages a business goes through from when it first opens to when it finally closes
D. changes in output and employment in the short-run
4. Real GDP differs from nominal GDP in that it
A. excludes imports and exports
B. measures the value of intermediate goods only
C. uses a price index to adjust for changes in the prices of goods and services
D. measures the prices of a market basket of goods
5. A 'recession' describes a situation when
A. general price levels are rapidly increasing
B. government discretionary spending is at a minimum
C. production, output, and living standards decline
D. the economy is no longer able to produce
6. Which measure of economic output has inflation in its value?
A. Nominal GDP
B. Real GDP

C. Keynesian GDP
D. Classical GDP

7. An increase in the overall level of price is known as

A. expansion.
B. growth.

C. real GDP growth.

D. inflation.

8. Fluctuations in employment and output in the short run are known as

A. economic growth.
B. business cycles.

C. factor cycles.
D. recessions.

9. The unemployment rate is a measure of

A. the change in unemployment from year-to-year.
B. the percentage of people in the labor force without jobs.
C. the percentage of people in the workforce no longer looking for work.
D. the percentage of the adult population that does not have jobs.

E.

F. To be considered unemployed, an individual who is able and willing to work is unable to find
a job. To an economist, full and part time workers are both considered employed.
G.

Selection A: Incorrect because a year-to-year change in unemployment does not

calculate the rate--just the change.

H.

Selection C: Incorrect because part-time workers are considered employed to an

economist
I.Selection D: Incorrect because individuals who are no longer looking for work are not apart
of the labor force.
J.

Selection E: Incorrect because it is too broad. Some adults are not able and willing to

work can not be counted as unemployed.

10. Production decisions in a mixed economy are made by
A. international economic planners.
B. publically traded companies.

C. markets and government.

D. a central planning committee.

E. A mixed economy is one in which both private and public parties make economic decisions.
A purely private economy would have no government regulations, putting all economic
decisions in the hands of private companies.
F. On the other hand, a purely public economy would involve the government making all
economic decisions, as in the Soviet Union under Stalin's five-year plans. A mixed economy
is thus a combination of capitalism and government regulations and describes the economic
system of the United States.
11. Cyclical unemployment could best be described as
A. unemployment arising from workers changing jobs
B. unemployment caused by new entrants to the workforce
C. unemployment caused by decreases in consumption
D. unemployment of those whose skills are not in demand

G. Cyclical unemployment occurs due to a downturn in the business cycle which is usually
precipitated by Consumption reduction but could also occur if other sectors (or a sector)
diminished such as decreased Government, Investment Spending or Net Exports.
12. A trough in the business cycle occurs when
A. seasonal unemployment is at a minimum.
B. frictional unemployment is highest.
C. employment and output reach their lowest levels.
D. The natural rate of unemployment is at a minimum.
H. The business cycles are alternating rises and declines in economic activity. The long-term
trend of business cycles is known as economic growth. A trough occurs at the bottom of the
business cycle and occurs when economic output is at the lowest point.
I.

Selection B is incorrect because frictional unemployment continuously occurs and is not

connected to the business cycle,.

13. Structural unemployment could best be described as

A. unemployment arising from workers changing jobs.
B. unemployment caused by new entrants to the workforce.
C. unemployment caused by decreases in consumption.
D. unemployment of those whose skills are not in demand.
J. Structural unemployment is essentially a mismatch of the skills and locations of workers and
the demand of the labor market. For example, the technology revolution eliminated many
jobs that relied on humans instead of computers and created new jobs in the technology
sector.
K. At the same time, it made people with skills that became obsolete part of the structural
unemployment figure. Similarly, if factory workers in a certain city have their jobs moved
overseas, they too face structural unemployment.
14. The basic economic problem is the existence of

