Title: Macroeconomic Measures: Unemployment and Inflation
Course: Macro Quiz Test

Q: Reginald looked for work for six months but could not find a job to his liking. He now spends his time at the beach. For purposes of employment he is considered:
- unemployed.
- underemployed.
- out of the labor force.
A: out of the labor force.

Q: A year ago Parker reached his retirement and left the business to pursue other interests. He is now spending lots of time playing golf and visiting his grandchildren. For purposes of employment he is considered:
- unemployed.
- underemployed.
- out of the labor force.
A: out of the labor force.

Q: One of the criticisms about the unemployment rate is that it considers discouraged workers to be out of the labor force and
- over-reports the actual unemployment problem.
- includes people who are working in the informal (underground) economy.
- under-reports the actual unemployment problem.
A: under-reports the actual unemployment problem.

Q: Some critics of the unemployment rate say that it under-reports the actual unemployment problem by:
- overlooking people who are working in the informal (underground) economy.
- including people who are working in the informal (underground) economy.
- considering discouraged workers to be out of the labor force.
A: considering discouraged workers to be out of the labor force.

Q: What is excluded from the official calculation of the unemployment rate?
- Workers who have been looking for fewer than 4 weeks.
- Those who are looking for work but above the age of 55.
- Students who are attending to school full time and not working.
A: Students who are attending to school full time and not working.

Q: Calculations of the official unemployment rate exclude
- workers who have been looking for fewer than 4 weeks.
- those who are looking for work but above the age of 55.
- discouraged workers, who are no longer looking for work.
A: discouraged workers, who are no longer looking for work.

Q: Which of the following individuals would be excluded from the unemployment rate?
- Sharon who has been looking for work this last month.
- Devon who just turned 57 and is now older than 55 looking for work.
- George who is staying home to tend to his children while his partner works.
A: George who is staying home to tend to his children while his partner works.

Q: Which of the following individuals would be included in the unemployment rate?
- George who is staying home to tend to his children while his partner works.
- Devon an army officer in the U.S. Army on leave.
- Sharon who has been looking for work this last month.
A: Sharon who has been looking for work this last month.

Q: The unemployment rate measures:
- The percentage of working age adults who are unemployed.
- The percentage of working age adults who are unemployed but not looking for work.
- The percentage of working age adults who are employed.
- The percentage of the labor force who do not have a job, but are looking for one.
A: The percentage of the labor force who do not have a job, but are looking for one.

Q: What does the unemployment rate measure?
- The percentage of unemployed working age adults.
- The percentage of unemployed working age adults who are not looking for work.
- The percentage of employed working age adults.
- The percentage of the labor force who do not have a job, but are looking for one.
A: The percentage of the labor force who do not have a job, but are looking for one.

Q: What is the formula with which to calculate the official unemployment rate?
- The number in the labor force divided by the population.
- The number of discouraged workers divided by the number of civilian workers.
- The number of unemployed workers divided by the sum of employed and unemployed workers.
A: The number of unemployed workers divided by the sum of employed and unemployed workers.

Q: To find unemployment, you need to calculate
- The number in the labor force divided by the population.
- The number of discouraged workers divided by the number of civilian workers.
- The number of unemployed workers divided by the labor force.
A: The number of unemployed workers divided by the labor force.

Q: Calculate the unemployment rate based on the following data for a country: Population: 200, Employed workers: 140, Labor Force: 160, Discouraged workers: 10.
- 10%
- 7.15%
- 12.5%
A: 12.5%

Q: If out of 125 people in the labor force, the number of employed workers is 100 and number of unemployed workers is 25, then the unemployment rate is ________.
- 30%
- 25%
- 20%
A: 20%

Q: If the number of employed persons in a country equals 24 million, the number of unemployed persons equals 8 million, and the number of persons over age 16 in the population equals 40 million, the unemployment rate equals ________.
- 32%
- 18%
- 25%
A: 25%

Q: The number of people employed in one country is 230 million, with a total number of unemployed people at 40 million. The total population for the country is 500 million. What is the unemployment rate?
- 22.2%
- 7.4%
- 14.8%
A: 14.8%

Q: In the far off kingdom of Viracien there is a healthy sized population of citizens over 16 years old. The last census indicated a total adult population of 5 million people. This year a recession hit and 237 thousand people were let go from their jobs and are on the hunt to find new work. Because of the recession many took early retirement and there is now a population of 1.3 million who are not working or looking for various reasons. Because of the unrest, the military of Viracein has increased its ranks and is now grown to a total of 50 thousand citizens serving the country. If Viracein uses the same calculation to find the unemployment rate, what is the country’s unemployment rate?
- 6.4%
- 4.7%
- 6.5%
A: 6.5%

Q: There is a small fictitious island country, called Noil, floating in the south Pacific ocean. Many years ago there was an abundance of fish and the population grew rapidly. Now the adult population has reached a total of 35 thousand people. This year fishing and other jobs have been on the decline and now 1 thousand people are looking to find work. With an increasing elderly population 3 thousand are now retired. Noil does not have an army, but it does have a small coast guard of 432 citizens serving the country and patrolling the waters where needed. What is the country of Noil’s unemployment rate?
- 3.1%
- 2.9%
- 3.2%
A: 3.2%

Q: Which of the following demographic has the highest unemployment rate according to U.S. Census Bureau data?
- Older caucasian men
- Middle-aged Hispanic Women
- Young African-American men
A: Young African-American men

Q: According to the U.S. Census Bureau data ________ have the lowest unemployment rate.
- young African-American women
- middle-aged Hispanic men
- older caucasian women
A: older caucasian women

Q: Fluctuations in the unemployment rates over the past 50 years can best be explained by
- growth and contraction of the labor force.
- worker productivity.
- cycles of economic expansions and recessions.
A: cycles of economic expansions and recessions.

Q: What best explains the fluctuations in the unemployment rates over the past 50 years?
- The contraction and growth of the labor force.
- Worker productivity.
- The cycles of economic recessions and expansions.
A: The cycles of economic recessions and expansions.

Q: In the past 50 years the unemployment rate has only reached 10% on two occasions. When did these two unemployment spikes occur?
- The 1970s and early 2000s.
- The late 1980s and early 2010s.
- The early 1980s and 2007-2009.
A: The early 1980s and 2007-2009.

Q: In the past 50 years the unemployment rate has reached below 5% on only a few occasions. When did some of these under 5% unemployment dips occur?
- The 1978-1980 and 1993.
- The mid 1980s and 2007-2009.
- The early 1997-2000 and 1968-1970.
A: The early 1997-2000 and 1968-1970.

