If the price index is now 120, it means:
a. prices are 120 percent higher than in the base year.
b. prices are 20 percent higher than in the base year.
c. prices are 1.2 percent higher than in the base year.
d. nominal GDP will be less than real GDP.
Question 2Which of the following is false?
a. The most well known price index is the consumer price index, which provides a measure of the trend in the prices of goods and services purchased for consumption purposes.
b. The GDP deflator measures the average level of prices of all final goods and services produced in the economy.
c. The CPI is the price index that is most relevant to households trying to evaluate their changing financial position over time.
d. A price index is equal to the cost of the chosen market basket in the base year, divided by the cost of the same market basket in the current year, times 100.
Question 3The current cost of a market basket of goods is 800 . The cost of the same basket of goods in the base year was 1,000 . The current price index is:
a. 120.
b. 100.
c. 80.
d. -20.
Question 4The current cost of a market basket of goods is 9,000 . The cost of the same basket of goods in the base year was 3,000 . The current price index is:
a. 900.
b. 300.
c. 166.
d. 33.
Question 5A price index can be constructed by:
a. dividing the value of a market basket by the rate of inflation.
b. dividing the current-year value of a market basket by the base-year value of the same market basket and multiplying by 100.
c. multiplying the value of a market basket by the rate of inflation.
d. multiplying the current-year value of a market basket by the base-year value of the same market basket and dividing by 100.
Question 6Which of the following is not a leading economic indicator?
a. Prices of common stock
b. Number of new businesses formed
c. Unemployment rate
d. New orders for plants and equipment
Question 7Underemployment occurs when:
a. a firm hires fewer than the required number of workers, to save costs.
b. a firm hires workers who do not possess the required skills that the job demands.
c. a worker is over qualified and possesses more skills than what his job demands.
d. a firm hires more than the required number of workers.
Question 8Why do economists prefer using the term economic fluctuation rather than business cycle?
a. political correctness
b. number of parameters involved
c. excessive volatility of the cycles
d. lack of regularity of a cycle
Question 9Which of the following observations concerning leading economic indicators is true?
a. They provide warnings of likely downturns.
b. They provide accurate information on the depth of a downturn.
c. They provide accurate information on the duration of a downturn.
d. Both b. and c. are true.
Question 10Which of the following observations concerning phases of a business cycle is incorrect?
a. The maximum amount of unemployment occurs exactly at the trough.
b. The expansion phase is measured from the trough to the peak.
c. The trough is the point in time when output stops declining.
d. The contraction phase is also called recession.
Question 11In the expansion phase of the business cycle
a. output is rising.
b. unemployment is falling.
c. consumer and business confidence is high.
d. all of the above are true.
Question 12In general, the only thing that can cause a sustained increase in the rate of inflation is:
a. a high rate of growth in the supply of money.
b. a significant increase in unemployment.
c. a decrease in real GDP.
d. an increase in federal income taxes.
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