A. private companies and government.

B. monopolies and unions.

C. unemployment and inflation.

D. limitless wants with limited resources.

E. All of economics is focused around this concept of Scarcity. Every society must deal with the
problem of managing scarcity, or determining what to produce in a world with seemingly
unlimited wants with limited resources. Communist and socialist without private sectors rely
on the government to determine what and who much is produced.
15. The business cycle depicts the
A. changes in general price levels
B. change in labor over time
C. evolution of technology over time
D. changes in output and employment in the short-run
F. The business cycle depicts the short term changes in output over time. On the graph, the yy-axis represents total output and the x-axis represents time. An expansion occurs when
output is increasing and a recessions occurs when output is decreasing. Selection A is
incorrect because changes in the business cycle are caused by changes in output, not
changes in prices. Selection B is incorrect because a change in labor is unknown based on
the variables given in the cycle (output and time) Selection C is incorrect because the
change in technology can not be measures solely from a change in output. Selection D is
incorrect because the business cycle is an aggregate model, not a micro model for individual
businesses.
16. Real GDP differs from nominal GDP in that it
A. excludes transfer payments made by the government
B. measures the value of intermediate goods only
C. uses a price index to adjust for changes in the prices of goods and services
D. measures the prices of a market basket of goods
G. Nominal GDP is calculated by multiplying the current price and output (P x Q). Real GDP is
the gross domestic product adjusted for price. Essentially, real GDP is calculated by
multiplying the output for a specific year by a base year price.
17. A 'recession' describes a situation when
A. general price levels are rapidly increasing
B. government discretionary spending is at a minimum
C. production, output, and living standards decline
D. the economy is no longer able to produce

H. The business cycles are alternating rises and declines in economic activity. The long-term
trend of business cycles is known as economic growth. The rise and decline of economic
activity will impact employment and output. When an economy is recessing, businesses are
producing less and output is decreasing. Since the economy has less output, employment is
also decreasing. The opposite will occur when an economy begins to expand.
18. When calculating GDP, economists can avoid multiple counting by
A. counting intermediate and final goods
B. including transfer payments

C. only counting final goods

D. only counting intermediate goods

E. Gross domestic product is the dollar value of all final goods and services produced
domestically during a specific period of time. Therefore, GDP can be over state if it counts
the same good multiple times. The goal of national income accountants is to avoid multiple
accounting by only counting final goods used for consumption. Value is added throughout the
manufacturing process when a final good is made. The final good will reflect the cost to turn
a raw good (i.e. tree) into a final product (i.e. desk).
19. Which of the following would be included in the calculation of GDP?
A. Unemployment benefits
B. total value of business inventories
C. personal consumption of durable goods
D. purchase of a used car at an auction
20. Which of the two methods listed are the two ways of calculating GDP?
A. Output and Input
B. Output and Income

C. Income and Inventory

D. Inventory and Government Costs

E. To calculate the value of the economy economists calculate what is produced (output) or
what is earned in the production of output (income).
21. Suppose GDP is $100 million, if personal consumption is $80 million, gross private domestic
investment is $15 million, and the government spending is $10 million, then net exports must
total
A. $-15 million
B. $-5 million

C. $5 million
D. $15 million

22. Which of the following items would be classified as a durable good in the Consumption
category?
A. Home refrigerator
B. Groceries purchased for the family
C. Teeth Cleaning by a dentist
D. Legal work to make a will for a new mom and dad
E. New drill for a construction business run out of the garage of a typical homeowner
23. Goods are physical objects that can be held. Services are activities performed but not able to
be physically held. Therefore, legal and dental work are services. A new drill for a business is
investment not consumption. Groceries will not last and are classified as nondurable goods
whereas a refrigerator for the home will. Goods are classified as durable if they are expected
to last more than three years.
24. National Income Accounting measures
A. An economy's net exports
B. An economy's unemployment costs
C. Inflation and its effect on savings
D. Overall economic performance
E. Available resources not yet used in an economy
25. National income accounting calculates the actual value of the economy by measuring its
main components and factoring for things like inflation, unemployment and transfer
payments (to avoid double counting).
26. Which of the following is a major component of the Income Approach to GDP?
A. Consumption
B. Investment
C. Government
D. Interest
E. Net Exports
27. Interest is the payment for the use of money. When people earn interest on their savings or
investments it is income and therefore counted on the income ledger along with Wages,
Rents, Profits and some small statistical adjustments to arrive at GDP.
28. What is the biggest expenditures component in the US economy?
A. Income
B. Net Exports
C. Transfer Payments
D. Consumption
E. Investment
29. Which of the following are included in the calculation of GDP?