Q: While the U.S. unemployment rate fluctuates over time, it normally returns to a long-run average somewhere between
- 8% and 10%.
- 2% and 4%.
- 4% and 6%.
A: 4% and 6%.

Q: What does the US unemployment rate range normally return to as the long-run average?
- Somewhere between 5% and 7%.
- Somewhere between 2% and 4%.
- Somewhere between 4% and 6%.
A: Somewhere between 4% and 6%.

Q: As more women entered the workforce in the late 20th century the long-run US unemployment rate has
- increased.
- steadily decreased.
- remained mostly unchanged.
A: remained mostly unchanged.

Q: Women in Switzerland finally got the vote in 1971. As more and more women entered the workforce, Switzerland looked to the U.S. to see what kinds of changes this meant for the employment market and the unemployment rate. From these U.S. statistics, Switzerland learned that over time in the US as women entered the workforce in the late 20th century the long-run US unemployment rate
- increased.
- steadily decreased.
- remained mostly unchanged.
A: remained mostly unchanged.

Q: Cross-country comparisons of unemployment rates are difficult for all the following reasons except:
- Differing definitions of ‘unemployment’ between countries.
- Non-traditional labor markets (i.e. barter, subsistence agriculture) in many developing countries.
- Higher government employment in developed countries.
A: Higher government employment in developed countries.

Q: Why are cross-country comparisons of unemployment rates difficult?
- There is a unified definition of ‘unemployment’ between countries.
- There is higher government employment in developed countries.
- There are non-traditional labor markets (i.e. barter, subsistence agriculture) in many developing countries.
A: There are non-traditional labor markets (i.e. barter, subsistence agriculture) in many developing countries.

Q: Among all high-income countries, which consistently has the lowest long-run unemployment rate in the past 30 years?
- United States
- France
- Japan
A: Japan

Q: While Japan has enjoyed a persistent low unemployment rate compared to other high-income countries, this may paint too rosy a picture of unemployment in Japan because
- the Japanese labor force has been shrinking for 20+ years.
- Japan does not have a modern unemployment insurance program.
- Japanese employers are reluctant to formally lay off workers even when there is little real work.
A: Japanese employers are reluctant to formally lay off workers even when there is little real work.

Q: The consequences of unemployment are likely more serious in developing countries because…
- greater stigma surrounding unemployment.
- lower labor force participation rates in developing countries compared to developed ones.
- developing countries are more likely to lack unemployment assistance programs.
A: developing countries are more likely to lack unemployment assistance programs.

Q: Compared to developed countries, developing countries…
- enjoy lower official unemployment rates.
- spend greater sums on unemployment insurance.
- often lack reliable or regular unemployment statistics.
A: often lack reliable or regular unemployment statistics.

Q: Based on the following table comparing fictional international country unemployment rates, which country from the 1970s to 1985 had the best and healthiest economy?

International Comparison of Unemployment Rates
Country | 1970 | 1975 | 1980 | 1985
Ulidia | 4% | 2.8% | 3.4% | 6.0%
Agreriven | 7% | 6.0% | 5.7% | 4.5%
Saede | 3% | 4.5% | 3.4% | 5.2%
Galoiri | 5% | 7.0% | 5.5% | 2.5%
- Ulidia
- Saede
- It can’t be determined just by the information in the table.
A: It can’t be determined just by the information in the table.

Q: Based on the following table comparing fictional international country unemployment rates, the country of Ulidia seems to have had fairly low unemployment rate throughout the years until 1985. Ulidia is however, a developing country and with the Ministry of the Economy reporting there is 65% of the labor force participation and 6% unemployment rate in 1985. Knowing it is a developing economy, why might the 6% rate be inaccurate?

International Comparison of Unemployment Rates
Country | 1970 | 1975 | 1980 | 1985
Ulidia | 4% | 2.8% | 3.4% | 6.0%
Agreriven | 7% | 6.0% | 5.7% | 4.5%
Saede | 3% | 4.5% | 3.4% | 5.2%
Galoiri | 5% | 7.0% | 5.5% | 2.5%
- It is inaccurate because it is not adequate compared with other countries unemployment rates.
- It is inaccurate because it is not including the military jobs in the labor pool participation.
- It is inaccurate because Ulidia has a large portion of the working-age population that participates in the informal economy of short-term work, bartering, or other subsistence activities.
A: It is inaccurate because Ulidia has a large portion of the working-age population that participates in the informal economy of short-term work, bartering, or other subsistence activities.

Q: Bill is a construction worker who was laid off because the market for new homes was adversely affected in the recession. Bill’s unemployment experience is referred to as
- structural unemployment.
- frictional unemployment.
- cyclical unemployment.
A: cyclical unemployment.

Q: A contraction in the business cycle is likely to result in which form of unemployment increasing?
- frictional
- Seasonal
- Structural
- Cyclical
A: Cyclical

Q: Cyclical unemployment is caused by the ________ for labor ________ during a recession.
- demand; moving to the right
- supply; moving to the right
- supply; moving to the left
- demand; moving to the left
A: demand; moving to the left

Q: Cyclical unemployment is caused by the ________ for labor ________ during an economy moving from recession to expansion.
- demand; moving to the left
- supply; moving to the right
- supply; moving to the left
- demand; moving to the right
A: demand; moving to the right

Q: In the supply-demand diagram used to represent phenomenon such as cyclical unemployment, the demand (downward-sloping) curve represents ________.
- worker demand for labor
- equilibrium points in the labor market
- firm demand for labor
A: firm demand for labor

Q: In the supply-demand diagram used to represent events such as cyclical unemployment, the supply (upward-sloping) curve represents ________.
- firm supplying labor jobs
- equilibrium points in the labor market
- supply of workers for labor
A: supply of workers for labor

Q: Joseph is an unemployed yard landscaping worker who is trying to find employment as he last had work seven months ago. He is now at a point where he will take any wage even if low to get money to pay the bills. He talks to businesses and landscaping companies on a daily basis but continues to be unable to find work. How would you describe his experience with the correct economic term?
- out of the labor force
- labor shortage
- cyclical unemployment
A: cyclical unemployment

Q: Beth has been unemployed for two months from her accounting job. She has interviewed with a number of other firms, but has not received a job offer. Her debt are increasing and at this point she needs to find a job just to cover her expenses at least. She now begins to look for positions in places that pay lower wages that what she would like. What is Beth’s experience called in economic terms?
- out of the labor force
- involuntary unemployment
- cyclical unemployment
A: cyclical unemployment

Q: When the macroeconomy is experiencing a higher than natural rate of unemployment, it must be because
- potential real GDP is less than current real GDP.
- wages respond instantaneously to labor market shifts.
- wages cannot adjust downward quickly and easily.
A: wages cannot adjust downward quickly and easily.

