Which of the following is not a question addressed by macroeconomists?

Why is average income high in some nations but low in others?

What, if anything, can the government do to promote growth in incomes, low inflation, and stable employment?
What is the impact of foreign competition on VN auto industry?
Why do production and employment expand in some years and contract in others?

Which of the following statistics is usually regarded as the best single measure of a societ
y’s economic wellbeing?
the unemployment rate
the inflation rate
gross domestic product
the trade deficit

For an economy as a whole,

the market value of production must equal expenditure.
investment must equal the value of stocks and bonds purchased.
wages must equal income.
consumption must equal saving

Which of the following statements about GDP is correct?

GDP measures two things at once: the total income of everyone in the economy and the total expenditure on
the economy’s output of goods and services.

Money continuously flows from households to firms and then back to households, and GDP measures this flow of m
oney.

GDP is generally regarded as the best single measure of a society’s economic wellbeing.

All of the above are correct.

For an economy as a whole, income must equal expenditure because

the number of firms is equal to the number of households in an economy.

individuals can only spend what they earn each period.

every dollar of spending by some buyer is a dollar of income for some seller.

every dollar of saving by some consumer is a dollar of spending by some other consumer.

6.

If an economy’s GDP rises, then it must be the case that the economy’s

income rises and saving falls.

income and saving both rise.

income rises and expenditure falls.

income and expenditure both rise.

7. In the actual economy, households

spend all of their income.

divide their income among spending, taxes, and saving.

buy all goods and services produced in the economy.

Both (a) and (c) are correct.

8 According to the circular-flow diagram GDP

can be computed as either the revenue firms receive from the sales of goods and services or the payments they make
to factors of production.

can be computed as the revenue firms receive from the sales of goods and services but not as the payments they mak
e to factors of production.

can be computed as payments firms make to factors of production but not as revenues they receive from the sales of
goods and services.

cannot be computed as either the revenue firms receive or the payments they make to factors of production.
9.

Which of the following is a way to compute GDP?

total income earned.

total expenditures on final goods.

add up the market values of all final goods and services.

All of the above are correct.

10. Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes two
sweaters, each of which has a market price of $40. Collette buys one of them, while the
other remains on the shelf of Barnaby’s store to be sold later. What is GDP here?

$40

$60

$80

$100

20. If an economy’s GDP falls, then it must be the case that the economy’s

income and saving fall.

income and market value of all production both fall.

income falls and market value of all production rises.

income rises and market value of all production falls.

19. Which of the following transactions would be counted in GDP?

The wage you receive from babysitting your neighbor’s kids

The sale of illegal drugs

The resale of a sweater you received from your great aunt at Christmas that you never wore on eBay

The sale of a pound of tomatoes at a supermarket

18. The country of Hykania does not trade with any other country. Its GDP is $20 billion.
Its government purchases $3 billion worth of goods and services each year, collects $3
billion in taxes, and provides $2 billion in transfer payments to households. Private
saving in Hyrkania is $4 billion. What is investment in Hyrkania?

$2 billion

$4 billion

$3 billion

There is not enough information to answer the question.

17. GDP is $10 million, consumer spending is $6 million, government spending is $3

million, exports are $2 million, and imports are $3 million. How much is spent for
investments?

$1 million

$2 million

$3 million

$4 million

16. Suppose that twenty five years ago a country had nominal GDP of $1,000,
a GDP deflator of 200, and a population of 100.
Today it has nominal GDP of $3,000, a GDP deflator of 400, and population of 150.
What happened to the real GDP per person?
It more than doubled.

It increased, but it less than doubled.

It was unchanged.
It decreased.

15. GDP does not reflect

the value of leisure.

the value of goods and services produced at home.

the quality of the environment.

All of the above are correct.

14. A recession has traditionally been defined as a period during which

nominal GDP declines for two consecutive quarters.

nominal GDP declines for four consecutive quarters.

real GDP declines for two consecutive quarters.

real GDP declines for four consecutive quarters.

13. If all quantities produced rise by 10 percent and all prices fall by 10 percent, which of
the following occurs?

Real GDP rises by 10 percent, while nominal GDP falls by 10 percent.

Real GDP rises by 10 percent, while nominal GDP is unchanged.

