Question

1. Cyclical unemployment results from

   	a	a mismatch of skills
   	b	being in the wrong geographical location
   	c	taking the time to find the best job
   	d	seasonal decreases in demand for labor
   	e	a recession in the economy

2 ) Frictional unemployment refers to unemployment that results from

a		a mismatch of skills
b		being in the wrong geographical location
c		taking the time to find the best job
d		seasonal decreases in demand for labor
e		a recession in the economy

3 ) If the nominal interest rate is 6 percent and the inflation rate is 4 percent,

a		the real interest rate is 10 percent
b		the real interest rate is 2 percent
c		the real interest rate is -2 percent
d		the real interest rate is -10 percent
e		there is insufficient information to determine the real rate of interest

4) Which of the following is true about inflation?

a		Inflation promotes social harmony by uniting people against the government.
b		Inflation is more damaging if it is unanticipated.
c		Accurate anticipation of inflation is possible for everyone who is well informed about economic events.
d		Those who lend money at a rate above the rate of inflation suffer economic losses.
e		If people accurately anticipate inflation, their actions will prevent it.

5) Inflation

	a	always reduces real income
	b	never reduces real income
	c	reduces the real income of workers when wages increase more than prices do
	d	reduces the real income of workers when wages increase less than prices do
	e	increases the real income of workers only when wages increase less than prices do

6) The Consumer Price Index measures the cost of

	a	all goods and services produced in the U.S. economy
	b	all goods produced in the U.S. economy
	c	a fixed market basket of consumer goods and services produced in the U.S. economy
	d	a fixed market basket of producer goods and services
	e	food and energy in the U.S. economy

Answer 1

Ans 1: (E) Recession in the economy (due to business cycle fluctutions)

Ans 2:

c

taking the time to find the best job

(When individuals left one job and searching for another)

Ans 3: Real interest rate = Nominal interest rate - Inflation rate

Therefore,

b

the real interest rate is 2 percent

Ans 4:

b

Inflation is more damaging if it is unanticipated.

(if it is unanticipated, it can damage the whole economy. Take the example of hyperinflation of Germany)

Ans 5: (D) reduces the real income of workers when wages increase less than prices do

When the price level is changing more than change in income, then the real wage falls.

Ans 6

c	a fixed market basket of consumer goods and services produced in the U.S. economy

(a fixed baket of consumer goods and services is there in the CPI)