Q: When prices do not respond quickly to bring forces of supply and forces of demand to the equilibrium point, they are called:
- market prices.
- market structure prices.
- sticky prices.
A: sticky prices.

Q: The idea that firms will get the most for their money when they pay wages higher than the equilibrium wage is called:
- optimal-wage theory.
- equilibrium-wage theory.
- efficiency-wage theory.
A: efficiency-wage theory.

Q: ________ is the idea that firms will get the most for their money when they pay wages higher than the equilibrium wage.
- Optimal-wage theory
- Equilibrium-wage theory
- Efficiency-wage theory
A: Efficiency-wage theory

Q: The idea that only the most efficient workers will depart in response to a wage cut is called ________.
- efficiency-wage theory.
- insider-outsider model.
- adverse selection of wage cuts.
A: adverse selection of wage cuts.

Q: ________ is the idea that only the most efficient workers will depart in response to a wage cut.
- Efficiency-wage theory
- Insider-outsider model
- Adverse selection of wage cuts
A: Adverse selection of wage cuts

Q: The Campus Collective company, which creates unique apps for colleges, has recently lost three large university clients that made up 40% of its total revenue. This has hit the company hard and management finds it necessary to reduce staff or wages. The economy also appears to be headed toward a recession and gaining more clients will most likely be harder to accomplish. Because it is a smaller company everyone knows each other and knows there are tough choices ahead. Management brings up the idea of an across the board wage reduction so that no one be let go, but some employees don’t believe that a wage cut will be equally applied to all. The employees are also not sure if other people working their same jobs in the economy are getting reduced wages. They start to argue against wage reduction and things get a bit heated. Which of the following theories best illustrate this wage stickiness scenario?
- Implicit contract theory
- Insider-outsider model
- Relative wage coordination argument
A: Relative wage coordination argument

Q: The Krisp Kracker company which makes unique kettle chips for restaurants, clubs, and events, has just lost a large client that made up 55% of its total revenue. Management finds it necessary to reduce staff or wages. This comes only three months after hiring 35 new people to support this big client. While there are rumors of wage reductions in the short run, the 100 employees who have been with the company for the past two years are grumbling that they are more valuable that the new hires which should be let go and the wages not reduced. The situation at Krisp Kracker illustrates which wage stickiness theory best?
- Implicit contract theory
- Relative wage coordination argument
- Insider-outsider model
A: Insider-outsider model

Q: Frictional unemployment occurs because in a world of imperfect information, it takes ________ for people to find jobs.
- money
- resources
- time
A: time

Q: Because it takes ________ to find jobs, frictional unemployment occurs because it is a world of imperfect information.
- money
- resources
- time
A: time

Q: A welder who quits his job and moves from Pittsburgh to Madison to try to get a better welding job is said to be ________.
- underemployed.
- cyclically unemployed.
- frictionally unemployed.
A: frictionally unemployed.

Q: Tom graduated from college in June but was still looking for work in August. This is an example of ________.
- structural unemployment.
- cyclical unemployment.
- frictional unemployment.
A: frictional unemployment.

Q: The theory of frictional unemployment suggests that workers in which age group are least likely to be unemployed for a significant period of time?
- under-25 workers
- workers aged 55+
- workers aged 25-54
A: workers aged 25-54

Q: If you are looking at a country that has a relatively high proportion of workers ________, then the theory of frictional unemployment suggests that workers in this age group are the least likely to be unemployed for a significant period of time.
- under-25
- aged 55+
- aged 25-54
A: aged 25-54

Q: Which scenario could you use as an example of frictional unemployment when explaining it to a friend?
- George has a difference of opinion with his boss and the friction grows over time until his boss finds a few mistakes that George has made and fires him.
- A college student working at a copy center finishes his semester of school and quits his job at the copy center and goes traveling through South America for the summer.
- An economics professor living and working in California accepts a new position at a college in New Jersey. She takes two months after finishing her current work to wrap things up and move out East.
A: An economics professor living and working in California accepts a new position at a college in New Jersey. She takes two months after finishing her current work to wrap things up and move out East.

Q: From the following examples, select the example illustrating frictional unemployment.
- Winny is annoyed with her manager at the Tasty Freeze where she has worked all summer. She decides one day just to not go to work anymore and instead goes on a trip with a friend.
- A city has been hit hard in the recession and the largest construction company lets go of 300 construction workers.
- Justin works at an oil rig in Texas. He sees a better opening at a company in North Dakota and applies for the job. After he accepts their offer and quit his job, he takes a month to pack up and move to North Dakota.
A: Justin works at an oil rig in Texas. He sees a better opening at a company in North Dakota and applies for the job. After he accepts their offer and quit his job, he takes a month to pack up and move to North Dakota.

Q: If the print media is taken over by the electronic media, thereby causing employees in the print media industry to be permanently laid off, ________ unemployment would increase.
- cyclical
- frictional
- structural
A: structural

Q: After the success of the Apollo space program, in the mid-1970s NASA budget cuts results in a decrease in the number of jobs for aerospace engineers. This was an example of ________.
- cyclical unemployment.
- frictional unemployment.
- structural unemployment.
A: structural unemployment.

Q: Which form of unemployment suggests workers need to seek education and training and to update their skill sets?
- functional
- cyclical
- structural
A: structural

Q: Which of the following is not an example of structural unemployment?
- Bank teller jobs lost with the introduction of ATMs in the 1980s.
- Telephone operators replaced by computerized systems in the 1970s.
- Loan officers losing jobs during the 2009 recession.
A: Loan officers losing jobs during the 2009 recession.

Q: Which of the following is an example of structural unemployment?
- Bank teller jobs lost when a regional bank was purchased by a national bank.
- Loan officers losing jobs during the 2009 recession.
- Telephone operators replaced by computerized systems in the 1970s.
A: Telephone operators replaced by computerized systems in the 1970s.

Q: With the introduction of robotics to automotive manufacturing, there have been sweeping changes to the automotive assembly line, management and operations at plants. As an example, in a truck manufacturing plant, identify who would most likely be impacted by this technology change and suffer long term structural unemployment?
- A computer programer working the IT department with a bachelors in computer science and 5 years of programming experience.
- The inventory control manager with 5 years experience in managing parts inventory, a Bachelor of Business administration and 2 years of experience using inventory software.
- An assembly line worker with 10 years of screwing together truck panels and a high school diploma.
A: An assembly line worker with 10 years of screwing together truck panels and a high school diploma.

