Practice for Midterm 2

1. Between 1960 and 2000, the

a. employment-population ratio rose continually.

b. employment-population ratio generally fell.
c. unemployment-population ratio generally rose.
d. employment-population ratio generally rose.
e. None of these answers is correct.

2. Over the past 50 years or so, the

a. male employment-population ratio always risen continually.

b. female employment-population ratio generally has fallen.
c. male employment-population ratio generally has risen.
d. female employment-population ratio generally has risen.
e. None of these answers is correct.

Refer to Table 7.1 to answer the following questions.

Table 7.1: U.S. Employment Status (in thousands)
2010 2018

Civilian noninstitutionalized population 237,830 257,791

Population 309,780 327,436

Unemployed 14,808 6,306

Employed 139,077 155,764

Not in the labor force 83,945 95,721

3. Consider Table 7.1. In 2010, the unemployment rate was ________ percent.

a. 60.4
 b. 9.6
c. 15.0
d. 6.2
e. 4.8

4. Consider Table 7.1. In 2018, the unemployment rate was ________ percent.

a. 2.4
b. 1.9
c. 6.2
d. 61.5
e. 3.9

5. Consider Table 7.1. In 2010, the employment-population ratio was ________

percent.

a. 90.4
b. 140.8
c. 9.6
d. 58.5
e. 44.9

6. Consider Table 7.1. In 2018, the employment-population ratio was ________

percent.

a. 47.6
b. 60.4
c. 96.1
d. 152.7
e. 3.9

7. Consider Table 7.1. Between 2010 and 2018, the employment-population ratio
________ percent.

a. fell to 60.4
b. rose to 90.4
 c. stayed more or less the same, at about 45.0
d. fell to 3.9
e. rose to 60.4

8. Consider Table 7.1. Between 2010 and 2018, the unemployment rate ________
and the employment-population ratio ________ (when rounded to one decimal
point).

a. rose; fell
b. rose; rose
c. fell; rose
d. fell; fell
e. Not enough information is given.

9. The unemployment rate is defined as the ratio of

a. all adults not working to the total population.

b. unemployed to employed members of the labor force.
c. unemployed members of the labor force to the total labor force.
d. discouraged workers to the total population.
e. unemployed members of the labor force to the total population.

10.The labor demand curve is

a. downward sloping.
b. derived from the firm’s profit maximization problem.
c. equal to the marginal product of labor.
d. derived from the marginal product of labor.
e. All of these answers are correct.

11.The explanation for the upward-sloping labor supply curve is that

a. the marginal product of capital is positive.

b. as the wage rises, the opportunity cost of leisure rises so people work
more.
c. as the wage rises, people want to work less.
 d. the marginal product of labor is diminishing.
e. None of these answers is correct.

Refer to Figure 7.3 when answering the following questions.

Figure 7.3: Labor Market

12.In the labor market depicted in Figure 7.3, an increase in the income tax would
result in

a. a shift in labor supply from to

b. a shift in labor demand from to
c. a shift in labor demand from to
d. no change in either the labor supply or demand curve.
e. None of these answers is correct.

13.In the labor market depicted in Figure 7.3, an increase in oil prices

a. shifts labor demand from to

b. shifts labor supply from to
c. shifts labor demand from to
d. produces no change in either the labor supply or demand curve.
e. None of these answers is correct.

14.In the labor market depicted in Figure 7.3, a decrease in labor regulation shifts
labor
 a. supply from to
b. demand from to
c. demand from to
d. supply from to
e. None of these answers is correct.

15.An increase in the income taxes on wages results in

a. the labor demand curve shifting left.

b. the labor supply curve shifting left.
c. the labor supply and demand curves shifting left.
d. the labor demand curve shifting right.
e. neither the labor supply nor the labor demand curve shifting.

16.A decrease in the income tax will result in

a. the labor demand curve shifting right.

b. the labor demand curve shifting left.
c. the labor supply curve shifting left and the labor demand curve shifting
right.
d. the labor supply curve shifting right.
e. neither the labor supply curve nor the labor demand curve shifting.

17.An increase in labor regulations results in

a. the labor supply curve shifting left.

b. the labor demand curve shifting left.
c. the labor supply curve shifting left and the labor demand curve shifting
right.
d. the labor demand curve shifting right.
e. neither the labor supply curve nor the labor demand curve shifting.

18.Any institutional fixed wage set above the equilibrium wage is called

a. the market wage.

b. a minimum wage.
 c. a wage rigidity.
d. a real rigidity.
e. a wage ceiling.

19.Wage rigidity

a. helps the labor market achieve equilibrium.

b. prevents the capital market from realizing equilibrium.
c. prevents the labor market from realizing equilibrium.
d. prevents unemployment.
e. None of these answers is correct.

20.If the minimum wage is set above the equilibrium market wage, it

a. increases unemployment.
b. is effective and reduces unemployment.
c. equals the black market wage.
d. is lower than firms are willing to pay for labor.
e. does not affect the market equilibrium.

