Macroeconomics 1

Chapter 5—Macroeconomic Measurements, Part I: Prices and Unemployment
MULTIPLE CHOICE
1. The CPI was 140 in one year and 146 the following year. Approximately how much did prices rise
between the two years?
a. 4.29 percent
b. 4.11 percent
c. 6 percent
d. 0.04 percent
ANS: A PTS: 1 DIF: Moderate NAT: Analytic
LOC: Unemployment and inflation NOT: NEW
2. If the CPI is 100 in the base year and 140 in the current year, how much did prices rise between these
two years?
a. 40 percent
b. 140 percent
c. 1.40 percent
d. 0.14 percent
3. Suppose the market basket consists of 10X, 20Y, and 30Z. Current-year prices are $1.20 for each unit
of X, $0.96 for each unit of Y, and $1.30 for each unit of Z. Base-year prices are $1.00 for each unit of
X, Y, and Z. What is the approximate CPI in the current year?
a. 17
b. 70.20
c. 117
d. 270
ANS: C PTS: 1 DIF: Difficult NAT: Analytic
4. One measure of the inflation rate is the

a. sum of the CPIs of adjacent years.
b. percentage change in the CPI of adjacent years.
c. percentage change in the Real GDP of adjacent years.
d. GDP minus the Real GDP in a year.
ANS: B PTS: 1 DIF: Easy NAT: Analytic
LOC: Unemployment and inflation
5. Suppose there are five goods in the economy, A-E. The current-year quantity of each is 10A, 20B,
30C, 40D, and 50E. Current-year prices are $1 for each unit of A, $2 for each unit of B, $3 for each
unit of C, $4 for each unit of D, and $5 for each unit of E. Base-year prices are $1 for each good. Real
GDP in the current year equals __________.
a. $100
b. $130
c. $150
d. $180
e. $550
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6. In year 1 the CPI is 130.1, and in year 2 the CPI is 150. From year 1 to year 2, Martha's salary rises
from $32,000 to $38,000, and Chiang's salary rises from $43,000 to $48,000. Who is "more than
keeping up with inflation"?
a. Martha
b. Chiang
c. both Martha and Chiang
d. neither Martha nor Chiang
ANS: A PTS: 1 DIF: Difficult NAT: Analytic
7. In year 1 the CPI is 144.1, and in year 2 the CPI is 151. If Sarah's salary was $29,800 in year 1, what
salary in year 2 would cause her to exactly "keep up with inflation"?
a. $44,998
b. $42,942
c. $40,508
d. $31,227
ANS: D PTS: 1 DIF: Difficult NAT: Analytic
8. In year 1 the CPI is 141, and in year 2 the CPI is 150. If Dennis's salary was $75,000 in year 1, what is
the minimum salary he must earn in year 2 to "more than keep up with inflation"?
a. $112,500
b. $79,788
c. $105,750
d. $80,247
ANS: B PTS: 1 DIF: Difficult NAT: Analytic
9. Suppose that 1982 is the base year for the Consumer Price Index (CPI) and in 2008 the CPI is 450.
What does this "450" mean?
a. What cost $100 in 1982 will on average cost 450 times as much in 2008.
b. What cost $100 in 1982 will on average cost $450 more in 2008.
c. What cost $100 in 1982 will on average cost 100/450 (or 0.22) times as much in 2008
(that is, it will cost $22 in 2008).
d. What cost $100 in 1982 will on average cost $350 more in 2008.
a. What cost $100 in 1982 will on average cost 4.50 times as much in 2008.
b. What cost $100 in 1982 will on average cost $450 more in 2008.
c. What cost $100 in 1982 will on average cost 0.45 times as much in 2008 (that is, it will
cost $45 in 2008).
d. What cost $100 in 1982 will on average cost $4.50 more in 2008.
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a. What cost $100 in 1982 will on average cost 320 times as much in 2007.
b. What cost $100 in 1982 will on average cost $320 in 2007.
c. What cost $100 in 1982 will on average cost 0.32 times as much in 2007 (that is, it will
cost $32 in 2007).
d. What cost $100 in 1982 will on average cost $32 more in 2007.
12. According to the text, the top grossing movie in the US for all time, in today's dollars, is
a. Star Wars
b. Titanic
c. Shrek 2
d. Gone With the Wind
e. Snow White and the Seven Dwarfs
ANS: D PTS: 1 DIF: Moderate NAT: Analytic
LOC: Unemployment and inflation MSC: Economics 24/7
13. According to the text, the top grossing movie in the US for all time in terms of domestic gross receipts
as of April 2007 was ______________________, while the movie with the highest receipts in today's
dollars is
a. Star Wars; Titanic.
b. Titanic; Star Wars.
c. Star Wars; Gone with the Wind.
d. Titanic; Gone With the Wind.
e. Titanic; Snow White and the Seven Dwarfs.
NOT: NEW
14. The base year is the year