Q: In the early 1980s, a new technology was introduced to banks where customers could withdraw their money without having to enter the bank or keep baking hours. As the first ATMs began to be introduced to more and more banks, it began to have an effect on bank personnel. Thinking about the bank environment, identify who would most likely be impacted by this technology change and suffer long term structural unemployment?
- A mortgage loan officer with a bachelors in accounting and 5 years of loan experience.
- The bank manager with 5 years experience managing branches, a Masters degree in business and 2 years of experience in overseas banking.
- A bank teller with 4 years of relevant work experience and a high school diploma.
A: A bank teller with 4 years of relevant work experience and a high school diploma.

Q: Which types of unemployment exist at all times and determine the natural rate of unemployment?
- structural unemployment and cyclical unemployment
- cyclical and frictional unemployment
- frictional unemployment and structural unemployment
A: frictional unemployment and structural unemployment

Q: There are certain types of unemployment that exist at all times and determine the natural rate of unemployment. Which of the following types fit this description?
- structural unemployment and cyclical unemployment
- cyclical and frictional unemployment
- frictional unemployment and structural unemployment
A: frictional unemployment and structural unemployment

Q: If a nation’s labor force receives a significant influx of young workers:
- the natural rate of unemployment is likely to decrease.
- frictional unemployment will likely decrease to zero.
- the natural rate of unemployment is likely to increase.
A: the natural rate of unemployment is likely to increase.

Q: During the 1970s, mothers entered the labor force in significant numbers, reducing the numbers of stay-at-home moms. The result was:
- the natural rate of unemployment fell.
- frictional unemployment decreased to zero.
- the natural rate of unemployment rose.
A: the natural rate of unemployment rose.

Q: When the economy is at full employment, what is the relationship between real GDP and real potential GDP?
- Real GDP is above real potential GDP.
- Real GDP is below real potential GDP.
- Real GDP is equal to real potential GDP.
A: Real GDP is equal to real potential GDP.

Q: What is the relationship between real GDP and real potential GDP when the economy is at full employment?
- The real GDP is above real potential GDP.
- The real GDP is below real potential GDP.
- The real GDP is equal to real potential GDP.
A: The real GDP is equal to real potential GDP.

Q: In the country of Cardonia, the natural rate of unemployment is 3.5% according to the Ministry of Economics. Last year there was an economic slow down where the actual rate of unemployment increased to 4.5%. Assuming that the unemployment percentages are accurate for Cardonia, what is the likely outcome for the economy of Cardonia?
- The structural rate of unemployment will increase until the natural rate of unemployment equals the current unemployment rate of 4.5%.
- Calculations from the Ministry of Economics are incorrect since by definition the actual rate of unemployment cannot rise above the natural unemployment rate.
- Cardonia’s economy will grow until real GDP is equal to potential real GDP and the unemployment rate equals 3.5%.
A: Cardonia’s economy will grow until real GDP is equal to potential real GDP and the unemployment rate equals 3.5%.

Q: The natural rate of unemployment in the country of Cigan is 4.3% based off of its Department of Economic Statistics on unemployment. This year Cigan’s economy began to improve dramatically and the actual unemployment rate decreased to 3.2%. What is the likely outcome for the economy of Cigan, assuming the unemployment percentages are accurate?
- The structural rate of unemployment will increase until the natural rate of unemployment equals the current unemployment rate of 3.5%.
- Calculations from the Department of Economic Statistics are incorrect since by definition the actual rate of unemployment be below the natural unemployment rate.
- Cigan’s growing economy will slow until real GDP is equal to potential real GDP and the unemployment rate equals 4.3%.
A: Cigan’s growing economy will slow until real GDP is equal to potential real GDP and the unemployment rate equals 4.3%.

Q: During the 1990s worker productivity growth spiked as computers and the internet were introduced to many businesses for the first time. How did this affect the natural unemployment rate?
- Natural unemployment increased as computers replaced workers.
- Natural unemployment was unaffected.
- Natural unemployment decreased as productivity growth outstripped wage growth.
A: Natural unemployment decreased as productivity growth outstripped wage growth.

Q: By the early 2000s, worker productivity growth spiked as more temporary workers were employed as they looked for more permanent work. How did this affect the natural unemployment rate?
- Natural unemployment increased as temps replaced long term workers.
- Natural unemployment was unaffected.
- Natural unemployment decreased as fewer workers were without jobs while looking for more permanent jobs.
A: Natural unemployment decreased as fewer workers were without jobs while looking for more permanent jobs.

Q: All else equal, how will increasing unemployment insurance affect the natural rate of unemployment?
- The natural rate of unemployment is likely to decrease.
- The natural rate of unemployment will remain unaffected.
- The natural rate of unemployment is likely to increase.
A: The natural rate of unemployment is likely to increase.

Q: All else equal, how would decreasing unemployment insurance affect the natural rate of unemployment?
- The natural rate of unemployment is likely to increase.
- The natural rate of unemployment will remain unaffected.
- The natural rate of unemployment is likely to decrease.
A: The natural rate of unemployment is likely to decrease.

Q: Which of the following is a commonly cited reason for a decrease in the unemployment rate between the 1980s and today?
- The rise of the internet’s easy access to graphic design software.
- Young millennials entering the workforce in large numbers.
- The aging baby boomer population reaching middle age.
A: The aging baby boomer population reaching middle age.

Q: Which of the following is a commonly cited explanation for persistently high unemployment rates in Europe compares to the United States?
- Less generous unemployment insurance benefits.
- Slower technological growth in Europe compared to the USA.
- Stricter hiring and firing rules for employers.
A: Stricter hiring and firing rules for employers.

Q: You are an economist studying the small country of Mardodus. As you look at the data, you see Mardodus has experienced an influx of updated technology to its manufacturing plants, service industry and the medical field in the last three years. This change boosted the growth of the country’s productivity by 75%, yet you see that wages have been very slow to respond to this growth. As you begin to analyze the natural unemployment rate for this time frame, what do you most likely discover?
- Natural rate of unemployment will increase as the new technology displaces workers in the aforementioned industries.
- Natural rate of unemployment will remain unchanged because frictional and structural unemployment are not affected by productivity growth.
- Natural rate of unemployment will decrease because the productivity growth in the short term has passed up wage growth.
A: Natural rate of unemployment will decrease because the productivity growth in the short term has passed up wage growth.

Q: The fictional country of Yieng has had an influx of updated technology to its manufacturing plants and the medical field in the last three years. This has boosted the growth of the country’s productivity by 75%, but this year the pace has significantly dropped off. Wages were at first slow to respond to the growth, but now have reached new heights. Now that productivity growth has stopped increasing, what do you expect to happen to the natural unemployment rate for this stimed growth period?
- Natural rate of unemployment will decrease as the new technology displaces workers in the aforementioned industries.
- Natural rate of unemployment will remain unchanged because frictional and structural unemployment are not affected by productivity growth.
- Natural rate of unemployment will increase because productivity has decreased, wages are high, and there is a gap between demand and labor supplied.
A: Natural rate of unemployment will increase because productivity has decreased, wages are high, and there is a gap between demand and labor supplied.