30.
31. I. Welfare payments
32. II. Haircut from a Salon
33. III. Purchase of a used home
A. I only
B. II only
C. III only
D. I and II
E. II and III
34. An economist would interpret an investment as a situation where
A. people buy shares of corporate stocks
B. families buy government bonds for relatives
C. money is saved in a bank account
D. financial assets are purchased to earn a profit
E. resources are devoted to increase future output
35. One of the key concepts in macroeconomics is to create efficiency while using scarce
resources. One way to achieve this is by utilizing resources in a way to increase future
output. This is known to economist as investment. Typically, businesses invest by purchasing
more machines, higher more labor, or build a new factory. All of these are seen as
investments because it will likely increase the business's future output. Financial assets,
such as stocks or bonds, are not investments because alone, these transactions are not
productive. They are simply pieces of paper.
36. If the quantity of goods produced remained unchanged, but prices of all goods rose, what would
happen to nominal and real GDP?
A. Nominal GDP would rise, but real GDP would remain unchanged
B. Nominal GDP would rise, but real GDP would fall
C. Nominal GDP would fall, but real GDP would rise
D. Nominal and real GDP would both fall
E. Nominal and real GDP would both rise
37. Nominal GDP is calculated by multiplying the current price and output (P x Q). Real GDP is
the gross domestic product adjusted for price. Essentially, real GDP is calculated by
multiplying the output for a specific year by a base year price. Even though prices in year two
increase, the gap adjusted for the change in price remains unchanged.
38. Besides only counting final goods and services to determine GDP, one could also use a
A. Tax Approach
B. Subsidies Approach
C. Transfer Payment Approach
D. Value Added Approach

E. Secondhand Sales Approach

39. Value added refers to counting only the additional value added at each step of production.
For example, consider a desk being produced. If one counted only the value added when the
tree was cut down, then the value added when it was turned into lumber, then the value
added when it was cut into usable pieces and assembled, then double counting is avoided.
This approach is becoming popular among European Governments who are using value
added taxes to raise revenue indirectly rather than at point of sale.
40. When calculating 2013 GDP, an economist would NOT count
A. The sale of a desk made on January 1, 2013
B. Purchase of stock in a corporation
C. Grandma's purchase of a 2013 car when purchased with Social Security Income
D. Pay earned as a cashier at a restaurant by a college student in June of 2013 while not in school
E. Income a doctor earned for seeing two patients at once and being paid by each patient for
services rendered.
41. Disposable Income
A. Income earned by hourly employees
B. Money destroyed because it is too old and worn out
C. Money left over after taxes have been paid
D. Money that goes for necessities
E. Money used to buy non-durable goods and services
42. Inflation
A. Rise in the general price level
B. When lots of people are unemployed
C. Recessionary spending
D. Fiscal policy measures aimed at cooling off an overheated economy
E. Negative GDP growth
43. Which measure of economic output has inflation in its value?
A. Nominal GDP
B. Real GDP
C. Keynesian GDP
D. Classical GDP
E. Price Level GDP
44. Which of the following is a method of calculating inflation?
A. Deficit Factor
B. Consumer Price Index
C. GDP Inflator
D. Circular Flow
E. Antwerp Constant
45. In a price index approach the value of goods and services in the base year will result in a price

index number of:

A. 0

B. 1
C. 10
D. 100
E.
46. Which of the following formulas best defines the formula used to calculate a Price Index
number?
A. Price of market basket year divided by highest marginal tax rate
B. Price of market basket in a speicific year divided by the price of same market basket in base year
times 100
C. Price of market basket divided by price of most expensive good from the basket *100
D. Price of basket in base year divided by price of basket in a specific year times 100
E. Price index for specific year divided by 100

47. Real GDP equals:

A. Nominal GDP divided by GNP (stated in hundredths)
B. Nominal GDP divided by price index (stated in hundredths)
C. Price index (stated in hundredths) divided by Nominal GDP
D. Price index divided by Nominal GDP
E. GDP-CPI times 10
48. Why is inflation important to consider before comparing one year of production within a country
to a different year of production?
A. Politicians set inflation numbers to influence the economy. Taking inflation out ensures a better
B.
C.
D.
E.

comparison of what really happened

Nominal GDP will be much lower if it contains inflated numbers
Real GDP will be identical to Nominal GDP if you don't
If inflation is included when comparing data it may overstate actual production that occurred.
Factoring inflation allows one to calculate deficit spending which will be useful for Fiscal Policy
decisions