a. in which prices are unstable.
b. in which prices are lowest.
c. in which prices are highest.
d. that serves as a reference point or benchmark.
e. in which nominal output is largest.
ANS: D PTS: 1 DIF: Easy NAT: Analytic
Exhibit 5-1
CPI
Year (1982=100)
2000 199.3
2001 200.6
2002 204.5
2003 209.6
2004 216.7
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15. Refer to Exhibit 5-1. Prices rose by __________ percent from 2001 to 2002.
a. 1.91
b. 0.17
c. 2.05
d. 1.94
e. 3.90
a. 3.39
b. 0.039
c. 3.28
d. 7.10
e. 4.10
a. 8.03
b. 8.73
c. 17.40
d. 21.03
ANS: B PTS: 1 DIF: Moderate NAT: Analytic
a. 6.00
b. 0.45
c. 4.29
d. 4.49
19. The civilian non-institutional population consists of everyone in the population who is
a. at least 16 years of age, in the armed forces, or institutionalized.
b. at least 16 years of age.
c. not in the armed forces.
d. not institutionalized.
e. b, c, and d
ANS: E PTS: 1 DIF: Easy NAT: Analytic
20. The civilian non-institutional population can be broken down into two groups:
a. employed persons and unemployed persons.
b. persons working and persons not working.
c. persons working in service jobs and persons working in manufacturing jobs.
d. persons not in the labor force and persons in the labor force.
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21. Persons who are retired or engaged in own-home housework are considered to be in which of the
following categories?
a. in the civilian labor force
b. not in the labor force
c. employed
d. unemployed
22. A person in the civilian labor force falls into one of two categories:
a. a person who works in a service industry or a person who works in a manufacturing
industry.
b. unemployed or employed.
c. disemployed or unemployed.
d. a self-employed worker or a non-self-employed worker.
23. If a person did at least one hour of work as a paid employee during the survey week, how is she
classified?
a. as an employed person
b. as not in the labor force
c. as an unemployed person
d. none of the above
ANS: A PTS: 1 DIF: Easy NAT: Analytic
24. If a person worked at least 15 hours per week as an "unpaid" worker on a family farm, how is she
classified?
a. as not in the labor force
b. as an unemployed person
c. as an employed person
ANS: C PTS: 1 DIF: Easy NAT: Analytic
25. If a person is waiting to be called back to a job from which she has been laid off, how is she classified?
a. as not in the labor force
b. as an unemployed person
c. as an employed person
26. In order to be classified as unemployed, a person must

a. not have a job, have been actively looking for work within the past four weeks, and
currently be available for work.
b. not have a job, and currently be available for work.
c. actively have looked for work within the past six weeks.
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d. not have a job.
27. The unemployment rate equals the

a. number of employed persons divided by the number of unemployed persons.
b. number of unemployed persons divided by the civilian non-institutional population.
c. number of unemployed persons divided by the civilian labor force.
d. sum of unemployed persons and discouraged workers divided by the civilian labor force.
28. The employment rate equals the number of

a. employed persons divided by the number of unemployed persons.
b. unemployed persons divided by the civilian non-institutional population.
c. employed persons divided by the civilian labor force.
d. employed persons divided by the civilian non-institutional population.
e. none of the above
29. Suppose the civilian non-institutional population equals 150,000; there are 72,500 employed persons
and 10,000 unemployed persons. How many people are not in the labor force?
a. 10,000
b. 77,500
c. 63,500
d. 67,500
30. Suppose the civilian non-institutional population equals 100,000; the civilian labor force equals
75,000; there are 70,000 employed persons and 5,000 unemployed persons. If 5,000 persons who are
currently "not in the labor force" decide to join the civilian labor force, and 3,000 are unemployed,
then
a. both the unemployment and the employment rate rise.
b. both the unemployment and the employment rate fall.
c. the unemployment rate rises and the employment rate falls.
d. the unemployment rate falls and the employment rate rises.
31. A person is unemployed if he