Q: Which of the following does NOT describe inflation?
- It is an increase in the cost of a given basket of goods.
- It reduces the real value of anything expressed in dollars.
- It can occur even when many goods are falling in price.
- It means that the price of every good and service is rising.
A: It means that the price of every good and service is rising.

Q: Which of the following describes inflation?
- It means that the price of every good and service is rising.
- It increases the real value of anything expressed in dollars.
- It can occur only when many goods are falling in price.
- It is an increase in the cost of a given basket of goods.
A: It is an increase in the cost of a given basket of goods.

Q: Which of the following inflation rates is most likely to affect consumer behavior?
- 1.5%
- 2.5%
- 5%
- 15%
A: 15%

Q: Of the following inflation rates, which is most likely to affect consumer behavior?
- 1.0%
- 2.0%
- 6%
- 17%
A: 17%

Q: Which of the following BEST fits the definition of inflation?
- A new car model costs 15% more than the previous year’s model.
- The cost of education has increased by 100% over the past two decades.
- The price of most goods and services increases by 5% over a 2 year period.
A: The price of most goods and services increases by 5% over a 2 year period.

Q: For the definition of inflation, which of the following BEST fits?
- A new car model costs 12% more than the previous year’s model.
- The cost of education has increased by 75% over the past two decades.
- The price of most goods and services increases by 6% over a 3 year period.
A: The price of most goods and services increases by 6% over a 3 year period.

Q: Which of the following BEST describes the effect inflation has on purchasing power in the United States over the past several decades?
- $15 today has the same purchasing power as $100 in 1972.
- $100 today has the same purchasing power as $80 in 1972.
- $100 today has the same purchasing power as $15 in 1972.
A: $100 today has the same purchasing power as $15 in 1972.

Q: In the United States over the past several decades inflation has affected purchasing power. Which of the following BEST describes this effect?
- $20 today has the same purchasing power as $150 in 1972.
- $150 today has the same purchasing power as $75 in 1972.
- $150 today has the same purchasing power as $20 in 1972.
A: $150 today has the same purchasing power as $20 in 1972.

Q: A price index is NOT
- a weighted average price of some type of good or service (e.g. consumer prices).
- the cost of a specific basket of goods and services.
- an inflation rate.
A: an inflation rate.

Q: A price index is
- the cost of all goods and services.
- an inflation rate.
- a weighted average price of some type of good or service (e.g. consumer prices).
A: a weighted average price of some type of good or service (e.g. consumer prices).

Q: Which of the following is a step in calculating a price index?
- Adjusting for changes in the unemployment rate.
- Computing the cost of all goods and services in the base period.
- Selecting the kinds and quantities of goods and services to be included in the index.
A: Selecting the kinds and quantities of goods and services to be included in the index.

Q: The base year for the price index is
- the current year.
- the year with the biggest increase in prices from the previous year.
- an arbitrary year from which to measure price changes.
A: an arbitrary year from which to measure price changes.

Q: David’s pay last year was $100,000. His pay this year increased to $115,000. The consumer price index increased from 100 to 115 over the same time period. What has happened to David’s real income from last year to this year?
- David’s real income increased.
- David’s real income decreased.
- David’s real income is unchanged.
A: David’s real income is unchanged.

Q: Kim’s nominal income is $75,000. If the consumer price index is 75, Kim’s real income is ________ in base year prices.
- $56,250
- $75,075
- $100,000
A: $100,000

Q: In the table below there are three years of a basket of retail goods. From this information calculate the price index of 1990 if the base year in 1980? (Round your answer to the nearest whole number.)

Good | Amount | 1980 | 1985 | 1990
Tomatoes | 25 | $0.15 | $0.25 | $0.55
Milk | 5 | $1.50 | $2.23 | $2.95
Eggs | 1 | $1.00 | $1.25 | $1.50
- 189
- 152
- 245
A: 245

Q: In the table below there are three years of a basket of retail goods. From this information calculate the price index of 1985 if the base year in 1980? (Round your answer to the nearest whole number.)

Good | Amount | 1980 | 1985 | 1990
Tomatoes | 25 | $0.15 | $0.25 | $0.55
Milk | 5 | $1.50 | $2.23 | $2.95
Eggs | 1 | $1.00 | $1.25 | $1.50
- 141
- 245
- 152
A: 152

Q: Given the table above, what is the price index for 2013, with 2012 as the base year having a price index of 100 (round your answer to the nearest whole number).

Items | Quantity in Basket | 2012 Price | 2013 Price
Cake | 3 | $12.00 | $13.00
Pie | 4 | $8.00 | $10.00
Cupcake | 10 | $2.00 | $2.50
- 110
- 120
- 118
A: 118

Q: Given the table above, what is the price index for 2013, with 2012 as the base year having a price index of 100 (round your answer to the nearest whole number).

Items | Quantity in Basket | 2012 Price | 2013 Price
Coffee | 8 | $4.00 | $4.50
Tea | 4 | $2.00 | $2.25
Soda | 6 | $1.25 | $1.50
- 100
- 88
- 114
A: 114

Q: In Fairwind Country, there are only 4 consumer goods or services: tourism, popcorn, carrots, and berries. Using the data in the following table, please calculate the CPI values for 2005 and 2015, using 1985 as a base year. The average family purchased the market basket indicated by the columns "Items" and "Quantity."

Items | Quantity | Year: 1985 | Year: 2005 | Year: 2015
 |  | Price | Amount Spent | Price | Amount Spent | Price | Amount Spent
Tourism | 2 | $125.00 |  | $150.00 |  | $200.00 |
Popcorn | 25 | $4.00 |  | $5.00 |  | $7.00 |
Carrots | 10 | $0.75 |  | $2.25 |  | $3.50 |
Berries | 15 | $1.50 |  | $2.50 |  | $4.00 |
Total | 2 |  |  |  |  |  |
- 2005: 137; 2015: 176
- 2005: 128; 2015: 138
- 2005: 128; 2015: 176
A: 2005: 128; 2015: 176

Q: In Imarith Country, there are only 4 consumer goods or services: tourism, popcorn, carrots, and berries. Using the data in the following table, please calculate the CPI values for 2010 and 2017, using 1990 as a base year. The average family purchased the market basket indicated by the columns "Items" and "Quantity."