49. If inflation is not accounted for then the numbers being considered are not "apples to
apples". One wants to know that the GDP value being considered relative to another GDP
value means the same thing. Just because the price paid for items goes up and GDP
numbers are higher does not mean output increases occurred. Factoring out inflation allows
one to see if output is actually rising or falling.
50. If Nominal GDP were $16 Trillion and Real GDP $12 Trillion then:
A. Deflation has occurred
B. CPI for that year fell
C. The economy is in expansion
D. CPI is 133
E. Real GDP is growing faster than nominal GDP
51. What government agency compiles and reports CPI data in the United States?
A. Federal Reserve

B.
C.
D.
E.

U.S. Treasury
Dow Jones
Bureau of Labor Statistics
Office of Management and Budget

52. If Real GDP is 110 and nominal GDP 100 then

A. Deflation must have occurred
B. Inflation must have occurred
C. AD intersects LRAS in the Classical Range
D. Keynesian economics is false
E. The FED probably increased the Reserve Requirement
53. If a bank wants a real interest rate return of 5% on loans made but it is charging 8% then
A. The bank expects deflationary periods
B. The bank expects inflation
C. The bank will lose business because it is overcharging
D. The FED should lower the Discount Rate
E. Operating costs for the bank are too high.
54. When inflation rises faster than expected
55.
56. I. People who borrowed at fixed rates lose
57. II. Banks will profit more than expected
58. III People on fixed incomes suffer

59.

60.

61.

62.

A. I Only
B. II Only
C. III Only
D. I and II
E. II and III
If someone is not working and does not want to be working, then they are
A. Unemployed
B. Not part of the labor force
C. Non-civilian labor
D. Retired
E. Seasonal Employees
Full employment occurs when
A. 100% of the people who want a job have a job
B. 90% or more of the people who want a job have a job
C. The peak is reached in a business cycle
D. The only unemployment is Structural and Frictional
E. The only unemployment is Frictional Unemployment
Total number of people unemployed and employed:
A. Civilian Rate
B. Fiscal Breakdown
C. Labor Force
D. Autonomous Consumption
E. Union
Which of the following individuals is not classified as unemployed?

A.
B.
C.
D.
E.

John just graduated from college and is actively searching for a job
Bill retired from work last month and has not found a new job.
Julie, a holiday events coordinator, lost her job during the slow season.
Due to the recession, George was laid off as an assembly line worker
icardo lost his job when his company moved to a different country.

63. The unemployment rate measures the percent of individuals in the labor force unemployed
at a given time. Economist define the labor force as anyone over the age of 16 not in
institutions--schools, jail, etc.--and are either working or actively looking for a job. A person
who is unemployed, but not actively looking for a job or has not worked within the past year
is considered a discouraged worker and considered unemployed. In this question, since Bill
has retired, he is not long willing to work and is not part of the labor force or considered
unemployed.
64. What type of unemployment is created by a recession?
A. Structural
B. Cyclical
C. Frictional
D. Seasonal
E. Natural
65. A recession occurs when output and production is declining in an economy. Businesses
produce less and households consume less. As a result, businesses need to reduce the cost
of production and lay off workers. This type of unemployment, caused by the business cycle
and a decrease in aggregate demand is known as cyclical unemployment.
66. Selection A is incorrect because structural unemployment is cause when a particular skill or
job is no longer needed in an economy.
67. Selection C is incorrect because frictional unemployment is causes by workers voluntarily
leaving a job.
68. Selection D is incorrect because seasonal unemployment is caused by the changing
spending holidays throughout the course of a year.
69. Selection E is incorrect because the natural rate of unemployment occurs when the actual
GDP is equal to the potential GDP. This scenario is not occurring during a recession.
70. The natural rate of unemployment includes
A. Frictional unemployment only
B. Structural Unemployment Only
C. Seasonal unemployment only
D. Only options A and B
E. Only options A and C

71. The natural rate of unemployment refers to an unemployment rate when the actual GDP, or
actual output, is equal to what the economy could potentially achieve. When the
unemployment rate equals the natural rate, this economy is not experiencing and cyclical or
structural unemployment. This is also considered the full employment level of production.
72. All of the following are counted in Unemployment statistics as unemployed workers EXCEPT
A. Anybody laid off due to corporate takeover and downsizing
B. Anybody laid off due to a slow-down in business/sales.
C. Any worker who lost a job due to technology advances
D. Retiree
E. Construction workers unable to work for extended periods in the North due to winter weather
73. Fiscal Policy refers to
A. Taxing and spending policy
B. Federal Reserve Operations
C. Treasury activities
D. U.S. Congressional and executive responses to foreign investment
E. Money invested in Education

74.