a. is a member of the civilian labor force, out of work, and actively seeking work.
b. is 15 years old and seeking his first job.
c. is out of work, available for work, but not actively seeking work.
d. all of the above
Exhibit 5-2
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Civilian Civilian Employed
Noninstitutional Labor Force Persons
Year Population (millions) (millions) (millions)
1 250 200 175
2 400 300 200
3 500 400 350
4 1000 800 720
32. Refer to Exhibit 5-2. How many people are not in the labor force in year 1?
a. 25 million
b. 50 million
c. 75 million
d. 175 million
e. 200 million
33. Refer to Exhibit 5-2. How many unemployed persons are there in year 1?
a. 25 million
b. 50 million
c. 75 million
d. 175 million
e. 200 million
34. Refer to Exhibit 5-2. The unemployment rate in year 1 is

a. 12 1/2 percent.
b. 70 percent.
c. 87 1/2 percent.
d. 30 percent.
e. 10 percent.
35. Refer to Exhibit 5-2. The labor force participation rate in year 1 is
a. 12 1/2 percent.
b. 80 percent.
c. 87 1/2 percent.
d. 70 percent.
e. 10 percent.
36. Refer to Exhibit 5-2. The employment rate in year 1 is

a. 12 1/2 percent.
b. 70 percent.
c. 87 1/2 percent.
d. 30 percent.
e. 10 percent.
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37. Refer to Exhibit 5-2. How many people are unemployed in year 2?
a. 200 million
b. 50 million
c. 75 million
d. 175 million
e. 100 million
a. 200 million
b. 50 million
c. 75 million
d. 175 million
e. 100 million

a. 12 1/2 percent.
b. 75 percent.
c. 87 1/2 percent.
d. 30 percent.
e. 50 percent.
ANS: E PTS: 1 DIF: Moderate NAT: Analytic

a. 75 percent.
b. 33 1/3 percent.
c. 50 percent.
d. 66 2/3 percent.
e. 25 percent.

a. 12.1/2 percent.
b. 33 1/3 percent.
c. 50 percent.
d. 66 2/3 percent.
e. 25 percent.

a. 12 1/2 percent.
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b. 33 1/3 percent.
c. 70 percent.
d. 66 2/3 percent.
e. 25 percent.
ANS: C PTS: 1 DIF: Moderate NAT: Analytic
a. 50 million
b. 100 million
c. 150 million
d. 350 million
e. 400 million
a. 50 million
b. 100 million
c. 150 million
d. 350 million
e. 400 million
a. 80 million
b. 100 million
c. 150 million
d. 350 million
e. 400 million
a. 80 million
b. 100 million
c. 150 million
d. 350 million
e. 200 million
a. 12 1/2 percent.
b. 70 percent.
c. 80 percent.
d. 30 percent.
e. 50 percent.
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a. 12 1/2 percent.
b. 72 percent.
c. 87 1/2 percent.
d. 30 percent.
e. 80 percent.

a. 12 1/2 percent.
b. 72 percent.
c. 87 1/2 percent.
d. 10 percent.
e. 90 percent.

a. 12.5 percent.
b. 7.2 percent.
c. 72 percent.
d. 10 percent.
e. 90 percent.
51. In an economy with 200 million people, 150 million hold jobs and 30 million are not working but are
looking for jobs. The number of people in the labor force is
a. 200 million.
b. 150 million.
c. 180 million.
d. 120 million..
e. There is not enough information to answer this question.
looking for jobs. The unemployment rate is
a. 16.67%.
b. 20%
c. 15%
d. 8.33%
e. There is not enough information to answer this question.
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looking for jobs. The number counted as unemployed is
a. 60 million.
b. 9 million.
c. 30 million.
d. 70 million.
e. 79 million.
a. 12.86%
b. 11.39%.
c. 9%.
d. 10.25%.
e. 2.87%
a. 6.0 percent.
b. 13.1 percent.
c. 7.3 percent.
d. 9.4 percent.
e. 8.6 percent.
ANS: E PTS: 1 DIF: Difficult NAT: Analytic
56. Unemployment that arises as a result of the time it takes for unemployed people to locate a job
utilizing their transferable skills is called __________ unemployment.
a. structural
b. cyclical
c. natural
d. frictional
57. The unemployment due to changes in the types of skills employers require is called __________
unemployment.
a. structural
b. cyclical
c. natural
d. frictional
58. The cyclical unemployment rate is defined as the __________ unemployment rates.
a. sum of the structural and the frictional
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b. difference between the structural and the frictional
c. difference between the existing (actual) and the natural
d. sum of the natural and the frictional
59. "Full employment" is said to exist when the unemployment rate equals
a. zero.
b. the cyclical unemployment rate.
c. the structural unemployment rate.
d. the natural unemployment rate.
60. In many large retail stores, price markdowns are now determined by computer. The "middle managers"
who used to make these decisions personally became __________ unemployed.
a. frictionally
b. structurally
c. naturally
d. cyclically
61. Assume that Ms. Sawyer's salary is $75,000, up from $70,000 last year, while the CPI is 165 this year,
up from 150 last year. This means that Ms. Sawyer's real income has
a. increased.
b. decreased.
c. stayed the same.
d. It depends on which year is the base year.
62. A market basket is made up of three goods, 10X, 12Y, and 18Z. The prices in the base year are $1.20,
$2.10, and $3.25, respectively. The prices in the current year are $1.44, $2.23, and $3.88. What is the
approximate consumer price index in the current year?
a. 103
b. 111
c. 116
d. 110
e. 96
63. If the CPI is 123 in year 1 and 129 in year 2, what is the approximate percentage change in prices
between the two years?
a. 4.9 percent
b. 4.7 percent
c. 15.7 percent
d. 11.4 percent
e. 6.0 percent
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64. Which of the following statements is true?