Refer to Figure 7.4 when answering the following questions.

Figure 7.4: Labor Market

21.Consider the labor market depicted in Figure 7.4. If the market wage is fixed at
it is called ________ and it ________ unemployment.
 a. a wage ceiling; does nothing to
b. a wage rigidity; increases
c. the market wage; does nothing to
d. the market wage; increases
e. a wage rigidity; decreases

22.The rise in the employment-population ratio between 1950 and 2010 largely is
due to

a. a shrinking U.S. population.

b. more teenagers entering the labor force.
c. more women entering the labor force.
d. an increase in immigrant workers.
e. It is unexplained.

23.The natural rate of unemployment is the unemployment rate that would prevail

a. during changes in the business cycle.

b. if the economy were in neither a boom nor a recession.
c. if people voluntarily left work.
d. during seasonal changes in the economy.
e. if the unemployment rate were zero.

24.Frictional unemployment is the unemployment that results from

a. workers losing jobs during recession.

b. workers losing jobs during seasonal changes.
c. workers changing jobs in a dynamic economy.
d. prevailing labor market institutions.
e. workers leaving the labor force.

25.Structural unemployment is the unemployment that results from

a. workers leaving the labor force.

b. workers changing jobs in a dynamic economy.
c. workers losing jobs during seasonal changes.
 d. workers losing jobs during recession.
e. prevailing labor market institutions.

Refer to Table 7.2 when answering the following questions.

Table 7.2
Separation Rate Finding Rate Labor Force

2010 0.3% 3.5% 153

2018 0.2% 4.3% 162

26.Consider the data in Table 7.2. According to the “bathtub model” of

unemployment, in 2010 the natural rate of unemployment was ________ percent.

a. 92.1
b. 5.7
c. 7.9
d. 29.4
e. 8.6

27.Consider the data in Table 7.2. According to the “bathtub model” of

unemployment, in 2018 the natural rate of unemployment was ________ percent.

a. 4.4
b. 95.6
c. 7.0
d. 20.0
e. 4.7

28.Consider the data in Table 7.2. In ________, the natural rate of unemployment
was the higher of the two years, at ________ percent.

a. 2010; 7.9
b. 2018; 7.9
c. 2018; 5.7
 d. 2018; 96.6
e. 2010; 19.6

29.In the “bathtub model” of unemployment, the key equation is

a.
b.
c.
d.
e.

30.One of the key reasons why the US employment-population ratio grew sharply
after 1960 was

a. the decline of manufacturing.

b. a new definition of employment.
c. women entering the labor force.
d. expanding global trade.
e. the United States abandoning the gold standard.

Refer to Table 7.3 to answer questions 90-92..

Table 7.3: Labor Market Statistics

31.Consider the data in Table 7.3 which shows the separation and hiring rates in
each of the four U.S. Census districts for the year 2018. According to the “bathtub
model” which region had the lowest long-run level of unemployment in 2018?
Which region had the highest level?

a. South; West
b. West; Midwest
c. Midwest; Northeast
d. South; Northeast
e. Northeast; South
32.The inflation rate is calculated as the

a. overall price level.

b. change of the price level.
c. percent change in the price level.
d. difference in the price level.
e. percent change in output.

33.When discussing inflation, we generally speak of it in terms of

a. the percent change in the consumer price index.

b. the percent change in the GDP deflator.
c. the level of the consumer price index.
d. one over the consumer price index.
e. the change in the producer price index.

34.In 1979, in the face of rising competition in the fast-food hamburger market,
McDonald’s reduced the price of its cheeseburger to $0.43. If the consumer price
index (CPI) in 1979 was 37.2 and the CPI in 2005 was 100, what is the price of a
1979 cheeseburger in 2005 dollars?

a. $0.77
b. $7.36
c. $1.16
d. $0.43
e. $0.14

35.The measure of money that includes demand deposits and currency only is called

a. M0.
b. MZ.
c. M2.
d. M1.
e. MB.

36.M2 includes M1 and

 a. large time deposits.
b. overnight repurchase agreements.
c. savings accounts.
d. long-term bonds.
e. gold reserves.

37.The monetary base consists of

a. reserves and currency.

b. M1 plus M2.
c. only M1.
d. gold reserves plus currency.
e. a country’s holdings of foreign and domestic currencies.

38.In dollar amounts, which of the following is the largest?

a. MB
b. M2
c. M1
d. currency
e. demand deposits

39.The velocity of money is

a. how quickly money can be printed.

b. how quickly individuals spend their incomes.
c. the average number of times a dollar is used in a transaction per year.
d. how many times individuals are paid per year.
e. None of these answers is correct.

40.In the quantity equation, the value PtYt is

a. real GDP.
b. nominal GDP.
c. aggregate expenditure.
d. the velocity of money.
 e. real money.