Items | Quantity | Year: 1990 | Year: 2010 | Year: 2017
 |  | Price | Amount Spent | Price | Amount Spent | Price | Amount Spent
Tourism | 2 | $135.00 |  | $167.00 |  | $220.00 |
Popcorn | 25 | $5.00 |  | $5.75 |  | $9.00 |
Carrots | 10 | $1.00 |  | $2.55 |  | $4.50 |
Berries | 15 | $2.50 |  | $3.50 |  | $6.00 |
Total | 2 |  |  |  |  |  |
- 2010: 134; 2017: 181
- 2010: 128; 2017: 134
- 2010: 126; 2017: 181
A: 2010: 126; 2017: 181

Q: In 2005 the price index was calculated at 115.3 with 2000 as the base year. In 2006 the price index increased to 119.5. What was the inflation from 2005-2006?
- 4.2%
- 19.5%
- 15.3%
- 3.6%
A: 3.6%

Q: In 2008 the price index was calculated at 165.2 with 2005 as the base year. In 2009 the price index increased to 181.6. What was the inflation from 2008-2009?
- 9.0%
- 81.6%
- 65.2%
- 9.9%
A: 9.9%

Q: In the fictional country of Dirian the economics statistics department has been busy calculating the price index for a basket of goods from 2013 to 2017. January 2013 is the standardized price index, at 100, for a basket of consumer goods in the country. The price index increased in 2014 to 104.7, in 2015 to 109.3, in 2016 to 113.1, and in 2017 it increased to 119.2. You have been called to the country to help establish the rate of inflation for those years. What are the inflation rates in Dirian for 2014, 2015, 2016, and 2017?
- 2014: 4.7%; 2015: 9.3%; 2016: 13.1%; 2017: 19.2%
- 2014: 4.4%; 2015: 3.5%; 2016: 5.4%; 2017: 4.7%
- 2014: 4.7%; 2015: 4.4%; 2016: 3.5%; 2017: 5.4%
A: 2014: 4.7%; 2015: 4.4%; 2016: 3.5%; 2017: 5.4%

Q: The Department of Economic Health in the country of Cavia has calculated the price index for a basket of goods from 2014 to 2018. January 2014 is the standardized price index (at 100) for a basket of consumer goods. The price index increased in 2015 to 105.7, in 2016 to 108.6, in 2017 to 115.9, and in 2018 it increased to 120.4. What are the inflation rates in Cavia for 2015, 2016, 2017, and 2018?
- 2015: 5.7%; 2016: 8.6%; 2017: 15.9%; 2018: 20.4%
- 2015: 2.7%; 2016: 6.7%; 2017: 3.9%; 2018: 5.7%
- 2015: 5.7%; 2016: 2.7%; 2017: 6.7%; 2018: 3.9%
A: 2015: 5.7%; 2016: 2.7%; 2017: 6.7%; 2018: 3.9%

Q: If the Consumer Price Index was 186.5 at the end of last year and 179.8 at the end of this year, the country experienced which of the following?
- An inflation rate of 3.59 percent.
- An inflation rate of 3.72 percent.
- A deflation rate of 3.72 percent.
- A deflation rate of 3.59 percent.
A: A deflation rate of 3.59 percent.

Q: With a Consumer Price Index of 179.8 at the end of last year and 186.5 at the end of this year, the country experienced which of the following?
- An inflation rate of 3.72 percent.
- A deflation rate of 3.59 percent.
- A deflation rate of 3.72 percent.
- An inflation rate of 3.59 percent.
A: An inflation rate of 3.59 percent.

Q: The percentage change in the price level from one time period to the next, will be the ________.
- price index
- size of the business cycle trough
- inflation rate
A: inflation rate

Q: Which is the largest expenditure category in the US CPI?
- entertainment
- transportation
- housing
A: housing

Q: Which is the smallest expenditure category in the US CPI?
- recreation
- apparel
- other goods and services
A: other goods and services

Q: The following table indicates the CPI for the country of Praton over the last four years. Using the information in the table, calculate the annual inflation rates. Which time frame had the lowest annual inflation rate?

Year | CPI
2014 | 100
2015 | 109
2016 | 122
2017 | 127
- 2015-2016
- 2016-2017
- 2014-2015
A: 2014-2015

Q: The following table indicates the CPI for the country of Praton over the last four years. Using the information in the table, calculate the annual inflation rates. Which time frame had the lowest annual inflation rate?

Year | CPI
2014 | 100
2015 | 109
2016 | 122
2017 | 127
- 2015-2016
- 2014-2015
- 2016-2017
A: 2016-2017

Q: Which of the following is NOT a shortcoming of using the CPI to measure changes in the cost of living.
- Substitution bias
- Quality improvements
- Monetary policy
A: Monetary policy

Q: Why are certain policy decisions (like those undertaken by the Federal Reserve) best informed by using the core inflation index as opposed to the CPI?
- Food and energy prices do not affect the cost of living for consumers.
- Food and energy prices are notoriously difficult to calculate.
- Fluctuations in food and energy prices can be transitory.
A: Fluctuations in food and energy prices can be transitory.

Q: When the federal government calculates the cost of living they use the core inflation index instead of CPI, and use it to make policy decisions. What is one of the reasons to use the core inflation index as opposed to the CPI?
- Food and energy prices rarely affect consumer’s cost of living.
- It is difficult to calculate food and energy prices.
- The fluctuations in food and energy prices can be momentary.
A: The fluctuations in food and energy prices can be momentary.

Q: Which of the following is included in the core inflation index calculation?
- food prices
- gasoline prices
- housing prices
A: housing prices

Q: Which of the following is included in the core inflation index calculation?
- electrical energy prices
- food prices
- clothing prices
A: clothing prices

Q: Which of the following goods is likely not to be included in CPI calculations that take 1982-1984 as the base year?
- bread
- motor Oil
- baseballs
- laptop Computers
A: laptop Computers

Q: If you were to look at the CPI calculations based from 1984-1986, what of the following goods would likely be left out of that CPI calculation?
- eggs
- transmission fluid
- televisions
- smart phones
A: smart phones

Q: If economists design a way to eliminate the substitution bias in CPI calculations, how is the CPI likely to change as a result?
- The CPI will grow at a faster rate.
- The CPI will not be affected by this change.
- The CPI will grow at a slower rate.
A: The CPI will grow at a slower rate.

Q: If economists design a way to eliminate the new goods bias in CPI calculations, how is the CPI likely to change as a result?
- The CPI will grow at a faster rate.
- The CPI will not be affected by this change.
- The CPI will grow at a slower rate.
A: The CPI will grow at a slower rate.