a. Base year prices are necessarily higher than current year prices.
b. The CPI in the base year is 100.
c. If the CPI is 112 in year 1 and 123 in year 2, prices have risen by approximately 9.8
percent between the two years.
d. b and c
e. a, b, and c
65. Smith's income was $50,000 in year 1 and $55,600 in year 2. The CPI was 114 in year 1 and 124 in
year 2. What was the approximate percentage change in Smith's real income between the two years?
a. -2.2 percent
b. +3.4 percent
c. -1.7 percent
d. +5.6 percent
e. +2.2 percent
66. A movie star was paid $1 million in 1960 to do a movie. The CPI was 29.3 in 1960 and the CPI in
2007 was 207.342. Approximately how much did the movie star earn in 2007 dollars?
a. $0.87 million
b. $5.25 million
c. $6.08 million
d. $7.08 million
67. The movie "Return of the Jedi" earned $264 million in 1983 when it was released. The CPI in 1983
was 97.8 and the CPI in 2007 was 207.342. Approximately how much did the movie earn in 2007
dollars?
a. $290 million
b. $560 million
c. $2.12 million
d. $368 million
e. $460 million
68. Suppose that the price index in 1999 was 170 and your salary was $44,000. Suppose in 2015 the
consumer price index will be 300. What salary will you have to earn in 2015 in order to equal your
1999 real income?
a. $66,000
b. $77,647
c. $71,000
d. $83,209
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69. Look at the following data: Employed persons = 110 million; civilian labor force = 125 million;
civilian noninstitutional population = 180 million. The unemployment rate is __________ percent and
the employment rate is __________ percent.
a. 10; 69
b. 8; 54
c. 12; 61
d. 5; 61
e. 12; 88
70. Look at the following data: Total population = 230 million; employed persons = 80 million;
unemployed persons = 8 million. The unemployment rate is approximately __________ and the
employment rate __________.
a. 9.1 percent; cannot be determined
b. 10 percent; is 90 percent
c. 8.2 percent; is 34 percent
d. 11 percent; is 38 percent
e. 9.1 percent; 90.9 percent
71. Which of the following statements is false?

a. The sum of the unemployment rate and the employment rate always equals 100 percent.
b. The sum of the number of employed persons and the number of unemployed persons
equals the civilian non-institutional population.
c. The labor force participation rate equals the number of persons in the civilian labor force
divided by the number of persons in the total population.
d. a and b
e. a, b and c
72. Look at the following data: The frictional unemployment rate is 3 percent, the natural unemployment
rate is 6.5 percent, and the cyclical unemployment rate is 2.4 percent. The structural unemployment
rate is __________ percent and the actual unemployment rate (in this economy) is __________
percent.
a. 3; 8.9
b. 3.5; 8.9
c. 3.5; 9.5
d. 5.4; 2.4
73. If the cyclical unemployment rate is negative, then the __________.