Real GDP is unchanged, while nominal GDP rises by 10 percent.

Real GDP is unchanged, while nominal GDP falls by 10 percent.

12

A country produces only ice cream and pie. Quantities and prices of these goods for the l
ast several years are shown below. The base year is 2008.
Year Price of Ice Quantity of Ice Price of Pie Quantity of
 Cream Cream
Pie
2008 $2.50 40 $5.00 20
2009 $3.00 50 $6.00 25
2010 $4.00 40 $6.00 30

In 2009, this country’s

real GDP was $250, and the GDP deflator was 125.

real GDP was $250, and the GDP deflator was 120.

real GDP was $240, and the GDP deflator was 125.

real GDP was $240, and the GDP deflator was 120.

11. If all quantities produced rise by 10 percent and all prices fall by 10 percent, which of
the following occurs?

Real GDP rises by 10 percent, while nominal GDP falls by 10 percent.

Real GDP rises by 10 percent, while nominal GDP is unchanged.
Real GDP is unchanged, while nominal GDP rises by 10 percent.
Real GDP is unchanged, while nominal GDP falls by 10 percent.
Test 2 - Chapter 24 Measuring the Cost of Living
1. The consumer price index is used to
convert nominal GDP into real GDP.
turn dollar figures into meaningful measures of purchasing power.
characterize the types of goods and services that consumers purchase.
measure the quantity of goods and services that the economy produces.

2. Economists use the term inflation to describe a situation in which

some prices are rising faster than others.
the economy's overall price level is rising.
the economy's overall price level is high, but not necessarily rising.
the economy's overall output of goods and services is rising faster than the economy's overall price l
evel.

3. The inflation rate is defined as the

price level in an economy.
change in the price level from one period to the next.
percentage change in the price level from the previous period.
price level minus the price level from the previous period.

4. The inflation rate you are likely to hear on the nightly news is calculate
d from
the GDP deflator.
the CPI.
the VN-INDEX
the unemployment rate.

5. The CPI is more commonly used as a gauge of inflation than the GDP d
eflator is because
the CPI is easier to measure.
the CPI is calculated more often than the GDP deflator is.
the CPI better reflects the goods and services bought by consumers.
the GDP deflator cannot be used to gauge inflation.
 6. The CPI is a measure of the overall cost of the goods and services
bought by

a typical consumer, and the CPI is computed and reported by the Ministry of Industry and Trade.
typical consumers and typical business firms, and the CPI is computed and reported by the Ministry
of Industry and Trade.
a typical consumer, and the CPI is computed and reported by the General Statistics Office.
typical consumers and typical business firms, and the CPI is computed and reported by the General
Statistics Office.

7. The CPI is calculated

weekly.
monthly.
quarterly.
yearly.

8. The steps involved in calculating the consumer price index and the infla
tion rate, in order, are as follows:
Choose a base year, update the basket, find the prices, estimate the basket’s cost, compute the inde
x, and compute the inflation rate.
Choose a base year, fix the basket, find the prices, compute the inflation rate, compute the basket's
cost, and compute the index.
Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the
index, and compute the inflation rate.
Fix the basket, find the prices, compute the inflation rate, compute the basket’s cost, and choose a b
ase year and compute the index.

9. When computing the cost of the basket of goods and services purchase
d by a typical consumer, which of the following changes from year to y
ear?
the quantities of the goods and services purchased
the prices of the goods and services
the goods and services making up the basket
All of the above are correct.

10. In computing the consumer price index, a base year is chosen. W

hich of the following statements about the base year is correct?
The base year is always the first year among the years for which computations are being made.
It is necessary to designate a base year only in the simplest case of two goods; in more realistic case
s, it is not necessary to designate a base year.
The value of the consumer price index is always 100 in the base year.
The base year is always the year in which the cost of the basket was highest among the years for whi
ch computations are being made.
Chapter 28:

1. Cyclical unemployment

has a different explanation than does the natural rate of unemployment.

refers to the year-to-year fluctuation in unemployment around an economy’s natural rate of unempl
oyment.

is closely associated with short-run ups and downs of economic activity.

All of the above are correct.

2. Unemployment that results because it takes time for workers to search

for the jobs that best suit their tastes and skills is called

the natural rate of unemployment.

cyclical unemployment.

structural unemployment.

frictional unemployment.