41.The velocity of money can be calculated from the quantity equation with

a. PtYt.
b. PtYt Mt.
c. Mt /Pt Yt.
d. PtYt /Mt.
e. Mt.

42.Using the quantity equation, if Mt = $1,000, Pt = 1.1, and Yt = 100,000, then the
velocity of money is

a. 100,000.
b. 0.09.
c. 110.
d. 9.09.
e. 0.11.

43.According to the classical dichotomy, in the long run there is

a. accelerating economic growth.

b. perfect connectivity between the nominal and real sides of the economy.
c. complete separation of the nominal and real sides of the economy.
d. no growth after the economy reaches the steady state.
e. zero inflation.

44.According to the quantity theory of money, the price level can be written as

a.
b.
c.
d.
e.
45.The essence of the quantity theory of money is that

a. the price level is indeterminate.

b. in the long run, the only determinant of the price level is the money supply.
c. in the long run, a key determinant of the price level is the money supply.
d. only the central bank knows what the price level is.
e. money cannot pin down the price level.

46.Using the quantity theory of money, we can calculate inflation using ________,
under the assumption that ________.

a. velocity is constant
b. percent change in velocity always equals one
c. velocity is constant
d. velocity is variable
e. πt = 0; velocity is constant

47.If long-run real GDP growth is determined by real changes in the economy, the
quantity theory of money implies that changes in

a. the money growth rate lead one-for-one to changes in the inflation rate in
the long run.
b. the money growth rate lead one-for-one to changes in the inflation rate, but
only in the short run.
c. velocity lead one-for-one to changes in the inflation rate.
d. the money growth rate lead to a greater than one-for-one change in the
inflation rate in the long run.
e. None of these answers is correct.

48.The real interest rate describes the

a. net return to government bonds.

b. rate of return adjusted for inflation.
c. rate of return in units of a currency.
d. return with an interest rate equal to zero.
e. rate of return in physical goods.
49.Let R denote the real interest rate and i denote the nominal interest rate; these
two interest rates are related by

a. i = π.
b. i = R - π.
c. i = R + π.
d. i = R/π.
e. None of these answers is correct.

50.Let R denote the real interest rate, i denote the nominal interest rate, and π
denote the rate of inflation. The equation i = R + π is called

a. the money supply.

b. the quantity equation.
c. the Fisher equation.
d. the quantity theory of money.
e. money neutrality.

51.If the inflation rate is larger than the nominal interest rate,

a. unemployment rises.
b. the real interest rate is zero.
c. the real interest rate is negative.
d. the real interest rate is larger than the nominal interest rate.
e. Not enough information is given.

52.When there is unanticipated inflation,

a. creditors are hurt unless they have an indexed contract, because they get
less than they expected in real terms.
b. debtors with an indexed contract are hurt, because they pay more than they
contracted for in nominal terms.
c. debtors with an unindexed contract lose, because they pay exactly what
they contracted for in nominal terms.
d. creditors with indexed contracts gain, because they receive more than they
contracted for in nominal terms.
e. debtors with an indexed contract are hurt, because they pay more than they
 contracted for in real terms.

53.According to the government’s budget constraint, if the government spends more

than it generates in taxes, it can raise revenues by

a. printing money.
b. decreasing its debt.
c. lowering interest rates.
d. privatizing.
e. increasing interest rates.

54.The revenue governments obtain from printing money is called

a. issued debt.
b. the inflation tax.
c. raised taxes.
d. government expenditures.
e. None of these answers is correct.

55.In the government budget constraint: G = T + ΔB + ΔM, ________ is borrowing

and ________ is seignorage.

a. G; T
b. ΔM; 0
c. ΔB; ΔM
d. T; ΔB
e. ΔB; T
Answer Key

midterm2

1. Answer: D

2. Answer: D

3. Answer: B

4. Answer: E

5. Answer: D

6. Answer: B

7. Answer: E

8. Answer: C

9. Answer: C

10.Answer: E

11.Answer: B

12.Answer: A

13.Answer: C

14.Answer: B

15.Answer: B

16.Answer: D

17.Answer: B

18.Answer: B

19.Answer: C

20.Answer: A
21.Answer: B

22.Answer: C

23.Answer: B

24.Answer: C

25.Answer: E

26.Answer: C

27.Answer: A

28.Answer: A

29.Answer: B

30.Answer: C

31.Answer: D

32.Answer: C

33.Answer: A

34.Answer: C

35.Answer: D

36.Answer: C

37.Answer: A

38.Answer: B

39.Answer: C

40.Answer: B

41.Answer: D

42.Answer: C
43.Answer: C

44.Answer: C

45.Answer: C

46.Answer: C

47.Answer: A

48.Answer: B

49.Answer: C

50.Answer: C

51.Answer: C

52.Answer: A

53.Answer: A

54.Answer: B

55.Answer: C