a. natural unemployment rate is less than the actual unemployment rate in the economy.
b. natural unemployment rate is greater than the actual unemployment rate in the economy.
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c. structural unemployment rate is greater than the frictional unemployment rate.
d. structural unemployment rate is less than the frictional unemployment rate.
e. a and d
74. Is it possible for the economy to be at full employment and still have some people who are
unemployed?
a. No, full employment means that no one is unemployed.
b. Yes, since full employment exists if the economy is operating at the natural unemployment
rate and there is always some natural unemployment.
c. Yes, since full employment exists if the economy is operating at the frictional
unemployment rate and there is always some frictional unemployment.
d. Yes, since full employment equals the sum of the cyclical unemployment rate and the
natural unemployment rate, and there is always some cyclical unemployment.
75. Jones lost his job in industry A, but he has skills that can be transferred to industry B (which is
currently hiring). Smith lost a job in industry C, but his skills cannot be transferred to industry B or to
any other industry. Jones is __________ unemployed and Smith is __________ unemployed.
a. structurally; frictionally
b. structurally; structurally
c. frictionally; frictionally
d. frictionally; structurally
76. If the CPI was 193 in 2005 and 172.2 in 2000, by what percentage did prices rise during the period
2000-2005?
a. 0.10 percent
b. 6.43 percent
c. 10 percent
d. 12.1 percent
77. Good X sold for $40 in 1957. The CPI in 1957 was 27.6 and the CPI in 2006 was 201.6. What was the
price of good X in 2006 dollars?
a. $266.67
b. $147.25
c. $1,201.60
d. $292.17
78. A __________ is a person who was employed in the civilian labor force and was either fired or laid
off.
a. new entrant
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b. reentrant
c. job leaver
d. job fixer
79. The answer is "a person employed in the civilian labor force who quits his or her job." The question is:
a. Who is a job loser?
b. Who is an entrant?
c. Who is a reentrant?
d. Who is a job leaver?
e. Who is a discouraged worker?
80. A(n) __________ is a person who was previously employed, hasn't worked for some time, and is
currently reentering the labor force.
a. discouraged worker
b. entrant
c. reentrant
d. job loser
e. job leaver
81. Which of the following statements is false?

a. A discouraged worker is counted as an unemployed worker.
b. The frictional unemployment rate is greater than the natural unemployment rate.
c. The natural unemployment rate is greater than the structural unemployment rate.
d. a and b
e. b and c
82. Of all the categories of unemployment, most unemployed persons fall into the category of
a. reentrant.
b. new entrant.
c. job leaver.
d. job loser.
83. If there are 10 job losers, 12 job leavers, 13 reentrants, and 12 new entrants, then there are __________
unemployed persons.
a. 35
b. 47
c. 25
d. 37
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e. There is not enough information to answer the question.
ANS: B PTS: 1 DIF: Moderate NAT: Anlaytic
84. The number of employed persons plus the number of unemployed persons equals the number of
persons
a. in the total population.
b. in the civilian noninstitutional population.
c. in the civilian labor force.
d. not in the labor force.
85. If we subtract the number of people not in the labor force from the civilian noninstitutional population,
we get the number of people in the
a. ranks of the unemployed.
b. civilian labor force.
c. ranks of the employed.
d. ranks of discouraged workers.
86. Which of the following statements is true?

a. Natural unemployment is caused by frictional and structural factors in the economy.
b. The labor force participation rate is equal to the civilian noninstitutional population
divided by the civilian labor force.
c. A discouraged worker is counted as an unemployed worker.
d. a and c
e. a, b, and c
87. In macroeconomics, price refers to

a. a price index.
b. an aggregate price.
c. an average price.
d. a price level.
e. all of the above
88. Which of the following is false?