Q: Rapid technological change is likely to increase which problem MOST for CPI as an accurate measure of cost of living changes?
- substitution bias
- income bias
- new goods bias
A: new goods bias

Q: If an economist is considering swiftly increasing technological changes in an economy, which of the following is MOST likely to contribute to the CPI problem of accurately measuring of the cost of living changes?
- substitution bias
- income bias
- new goods bias
A: new goods bias

Q: If technological growth and innovation is halted over a protracted period, which CPI bias problem is likely to persist?
- new goods bias
- quality improvement bias
- income bias
- substitution bias
A: substitution bias

Q: The country of Zanzibar has experienced a halt in its technological growth and innovation over a protracted period. Which CPI bias problem is likely to persist in this scenario?
- new goods bias
- quality improvement bias
- income bias
- substitution bias
A: substitution bias

Q: The mid-1990s saw a rise in the use of mobile phones in the general population. The technology continued to improve in the early 2000s and in the mid-2000s smartphones revolutionized the way people communicated. The technology has changed very rapidly and improved the lives of consumers. With these rapid changes, what would you suspect has happened to the CPI calculation?
- The CPI has overstated the cost of living because of income bias.
- The CPI has understated the cost of living because of quality improvement bias.
- The CPI has overstated the cost of living because of quality improvement bias.
A: The CPI has overstated the cost of living because of quality improvement bias.

Q: In the early 2000s and flat screen TVs were introduced into the market. By the 2010s flat screens were flatter and less expensive. The technology changed quickly over just a few decades and improved consumers TV and entertainment experience. In regards to this technological improvement, how has the CPI calculation been biased?
- The CPI has overstated the cost of living because of income bias.
- The CPI has understated the cost of living because of quality improvement bias.
- The CPI has overstated the cost of living because of quality improvement bias.
A: The CPI has overstated the cost of living because of quality improvement bias.

Q: Which of the following is the name used to describe the price index that consists of raw materials and intermediate goods?
- Consumer Price Index
- Employment Cost Index
- Producer Price Index
A: Producer Price Index

Q: The Producer Price Index is based on prices paid for supplies and inputs by ________.
- consumers
- government
- producers of goods and services
A: producers of goods and services

Q: The GDP Deflator is
- the growth rate of real GDP between two periods.
- nominal GDP minus real GDP.
- the ratio of nominal GDP to real GDP.
A: the ratio of nominal GDP to real GDP.

Q: Which of the price indices below measures the cost of a basket of goods comprising of all the components of GDP?
- Consumer Price Index
- Core CPI
- GDP Deflator
A: GDP Deflator

Q: The prices of which of the following items are included in the GDP deflator?
- Consumption
- Consumption plus Investment but not Exports
- Consumption, Investment, Government Expenditures plus Exports minus Imports
A: Consumption, Investment, Government Expenditures plus Exports minus Imports

Q: The prices of which of the following items are included in the PPI?
- Finished goods from producers and labor costs
- Labor costs of producers
- Supplies, finished goods, intermediate goods, crude materials by producers
A: Supplies, finished goods, intermediate goods, crude materials by producers

Q: In the base year in a small island macroeconomy, nominal GDP was $400m. In a later year when the general level of all prices was twice as high, nominal GDP reached $1000m. Between the base year and the later year:
- there was real GDP growth by more than 100%.
- real GDP declined.
- inflation occurred.
A: inflation occurred.

Q: In a small country, the macroeconomy in its base year was a nominal GDP of $600m. In a later year, the general level of all prices was two and a half times as high, and nominal GDP reached $1500m. Between the base year and the later year:
- real GDP grew by more than 100%.
- real GDP declined.
- there was inflation.
A: there was inflation.

Q: Henry accepted a new position at a ball bearing manufacturing plant after graduation from college. With his macroeconomic education, Henry has been asked to advise the best way to measure inflation for the company to be able to accurately adjust its prices. What would Henry advise the company use?
- GDP Deflator
- Consumer Price Index
- Producer Price Index
A: Producer Price Index

Q: Henry has accepted a new position in the Federal government after working at ball bearing manufacturing plant. He has been put to the task to measure the economic growth as accurately as possible for the nation’s last year. What would Henry use in this instance to produce the most accurate growth analysis?
- Producer Price Index
- Consumer Price Index
- GDP Deflator
A: GDP Deflator

Q: Inflation makes certain things less valuable in real terms, including:
- real estate and precious metals.
- your full college scholarship.
- anything expressed in dollars.
A: anything expressed in dollars.

Q: Identify which of the following answers in real terms, are made less valuable by inflation?
- Precious metals and real estate.
- A full college scholarship.
- Everything expressed in dollars.
A: Everything expressed in dollars.

Q: In 1985 inflation in Israel reached a record 500%. How did this period of high inflation affect market adjustments towards equilibrium price and quantity?
- Markets could not adjust to equilibrium.
- Markets adjusted to equilibrium faster than before.
- Markets adjusted to equilibrium more erratically and slowly.
A: Markets adjusted to equilibrium more erratically and slowly.

Q: In 1989-90 inflation in Poland reached over 600%. How did this high inflation affect market adjustments towards equilibrium quantity and price?
- Markets could not adjust to equilibrium.
- Markets adjusted to equilibrium faster than before.
- Markets adjusted to equilibrium more erratically and slowly.
A: Markets adjusted to equilibrium more erratically and slowly.

Q: Inflation increases uncertainty in the markets because:
- sellers raise the prices of their products very gradually and predictably.
- consumers may put less effort into shopping to find the best price.
- it is more difficult to stay aware of how one product compares in cost to another.
A: it is more difficult to stay aware of how one product compares in cost to another.

Q: Why does Inflation increase uncertainty in the markets?
- Because sellers raise the prices very gradually and predictably for their products .
- Because consumers compare prices less in their shopping activities to find the cheapest deal.
- Because it is harder to stay aware of how one product cost compares to another.
A: Because it is harder to stay aware of how one product cost compares to another.

Q: Under ideal conditions inflation should not have any blurring effect on price signals. If wages and prices are rising at a constant 20% then individuals should be able to adjust their expectations accordingly. For example, if the price of bread increased by 20% and the price of the input flour also rose by 20%, the sellers should know that the real price of bread has not changed. The market equilibrium quantity and price has not changed. Why does inflation in the real world result in shortages and surpluses?
- Sellers care more about nominal prices than real prices of goods.
- Input prices are rarely affected by inflation.
- Price adjustments are not synchronized or smooth.
A: Price adjustments are not synchronized or smooth.

