Chapter: The Goals of Macroeconomic Policy
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1. Labor productivity is calculated by dividing GDP by
a. population
b. the price level.
c. hours of work.
d. capital stock
2. The shortfall between actual real GDP and potential GDP
a. decreases as the unemployment rate rises.
b. increases as the unemployment rate rises.
c. increases as the employment rate rises.
d. decreases as the labor force increases.
3. Someone who is out of work because they are between jobs is experiencing
a. frictional unemployment.
b. structural unemployment.
c. seasonal unemployment.
d. cyclical unemployment.
4. One of the reasons that the unemployment rate can never get to 0 percent is that, as the unemployment rate approaches 0 percent,
a. the budget deficit will increase.
b. the trade surplus will get too large.
c. inflation will increase.
d. real GDP will increase
5. Older people often reminisce about the "good old days" when prices were much lower. This is misplaced nostalgia primarily because in the "good old days"
a. prices were not really that low.
b. wages were much lower also.
c. people worked longer hours.
d. people had more leisure time.
6. Gladys agrees to lend Kay $1000 for one year at a nominal rate of interest of 5 percent. At the end of the year prices have actually risen by 7 percent.
a. Gladys earns extra real income.
b. Kay loses extra real income.
c. Kay receives extra real income.
d. Neither party gains or loses if the loan is repaid.
7. When a lender underestimates the rate of inflation,
a. purchasing power is redistributed to the lender.
b. purchasing power is redistributed to the borrower.
c. the real rate of interest will be higher than expected.
d. the nominal interest rate was set too low.
8. Americans viewed the 12 percent mortgage interest rates of the 1980s as exorbitantly high while they considered the 7 percent mortgage interest rates of the late 1990s as reasonable. This represents a confusion of
a. actual and expected inflation.
b. real versus nominal inflation.
c. real versus nominal mortgages.
d. real versus nominal interest rates.
9. Which of the following would impose the greatest costs to society?
a. high levels of expected inflation.
b. low levels of expected inflation.
c. variable rates of inflation.
d. stable rates of inflation.
10. When governments rapidly increase the supply of money, the usual result is
a. deflation.
b. low inflation.
c. hyperinflation.
d. increasing long-term investment.
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