a. The Bureau of Labor Statistics samples thousands of households and businesses as part of
the process involved in calculating the CPI.
b. The representative group of goods used in computing the CPI is called the market basket.
c. The group of goods and services used to compute the CPI is limited to five major
categories: housing, food, transportation, apparel, and medical care.
d. The base year is the year chosen to serve as a benchmark for purposes of comparison.
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89. Juan lost his job as a nuclear physicist working for a defense contractor. He can not find a job because
no firms in the defense industry or any other industry are hiring people with his skills. Juan is
______________ unemployed.
a. frictionally
b. cyclically
c. structurally
d. naturally
90. Look at the following data: The structural unemployment rate is 4 percent, the natural unemployment
rate is 5 percent, and the cyclical unemployment rate is 3 percent. The frictional unemployment rate is
____________ percent and the actual unemployment rate is __________ percent.
a. 2; 7
b. 2; 8
c. 1; 7
d. 1; 8
91. Look at the following data: The frictional unemployment rate is 2 percent, the structural
unemployment rate is 3.5 percent, and the actual unemployment rate is 9.5 percent. The natural
unemployment rate is ____________ percent and the cyclical unemployment rate is __________
percent.
a. 1.5; 4
b. 5.5; 4
c. 1.5; 6
d. 6; 15
92. Look at the following data: The frictional unemployment rate is 1.5 percent, the natural unemployment
rate is 4.5 percent, and the cyclical unemployment rate is -1 percent. The structural unemployment
rate is _________ percent and the actual unemployment rate (in this economy) is ___________
percent.
a. 6; 3.5
b. 3; 5.5
c. 3; 3.5
d. 6; 5.5
93. If the CPI is 170 and nominal income is $75,000, approximately what does real income equal?
a. $127,500
b. $74,825
c. $75,175
d. $44,118
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94. Suppose there are 65 million people employed, 15 million unemployed, and 35 million not in the labor
force. What does the civilian noninstitutional population equal?
a. 80 million
b. 110 million
c. 65 million
d. 115 million
95. Suppose there are 200 million people in the population, 120 million people in the civilian labor force,
and 90 million people are employed. The number of people unemployed is _______ million and the
unemployment rate is ___________ percent.
a. 30; 25
b. 30; 33
c. 30; 5
d. 80; 40
96. Suppose there are 50 million people in the population, 25 million people in the civilian labor force, and
20 million people are employed. The number of people unemployed is _______ million and the
unemployment rate is ___________ percent.
a. 25; 50
b. 5; 10
c. 5; 20
d. 10; 10
97. At the time of Carol’s 10 year high school reunion she was making $30,000 and the CPI was 90. Now
that it is time for her to attend her 20 year high school reunion, Carol’s income has risen to $65,000
and the CPI is 200. At her 20 year reunion, can Carol rightfully brag that her real income has risen
since the last time she saw her former classmates ten years ago?
a. Yes, Carol’s real income rose during that 10 year period.
b. No, Carol’s real income fell during that 10 year period.
c. No, Carol’s real income remained constant during that 10 year period.
d. It is impossible to determine what happened to Carol’s real income.
98. At the time of Kelsey’s 20 year high school reunion she was making $50,000 and the CPI was 120.
Now that it is time for her to attend her 30 year high school reunion, Kelsey’s income has risen to
$97,000 and the CPI is 230. At her 30 year reunion, can Kelsey rightfully brag that her real income
has risen since the last time she saw her former classmates ten years ago?
a. Yes, Kelsey’s real income rose during that 10 year period.
b. No, Kelsey’s real income fell during that 10 year period.
c. No, Kelsey’s real income remained constant during that 10 year period.
d. It is impossible to determine what happened to Kelsey’s real income.
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99. The ______________________ samples _________________ of households and businesses to

calculate the consumer price index.
a. Bureau of Labor Statistics; thousands
b. Bureau of Labor Statistics; millions
c. Federal Reserve; thousands
d. Federal Reserve; millions
100. Every ____________ the U.S. government surveys ______________ of households to gather
information about the number of Americans unemployed.
a. month; millions
b. year; millions
c. week; thousands
d. month; thousands
101. The labor force participation rate (LFPR) equals the number of
a. employed persons divided by the number of unemployed persons.
b. unemployed persons divided by the civilian noninstitutional population.
c. employed persons divided by the civilian labor force.
d. employed persons divided by the civilian noninstitutional population.
102. At the time of Elise’s 20 year high school reunion she was making $50,000 and the CPI was 80. Now
that it is time for her to attend her 25 year high school reunion, Elise’s income has risen to $80,000 and
the CPI is 150. At her 25 year reunion, can Elise rightfully brag that her real income has risen since
the last time she saw her former classmates five years ago?
a. Yes, Elise’s real income rose during that 5 year period.
b. No, Elise’s real income fell during that 5 year period.
c. No, Elise’s real income remained constant during that 5 year period.
d. It is impossible to determine what happened to Elise’s real income.
103. A plumber who quits his job in San Diego and moves to Orlando where additional plumbers are
needed is said to be ___________________ unemployed
a. frictionally c. cyclically
b. structurally d. underemployed
104. Approximately ___________________ percent of the U.S. population that is 16 years old or older is
employed full time.
150
a. 51 c. 75
b. 62 d. 81
NOT: NEW
105. Beginning in July 2002 the Bureau of Labor Statistics started releasing an alternative price index
called a _______________ CPI which ___________ incorporate substitutions made in the market
basket.
a. chained; does c. level; does
b. chained; does not d. substitution bias; does
106. Approximately ___________________ percent of U.S. workers are self-employed.

a. 1 c. 10
b. 5 d. 20
NOT: NEW
107. Approximately ___________________ percent of families in the U.S. has at least one person who is
employed.
a. 52 d. 82
b. 62 e. 92
c. 72
NOT: NEW
108. Approximately ___________________ percent of nonagricultural employment in the U.S. is done by

workers who work at home.
a. 5 d. 20
b. 10 e. 25
c. 15
NOT: NEW
109. Approximately ___________________ percent of women who work are working part time compared
to ____________________ percent of men.
a. 50; 10 c. 30; 15
b. 25; 9 d. 20; 12
NOT: NEW
110. The value of the consumer price index (CPI) is always equal to ______________ in the base year.
a. 1 d. 1,000
b. 10 e. There is not enough information given to
151
answer this question.
c. 100
TRUE/FALSE
1. The sum of the unemployment rate and the employment rate always equals 100 percent.
ANS: F PTS: 1 DIF: Moderate NAT: Analytic

