Name: __________________________ Date: _____________ 1. Real GDP per capita is found by: A) adding real GDP and population.

B) subtracting population from real GDP. C) dividing real GDP by population. D) dividing population by real GDP. 2. For a nation's real GDP per capita to rise during a year: A) consumption spending must increase. B) real GDP must increase more rapidly than population. C) population must increase more rapidly than real GDP. D) investment spending must increase. 3. Given the annual rate of economic growth, the "rule of 70" allows one to: A) determine the accompanying rate of inflation. B) calculate the size of the GDP gap. C) calculate the number of years required for real GDP to double. D) determine the growth rate of per capita GDP. 4. If a nation's real GDP is growing by 5 percent per year, its real GDP will double in approximately: A) 22 years. B) 20 years. C) 14 years. D) 8 years. 5. Recurring upswings and downswings in an economy's real GDP over time are called: A) recessions. B) business cycles. C) output yo-yos. D) total product oscillations.

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6. As it relates to economic growth, the term long-run trend refers to: A) the long-run increase in the relative importance of durable goods in the U.S. economy. B) the long-term expansion or contraction of business activity that occurs over 50 or 100 years. C) fluctuations in business activity that average 40 months in duration. D) fluctuations in business activity that occur around Christmas, Easter, and so forth. 7. The phase of the business cycle in which real GDP is at a minimum is called: A) the peak. B) a recession. C) the trough. D) the pits. 8. The main cause of the 2001 recession in the United States was a large decline in: A) investment spending. B) government spending. C) net exports. D) interest rates. 9. The United States' economy is considered to be at full employment when: A) 90 percent of the total population is employed. B) 90 percent of the labor force is employed. C) about 4-5 percent of the labor force is unemployed. D) 100 percent of the labor force is employed. 10. The presence of discouraged workers: A) increases the size of the labor force, but does not affect the unemployment rate. B) reduces the size of the labor force, but does not affect the unemployment rate. C) may cause the official unemployment rate to understate the amount of unemployment. D) may cause the official unemployment rate to overstate the amount of unemployment. 11. During periods of full employment the: A) burden of unemployment is quite evenly distributed among males and females, blacks and whites, and young and old workers. B) unemployment rate for teenagers is below the rate for the labor force as a whole. C) unemployment rate for women is considerably lower than that for men. D) unemployment rate for blacks is about twice the rate for whites.

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12. Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, the official unemployment rate would: A) increase in the short run but eventually decline. B) increase. C) decline. D) be unchanged. 13. Structural unemployment: A) is also known as frictional unemployment. B) is the main component of cyclical unemployment. C) is said to occur when people are waiting to be called back to previous jobs. D) may involve a locational mismatch between unemployed workers and job openings. 14. Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska. That year, Professor Simpson would be officially counted as: A) structurally unemployed. B) frictionally unemployed. C) not in the labor force. D) employed. 15. Search unemployment and wait unemployment are types of: A) frictional unemployment. B) structural unemployment. C) deficient-demand unemployment. D) cyclical unemployment. 16. A large negative GDP gap implies: A) an excess of imports over exports. B) a low rate of unemployment. C) a high rate of unemployment. D) a sharply rising price level. 17. Full-employment output is also called: A) zero-unemployment output. B) equilibrium output. C) potential output. D) zero-savings output.

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18. Okun's law: A) measures the tradeoff between the rate of inflation and the rate of unemployment. B) indicates the number of years it will take for a constant rate of inflation to double the price level. C) quantifies the relationship between nominal and real incomes. D) shows the relationship between the unemployment rate and the size of the negative GDP gap. 19. Cost-push inflation may be caused by: A) a decline in per unit production costs. B) a decrease in wage rates. C) a negative supply shock. D) an increase in resource availability. 20. Recently a labor union argued that the standard of living of its members was falling. A critic of the union argued that this could not possibly be true because the union had been acquiring increases in the nominal incomes of its members through collective bargaining. Is the critic correct? A) Yes, because when you have a large nominal income your standard of living automatically increases. B) No, because real income may fall if price increases are more proportionately than the increase in nominal income. C) No, because real income may fall if price increases are less proportionately than the increases in nominal income. D) Yes, because real income may fall if price increases are less proportionately than the increases in nominal income. 21. Inflation is undesirable because it: A) arbitrarily redistributes real income and wealth. B) invariably leads to hyperinflation. C) usually is accompanied by declining real GDP. D) reduces everyone's standard of living. 22. Unanticipated inflation: A) reduces the real burden of the public debt to the Federal government. B) hurts borrowers and helps lenders. C) hurts people whose sole source of income is from Social Security benefits. D) helps savers.

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23. Suppose the nominal annual interest rate on a two year loan is 8 percent and lenders expect inflation to be 5 percent in each of the two years. The annual real rate of interest is: A) 6 percent. B) 8 percent. C) 2 percent. D) 3 percent. 24. If both the real interest rate and the nominal interest rate are 3 percent, then the: A) inflation premium is zero. B) real GDP must exceed the nominal GDP. C) nominal GDP must exceed real GDP. D) inflation premium also is 3 percent. 25. Inflation affects: A) both the level and the distribution of income. B) neither the level nor the distribution of income. C) the distribution, but not the level, of income. D) the level, but not the distribution, of income.

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Answer Key
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. C B C C B B C A C C D C D D A C C D C B A A D A A

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