Q: If the economy was running with ideal conditions, inflation wouldn’t be blurring the price signals. If prices and wages rise at a consistent 15% then people could shift their expectations. As an example, if the price of eggs increased by 15% and the price of the input chicken feed also rose by 15%, the sellers should know that the real price of eggs has not changed. The market equilibrium price and quantity has not changed. In the real world why does inflation actually result in shortages and surpluses?
- Sellers care more about nominal prices than real prices of goods.
- Input prices are rarely affected by inflation.
- The changes to prices are not smooth or synchronized.
A: The changes to prices are not smooth or synchronized.

Q: The redistribution of purchasing power due to unexpected inflation benefits which group of people?
- elderly persons on pensions with cost-of-living adjustments
- home buyers with adjustable rate mortgages
- students with fixed-rate educational loans
A: students with fixed-rate educational loans

Q: Which group of people is harmed by the redistribution of purchasing power due to unexpected inflation?
- home buyers with adjustable rate mortgages
- students with variable-rate educational loans
- lenders
A: lenders

Q: During the 1970s when inflation accelerated, middle-class Americans benefited primarily because
- nominal wages fell.
- inflation always benefits the middle class.
- the value of their mortgage debts decreased in real terms.
A: the value of their mortgage debts decreased in real terms.

Q: With accelerated inflation In the 1980s middle-class Americans benefited primarily because
- nominal wages fell.
- The middle class always benefits from inflation.
- in real terms, their home mortgage debts decreased in value.
A: in real terms, their home mortgage debts decreased in value.

Q: This past year inflation in Snowdonia has increased to 150%. As an economic analyst, you are charged with identifying those sectors of the population worst affected by this inflation event. Which group of people is likely to be worst affected by inflation?
- pensioners drawing from a “defined contribution” retirement plan
- homeowners with a 30 year fixed mortgage
- disabled veterans living on fixed (non-adjustable) government transfer payments
A: disabled veterans living on fixed (non-adjustable) government transfer payments

Q: Last year the country of Barboo had its inflation increase by 200%. You work for the Barboo government as an economist and have been given the task to identify the sectors of Barboo’s population that are affected by this inflation the worst. Which of the following group is probably the worst affected by inflation?
- homeowners in Barboo with a 15 year fixed mortgage
- retirees getting distributions from a “defined contribution” retirement plan
- veterans existing on fixed (non-adjustable) government payments
A: veterans existing on fixed (non-adjustable) government payments

Q: Tony’s grandfather is close to retirement from his job of 40 years at the automotive manufacturer. The grandfather has a defined benefit plan for his retirement and is looking forward to having that same amount coming to him for the rest of his life. Tony has just learned about inflation and its redistribution of purchasing power. Tony wants to give his grandfather good advice so that his grandfather’s purchasing power will be able to keep up with inflation. What can Tony advise his grandfather to do to minimize the purchasing power inflation impact over time?
- Tony advises his grandfather to take the fixed benefit plan option and have a fixed amount of money distributed to him over their lifetime with no worries.
- Tony advises his grandfather to retire early and take out all of his money, paying the early withdrawal penalty and move to Florida.
- Tony advises his grandfather to start a business with his retirement funds and keep his money working for him to keep up with inflation.
A: Tony advises his grandfather to start a business with his retirement funds and keep his money working for him to keep up with inflation.

Q: You have older parents who have been saving for retirement for decades. They are now getting close to retirement age and are looking at their options. One would like to leave everything in the pension fund and draw out a fixed, unchangeable amount over their retirement time. Your other parent wants to take out a chunk of retirement funds and purchase a business and use the profit from it to generate funds on which to live. You have noticed that inflation over the last year is on a rapid rise. What would you advise your parents to do based on what you know of inflation and its redistribution of purchasing power?
- You would advise them to take the fixed benefit plan option so they could count on a fixed amount of money distributed to them over their lifetime.
- You would advise them to retire early and take out all of their money, paying the early withdrawal penalty and start their cruise around the world now.
- You would advise them to buy a business with their retirement funds and keep their money working for them to keep up with inflation.
A: You would advise them to buy a business with their retirement funds and keep their money working for them to keep up with inflation.

Q: After a prolonged period of high inflation the government of Atlantia decides to set a target of 0% inflation going forward. As the new assistant economic minister, you are tasked with critiquing this policy. Which criticism of the 0% inflation target is best supported by the economic literature?
- It is undisputed that too little inflation interferes with the downward adjustment of real wages.
- Moderate to high inflation is popular among consumers.
- A 0% inflation target could lead to deflation.
A: A 0% inflation target could lead to deflation.

Q: After a prolonged period of high inflation the government of Oceania decides to set a target of 0% inflation going forward. As the new assistant economic minister, you are tasked with critiquing this policy. Which criticism of the 0% inflation target is plausible yet controversial among economists?
- A 0% inflation target could lead to deflation.
- Moderate to high inflation is popular among consumers.
- Too little inflation interferes with the downward adjustment of real wages.
A: Too little inflation interferes with the downward adjustment of real wages.

Q: Using your understanding of economic history and inflation, which inflation target is most advisable?
- 10-20%
- 0%
- 1-2%
A: 1-2%

Q: After learning about inflation and some of its history, what would be the inflation target that is most advisable for an economy?
- 15-20%
- 0%
- 1-2%
A: 1-2%

Q: How may low inflation actually assist labor markets adjust towards equilibrium?
- It increases the living standard of workers by diminishing their fixed debt.
- It forces more frequent renegotiation of labor contracts.
- It allows for the gradual downward adjustment of real wages.
A: It allows for the gradual downward adjustment of real wages.

Q: What is the one of the reasons low inflation may actually assist labor markets adjust towards equilibrium?
- Low inflation increases the living standard of workers by diminishing their fixed debt.
- Low inflation forces more frequent renegotiation of labor contracts.
- Low inflation allows for the gradual downward adjustment of real wages.
A: Low inflation allows for the gradual downward adjustment of real wages.

Q: In the last few decades the car manufacturing sector has found it difficult to compete with foreign car imports. High labor costs is one of the main reasons economist site as the lack of competitiveness for the car manufacturing industry. If there was modest inflation, how could it possibly help the car manufacturing industry in the United States compete with foreign car manufacturers?
- The consumers of the cars have increased purchasing power.
- Business loans would cost less for the U.S. car manufacturers.
- It could allow real wages to downwardly adjust more easily.
A: It could allow real wages to downwardly adjust more easily.

Q: In the last few decades the electronics manufacturing sector has found it difficult to compete with electronics from foreign competitors. High labor costs is one of the main reasons economist site as the lack of competitiveness for the electronics manufacturing industry. If there was modest inflation how could it possibly help the electronics manufacturing industry compete?
- The consumers of the electronics have increased purchasing power.
- Business loans would cost less for the U.S. electronics manufacturers.
- It could allow real wages to downwardly adjust more easily.
A: It could allow real wages to downwardly adjust more easily.