3. Quang was laid off two months ago. He has not searched for other wor
k because he is expecting to be recalled to work. The General
Statistic Office of Vietnam counts Quang as

unemployed and in the labor force.

unemployed and not in the labor force.

employed and in the labor force.

not in the labor force.

4. Trang is a fulltime college student who is not working or looking for a j

ob. The General Statistic Office of Vietnam counts Trang as

unemployed and in the labor force.

unemployed but not in the labor force.

in the labor force but not unemployed.

neither in the labor force nor unemployed.

5. Lan just lost her job, and she has not yet started looking for a new one.
The General Statistic Office of Vietnam counts Lan as

unemployed and in the labor force.

unemployed but not in the labor force.

in the labor force but not unemployed.

neither in the labor force nor unemployed.

6. Total population: 2000, total employed adults: 950, total unemployed

adults: 50. What is the unemployment rate?

5 percent

2.5 percent

5.5 percent

Unknown, as we do not know the number of discouraged workers

7. Hung loses his job and immediately begins looking for another. Other t
hings the same, the unemployment rate
increases, and the labor-force participation rate decreases.

and the labor-force participation rate both increase.

increases, and the labor-force participation rate is unaffected.

is unaffected, and the labor-force participation rate decreases.

8. If an unemployed person quits looking for work, then, eventually the u

nemployment rate

decreases, and the labor-force participation rate is unaffected.

and the labor-force participation rate both decrease.

is unaffected, and the labor-force participation rate decreases.

and the labor-force participation rate are both unaffected.

9. The deviation of unemployment from its natural rate is called

the economic rate of unemployment.

cyclical unemployment.

frictional unemployment.

structural unemployment.

10. In the long run the unemployment rate equals

zero.

the cyclical rate of unemployment.

the natural rate of unemployment.

the sum of the cyclical and natural rate of unemployment.

11. Which of the following is not an explanation for the existence of s

tructural unemployment?

efficiency wages

job search

minimum-wage laws

unions

12. Cyclical unemployment refers to

the portion of unemployment created by job search.

short-run fluctuations around the natural rate of unemployment.

changes in unemployment due to changes in the natural rate of unemployment.

the portion of unemployment created by wages set above the equilibrium level.

13. A person who is counted as “unemployed” by the General

Statistic Office of Vietnam

is also in the labor force.

must have recently looked for work or be on temporary layoff.

must be at least 15 years old.

All of the above are correct.

14. People who are unemployed because wages are, for some reaso
n, set above the level that brings labor supply and demand into equilib
rium are best classified as
cyclically unemployed.

structurally unemployed.

frictionally unemployed.

discouraged workers.

15. The amount of unemployment that an economy normally experi

ences is called the

average rate of unemployment.

natural rate of unemployment.

cyclical rate of unemployment.

typical rate of unemployment.

16. The General Statistic Office of

Vietnam places people in the “employed” category if they

are temporarily absent from their jobs.

are self-employed.

work without pay in a family member’s business.

All of the above are correct.

17. The population of Ectenia is 100 people: 40 work full time, 20

work half-time but would prefer to work full time, 10 are looking for a
job, 10 would like to work but are so discouraged they have given up
looking, 10 are not interested in working because they are full time
students, and 10 are retired. What is the number of unemployed?
10
20

30

40

18. Suppose there are a large number of men who used to work or s
eek work who now no longer do either. Other things the same, this ma
kes

the number of people unemployed rise but does not change the labor force.

the number of people unemployed rise but makes the labor force fall.

both the number of people unemployed and the labor force fall.

the number of people unemployed fall but does not change the labor force.

19. The labor-force participation rate measures the percentage of th

e

total adult population that is in the labor force.

total adult population that is employed.

labor force that is employed.

labor force that is either employed or unemployed.

20. Nancy is searching for a job that suits her tastes about where to
live and the people she works with. Laura is looking for a job that
makes best use of her skills.

Nancy and Laura are both structurally unemployed.

Nancy is frictionally unemployed, and Laura is structurally unemployed.

Nancy is structurally unemployed, and Laura is frictionally unemployed.

Nancy and Laura are both frictionally unemployed.