2. Discouraged workers are not counted as unemployed because they are working.

3. "Full employment" is said to exist when the actual unemployment rate is zero.
ANS: F PTS: 1 DIF: Moderate OBJ: Analytic

NAT: Analytic LOC: Unemployment and inflation
4. A common measure of inflation is the percentage change in the CPI of adjacent years.
ANS: T PTS: 1 DIF: Easy NAT: Analytic

5. The CPI in the base year is necessarily 100.

6. The base year is always the year in which prices were the lowest.
ANS: F PTS: 1 DIF: Easy NAT: Analytic

7. The cyclical unemployment rate can never be negative.

8. Ryan lost his job when a mechanical device replaced people with his skills. If Ryan's skills are non-
transferable, he would be considered to be structurally unemployed.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic

9. Structural unemployment results primarily from automation and long-lasting changes in demand.

152
10. Most unemployed persons fall into the category of job loser.

11. When news reports state that the cost of living has changed they are usually referring to a change in
the CPI.

12. The federal government agency that is responsible for determining the inflation rate and the
unemployment rate is the Federal Reserve.
ANS: F PTS: 1 DIF: Easy NAT: Analytic

13. The CPI is based on a representative group of goods called the market basket.

14. A seamstress who quits her job in Los Angeles and moves to New York where additional seamstresses
are needed is said to be frictionally unemployed.

15. If John is temporarily absent from his regular job because of an industrial dispute, the Bureau of Labor
Statistics will classify him as unemployed.

16. If Carlos is waiting to be called back to his job from which he has been temporarily laid off, the
Bureau of Labor Statistics will classify him as unemployed.

17. If the Bureau of Labor Statistics considers Jessica to be a discouraged worker, then she is counted as
unemployed for purposes of computing the official unemployment rate.

18. If the unemployment rate drops, then it necessarily follows that some of the people who were once
unemployed are now employed.

19. Buying a one-day ticket at Woodstock in 1969 was the same as spending $45.20 on a ticket in 2007.
153
20. The movie Titanic is the all-time winner in terms of gross receipts in today’s dollars.

NOT: NEW
21. The “chained CPI” is a fixed-weighted measure of changes in the price level.

ESSAY
1. When making historical comparison’s of one’s income, is it better to use real income or nominal
income for the basis of your comparison? Explain why one makes a better comparison than the other.
ANS:
Real income should be used when making historical comparisons. This is because nominal income
can change as a result of changes in the price level, while a change in real income reflects a change in
purchasing power.
PTS: 1 DIF: Moderate NAT: Analytic LOC: Unemployment and inflation
2. Describe the terms frictional unemployment, structural unemployment, and cyclical unemployment.
Give a hypothetical example of each to help support your answer.
ANS:
Frictional unemployment is created when individuals with transferable skills leave their jobs to move
to others. It is caused by normal changes in market conditions and a lack of complete information
available to both employers and employees. Structural unemployment occurs when the unemployed
person's skills do not match the available job openings. It is caused largely by automation and long-
lasting shifts in demand. Cyclical unemployment occurs when the actual unemployment rate is
different from the natural unemployment rate. Examples will vary.

NOT: NEW
3. Explain the substitution-bias inherent in a fixed-weighted price index and the impact this bias has on
the reported cost of living.
ANS:
Any price index that uses fixed quantities of goods does not reflect the way that people actually make
purchases. When the price of an item rises, people often shift to a substitute good in response to the
change in relative prices. As a result of this substitution-bias, a fixed-weighted price index can
overstate the cost of living.
PTS: 1 DIF: Difficult NAT: Analytic LOC: Unemployment and inflation
4. Describe what the term "full employment" means to an economist.
154
ANS:
Full employment exists when the economy is operating at its natural unemployment rate. Full
employment does not mean that the unemployment rate is zero percent because some unemployment is
natural in a dynamic, changing economy.
5. Describe what the unemployment rate and the employment rate measure. If we were to sum the
unemployment rate and the employment rate, would that sum be equal to one hundred percent?
Explain why or why not.
ANS:
The unemployment rate measures the percentage of the civilian labor force that is unemployed and is
computed by taking the number of persons unemployed and dividing by the civilian labor force. The
employment rate is a measure of the percentage of the civilian noninstitutional population that is
employed and is calculated by taking the number of people employed and dividing by the civilian
noninstitutional population. Since these two calculations have different denominators (the civilian
labor force for the unemployment rate and the civilian noninstitutional population for the employment
rate) their sum would not be equal to one hundred percent.

