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Principles of Macroeconomics Morgan Community College Quiz #5 Name: Please choose the best answer. Mark your answer by bolding the text. If the problem required mathematical computation, show your work. 1. An economy is said to be at full employment when: a. The unemployment rate is zerio. b. Everyone who wants to work has a job. c. There are no unemployed workers. d. The unemployment rate equals the natural rate of unemployment. 2. An economy’s real GDP measures the: a. Market value of all goods and services produced during a particular time period. b. Value of all goods and services produced during a particular time period when prices are held constant. c. Value of all investment goods and services produced during a particular time period when prices are held constant d. Market value of all investment goods and services during a particular time period. 3. An increasing unemployment rate suggests that: a. The amount of goods and services being produced by the economy is increasing. b. There is a waste of human resources. c. The real wage is falling. d. Total spending in the economy is rising. 4. Assuming a nominal GDP of $4 trillion and an implicit price deflator of 1.7, real GDP must be: a. $3.40 trillion. b. $2.35 trillion. c. $1.75 trillion. d. $ 3.75 trillion. 5. Deflation describes a period in the economy when: a. The average level of prices is falling b. Real GDP neither increases nor decreases c. Relative prices remain constant. d. The average level of prices is increasing 6. Generally speaking, a recession can be described as being: Page | 1 a. b. c. d. A fall in real GDP over a period of time An increase in real GDP from one period to another A decline in nominal GDP from one period to another Real GDP remaining constant from one period to another, but nominal GDP is falling. 7. If the CPI in December 1998 was 1.38 and in December 1999 the CPI was 1.44, the inflation rate between December 1998 and December 1999 was: a. 5.6% b. 2.2% c. 6.0% d. 4.3% 8. If the implicit price deflator is 2.4 and real GDP is $1.8 trillion then nominal GDP must be a. $4.32 trillion b. $5.22 trillion c. $0.60 trillion d. $3.90 trillion 9. Over a complete business cycle, a recession is usually followed by a: a. Depression, then a trough, and then a recovery b. Recovery, then a peak, and then another recession. c. Trough, then a recovery, and then a peak. d. Depression, then a recovery, and then a peak. 10. Suppose the implicit price deflator in 1995 was 2.83 and in 1996, it was 2.96. The rate of inflation over the time period was: a. 3.1% b. 6.8% c. 5.5% d. 4.6% 11. The consumer price index (CPI) can best be described as being: a. An index of prices for a particular basket of goods. b. The most commonly used measure of price behavior. c. Frequently used to describe changes in a nation’s inflation rate. d. All of the above. 12. The unemployment associated with an economy that is at a higher unemployment rate than its natural level of unemployment is said to have: a. Frictional unemployment b. The full employment level of unemployment c. Structural unemployment d. Cyclical unemployment Page | 2 13. 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 2003 was 184. Approximately how much did the movie earn in 2003 dollars? a. 140 million b. 497 million c. 233 million d. 362 million 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. 15. The country Hungary has a higher GDP than the country of Turkey. What does this mean? a. The standard of living is higher in Hungary than it is in Turkey b. Per capita, Hungary is better off than Turkey c. The total market value of the final goods and services produced in Hungary is greater than the total market value of the final goods and services produced in Turkey d. Both a and b Page | 3