1. "Structural unemployment" would be defined as a. unemployment caused by workers who seek better jobs. b. unemployment caused by automation that displaces workers from their jobs. c. unemployment caused by a decline in the economy's total production. d. unemployment caused by the geographical and occupational mobility of the labor force. 2. When the economy does not generate enough jobs to employ all those who are willing to work, a. unemployment insurance spreads the cost over the entire population and thus eliminates the basic economic cost. b. unemployment insurance and other social welfare programs prevent any serious economic costs to society. c. potential goods and services that might have been enjoyed by consumers are lost forever. d. no valuable economic resources are lost. 3. Which of the following groups are typically victimized by inflation? a. lenders b. borrowers c. pensioners d. Both a and c are correct. e. Both b and c are correct. 4. If the real interest rate is 3 percent when the expected inflation rate is 6 percent, then the nominal rate interest rate will be a. 3 percent; this rate is the same as the real interest rate. b. 1 percent; the 1 percent additional interest is necessary to compensate the lender for the risk involved in making a loan. c. 9 percent; the nominal interest rate is reached by adding the expected inflation rate to the real interest rate. d. 6 percent; the nominal interest rate should equal the expected inflation rate to compensate the lender for the loss in purchasing power that she is expected to suffer. 5. Assume that the 1993 consumer price index (CPI) was 142. Then the same basket of goods and services that cost $100 in 1987 would have cost ______ in 1993. a. $58 b. $142 c. $63.70 d. $1,420 Table 23-3 GDP Statistics _______________________________________________________________ 1969 1979 1989 Nominal GDP (billions of dollars) 963.9 2,508.2 5,337.0 GDP Deflator 39.8 78.6 129.7 _______________________________________________________________ 6. Using Table 23-3, what is the percentage increase in the real GDP from 1969 to 1979? a. 75.9 percent b. 31.8 percent c. 24.1 percent d. 15.6 percent Table 23-4 Average Weekly Earnings of U.S. Workers ______________________________________________________ 1948 1958 1968 1978 1988 $49.00 $75.08 $107.73 $203.70 $326.87 ______________________________________________________ The CPI (in 1987 dollars) is listed below for each year. 1948: 24.1 1958: 28.9 1968: 34.8 1978: 65.2 1988: 120.5 7. In Table 23-4, which decade had the fastest growth of money wages? a. 1948-1958 b. 1958-1968 c. 1968-1978 d. 1978-1988 8. In Table 23-4, which decade had the fastest growth of real wages? a. 1948-1958 b. 1958-1968 c. 1968-1978 d. 1978-1988 9. Nominal GDP in 1987 was $4,527 billion. Real GDP in 1987 was $3,847 billion. The GDP deflator must have been approximately _______. a. 117.7 b. 1.25 c. 84.98 d. 8.5 10. During 1957-1963 and 1974-1987, a. potential GDP was below actual GDP. b. actual GDP was below potential GDP. c. actual GDP and potential GDP were at the same level. d. None of the above is correct. 11. MPS is a. the slope of the saving function. b. .20 if MPC = .80. c. positive throughout. d. All of the above are correct. 12. An increase in disposable income will a. shift the consumption function upward. b. shift the consumption downward. c. lead to a rightward movement along the consumption function. d. shift the saving function upward. 13. A higher price level leads to a. a higher consumption function. b. a leftward movement along the consumption function. c. a lower consumption function. d. None of the above is correct. 14. Which of the following is correct? a. MPC - MPS = 1.0 b. 1.0 - MPC = MPS c. 1.0 - MPC = 1.0 - MPS d. MPC + MPS = APC - APS 15. Which of the following would not be included in gross domestic product? a. salaries for the secretaries in federal government offices b. salaries for public school teachers c. payments for Social Security benefits to the elderly d. payments to suppliers of medical supplies for military personnel 16. In adding the nation's total output, net exports a. represent exports of goods and services minus imports of goods and services. b. have totaled to a negative figure in recent years. c. would include purchases of U.S. automobiles by foreigners minus purchases of foreign automobiles by U.S. citizens. d. All of the above are correct. 17. The only difference between GDP and NDP is a. depreciation of the nation's capital stock. b. price changes due to inflation. c. the statistical discrepancy in calculating the output of the nation's economy. d. real versus nominal values of the nation's total output. 18. GDP can be measured by the value-added approach, which a. is useful in avoiding double counting. b. includes only the value-added portion from the sale of every new good or service. c. includes the revenue a firm receives from selling a product minus the amount paid for goods and services purchased from other firms. d. All of the above are correct. 19. In Figure 24-2, MPC is _____. a. .80 b. .70 c. .60 d. .50 20. All but which of the following will shift the consumption function? a. a change in wealth b. a change in the price level c. a change in disposable income d. a change in the interest rate 21. Investment spending a. typically increases when sales are expanding rapidly and pressing against capacity. b. typically increases when sales are slack in order to take advantage of the excess supply of workers. c. cannot be stimulated by government stabilization policy. d. is influenced only by interest rates and not by expectations of rapid economic growth. 22. If aggregate demand, C + I + (X - IM), exceeds current production, then a. inventory stocks will pile up, leading businesses to trim production, causing GDP to fall. b. inventory stocks will fall, leading businesses to increase production, causing GDP to rise. c. the price level will probably decline. d. the economy may experience a recession if the imbalance is not corrected by government stabilization policy. 23. If the flow of spending coming to businesses falls short of current production, then a. businesses will react first by cutting back on production, causing GDP to fall. b. firms will notice that inventory stocks are being depleted, and they will boost production to meet the higher demand. c. businesses will probably raise prices in anticipation that the current strong demand will continue. d. Both b and c are correct. 24. If the amount consumers wish to save out of full-employment incomes is greater than the amount investors want to invest, then a. there will be an inflationary gap. b. total demand, C + I + (X - IM), will exceed potential GDP. c. there will be a recessionary gap. d. the economy will move to a higher level of real GDP. 25. If the equation for the consumption function is C = 300 + 0.75Y, then a. consumption at zero level of income is always zero. b. the slope of the consumption function is 0.75. c. the slope of the consumption function is 300. d. the slope of the saving function is 0.75. 26. If other economic factors remain constant, businesses will want to spend more for investment a. the higher the real interest rate. b. the lower the real interest rate. c. the higher the tax on capital gains. d. the lower the depreciation allowance on new equipment. 27. The downward-sloping relationship between the equilibrium real GDP and the price level is known as the a. income-expenditure diagram. b. net exports phenomenon. c. induced investment property. d. aggregate demand curve. e. C + I + (X - IM) line. 28. The amount by which equilibrium real GDP exceeds full-employment GDP is known as a. stagflation. b. employment. c. a recessionary gap. d. an inflationary gap. 29. To alter the level of investment spending by businesses, the federal government concentrates on changing a. business confidence through public television addresses and press conferences. b. the level of net exports. c. the rules for protecting the environment. d. interest rates, the overall state of aggregate demand, and tax incentives. 30. Investment will be discouraged when a. there are high levels of sales and expectations of rapid growth. b. there are high levels of sales and no expectations of rapid growth. c. there are low levels of sales and expectations of rapid growth. d. there are low levels of sales and no expectations of rapid growth.