NOT: NEW
6. Describe what the difference is between the employment rate and the labor force participation rate
(LFPR). Under what circumstance would the two be equal to one another?
ANS:
The employment rate is a measure of the percentage of the civilian noninstitutional population that is
employed and is calculated by taking the number of people employed and dividing by the civilian
noninstitutional population. The LFPR is a measure of the percentage of the civilian noninstitutional
population that is in the civilian labor force and is calculated by taking the number of people in the
labor force (which includes both the employed and the unemployed) and dividing by the civilian
noninstitutional population. Therefore, the difference between the two is that the LFPR includes both
the employed and the unemployed, while the employment rate only includes the people who are
employed. The only way that the employment rate and the LFPR would be equal to one another would
be for there to be no unemployed workers.

NOT: NEW
155

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Macroeconomics 1

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Chapter 5—Macroeconomic Measurements, Part I: Prices and Unemployment

4. One measure of the inflation rate is the

14. The base year is the year

26. In order to be classified as unemployed, a person must

27. The unemployment rate equals the

28. The employment rate equals the number of

31. A person is unemployed if he

34. Refer to Exhibit 5-2. The unemployment rate in year 1 is

36. Refer to Exhibit 5-2. The employment rate in year 1 is

39. Refer to Exhibit 5-2. The employment rate in year 2 is

40. Refer to Exhibit 5-2. The unemployment rate in year 2 is

41. Refer to Exhibit 5-2. The unemployment rate in year 3 is

42. Refer to Exhibit 5-2. The employment rate in year 3 is

49. Refer to Exhibit 5-2. The unemployment rate in year 4 is

50. Refer to Exhibit 5-2. The employment rate in year 4 is

64. Which of the following statements is true?

71. Which of the following statements is false?

73. If the cyclical unemployment rate is negative, then the __________.

81. Which of the following statements is false?

86. Which of the following statements is true?

87. In macroeconomics, price refers to

88. Which of the following is false?

99. The ______________________ samples _________________ of households and businesses to

106. Approximately ___________________ percent of U.S. workers are self-employed.

108. Approximately ___________________ percent of nonagricultural employment in the U.S. is done by

ANS: F PTS: 1 DIF: Moderate NAT: Analytic

ANS: F PTS: 1 DIF: Moderate NAT: Analytic

ANS: F PTS: 1 DIF: Moderate OBJ: Analytic

ANS: T PTS: 1 DIF: Easy NAT: Analytic

5. The CPI in the base year is necessarily 100.

ANS: T PTS: 1 DIF: Easy NAT: Analytic

ANS: F PTS: 1 DIF: Easy NAT: Analytic

7. The cyclical unemployment rate can never be negative.

ANS: F PTS: 1 DIF: Moderate NAT: Analytic

ANS: T PTS: 1 DIF: Moderate NAT: Analytic

ANS: T PTS: 1 DIF: Moderate NAT: Analytic

ANS: T PTS: 1 DIF: Easy NAT: Analytic

ANS: T PTS: 1 DIF: Easy NAT: Analytic

ANS: F PTS: 1 DIF: Easy NAT: Analytic

ANS: T PTS: 1 DIF: Easy NAT: Analytic

ANS: T PTS: 1 DIF: Easy NAT: Analytic

ANS: F PTS: 1 DIF: Moderate NAT: Analytic

ANS: T PTS: 1 DIF: Moderate NAT: Analytic

ANS: F PTS: 1 DIF: Moderate NAT: Analytic

ANS: F PTS: 1 DIF: Moderate NAT: Analytic

ANS: F PTS: 1 DIF: Moderate NAT: Analytic

ANS: T PTS: 1 DIF: Moderate NAT: Analytic

PTS: 1 DIF: Moderate NAT: Analytic LOC: Unemployment and inflation

PTS: 1 DIF: Moderate NAT: Analytic LOC: Unemployment and inflation

PTS: 1 DIF: Difficult NAT: Analytic LOC: Unemployment and inflation

4. Describe what the term "full employment" means to an economist.

PTS: 1 DIF: Moderate NAT: Analytic LOC: Unemployment and inflation

PTS: 1 DIF: Moderate NAT: Analytic LOC: Unemployment and inflation

PTS: 1 DIF: Moderate NAT: Analytic LOC: Unemployment and inflation

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99. The ______ samples _ of households and businesses to