During economic contractions, output
a. and unemployment both fall
b. and unemployment both rise
c. rises, but unemployment falls
d. falls, but unemployment rises
e. and unemployment stagnate and both remain constant
2. GDP as predicted by the classical model is
a. lower than the actual level of GDP
b. higher than the actual level of GDP
c. smoother and steadier than actual GDP
d. more unstable over time than actual GDP
e. an accurate predictor of actual GDP
3. During which year in the period 1960-1996 did the U.S. unemployment rate reach its highest level?
a. 1965
b. 1975
c. 1982
d. 1988
e. 1990
4. During an economic contraction, which of the following occurs?
a. output falls, employment rises, and unemployment rises
b. output rises, employment falls, and unemployment falls
c. output falls, employment falls, and unemployment rises
d. output rises, employment rises, and unemployment falls
e. output falls, employment falls, and unemployment falls
5. Which statement best describes economic fluctuations?
a. expansions and contractions typically have about the same lengths
b. expansions typically last 7 years, while recessions typically last 3 years
c. expansions tend to be shorter than contractions
d. the percent change in output is larger during recessions than during expansions
e. expansions and contractions vary in duration and magnitude, with expansions tending to last longer than contractions
6. During the Great Depression, approximately how long did it take for the economy to return to full employment?
a. ten years
b. fifteen weeks
c. one year
d. thirty years
e. two years
7. What would a leftward shift of the labor demand curve indicate?
a. firms want to hire more workers than before at any given wage than before
b. firms want to pay a higher wage than before at any given level of employment
c. households want to supply fewer hours of work than before at any given wage rate
d. firms want to hire fewer workers than before at any given wage rate
e. households want to supply more hours of work than before at any given wage rate
8. If workers became more productive, which of the following would happen in the labor market?
a. the labor supply curve would shift to the right
b. the labor supply curve would shift to the left
c. the labor demand curve would shift to the right and the labor supply curve would shift to the left
d. the labor demand curve would shift to the left and the labor supply curve would shift to the left
e. the labor demand curve would shift to the right
9. If workers became more productive, which of the following would happen in the labor market?
a. the labor supply curve would shift to the right
b. the labor supply curve would shift to the left
c. the labor demand curve would shift to the right and the labor supply curve would shift to the left
d. the labor demand curve would shift to the left and the labor supply curve would shift to the left
e. the labor demand curve would shift to the right
10. Which of the following could lead to an increase in worker productivity?
a. a decrease in the physical capital stock
b. an increase in the number of workers
c. a war that destroys an enormous amount of plant and equipment
d. an increase in the physical capital stock
e. a decrease in the human capital stock
11. A weakness of the classical model is
a. the quality of its explanations for long-run movements of the economy
b. its confusion between the long and short run
c. its assumption that the labor market always clears
d. its treatment of crowding out in the long run
e. its inadequate attention to the long run
12. Which of the following is a definition of disequilibrium?
a. when markets do not clear
b. when current output is equal to potential output
c. when there is no inflation
d. when markets clear
e. when the quantity demanded equals the quantity supplied
13. The opportunity cost of working for the last worker hired can be expressed by
a. the unemployment rate
b. the production possibilities curve
c. the wage rate
d. the classical model
e. the demand for labor
14. At every point along the demand for labor curve, the wage rate tells us the
a. opportunity cost of each worker hired
b. benefit obtained by some firm from the last worker hired
c. benefit obtained by some firm from the first worker hired
d. average benefit obtained from each worker hired
e. opportunity cost of all workers hired
15. At every point along the demand for labor curve, the wage rate tells us the
a. opportunity cost of each worker hired
b. benefit obtained by some firm from the last worker hired
c. benefit obtained by some firm from the first worker hired
d. average benefit obtained from each worker hired
e. opportunity cost of all workers hired
16. Each point on the labor demand curve provides an expression for
a. the opportunity cost of working
b. workers' calculations about the work-leisure tradeoff
c. the equilibrium wage
d. the prevailing wage
e. the benefits obtained by some firm from the last worker hired
17. At the intersection of the labor supply and labor demand curves,
a. the opportunity cost of the last worker hired equals the benefit to some firm of hiring that worker
b. the opportunity cost of all workers hired equals the benefit to all firms from all workers
c. the opportunity cost of the average worker equals the benefit to some firm from the average worker
d. the labor market clears, but according to the classical model, the economy may not be at full employment
e. all members of the labor force have a job
18. During a recession, the labor market is in
a. equilibrium, but at a lower level of employment
b. equilibrium, but labor is less productive
c. disequilibrium, and the opportunity cost to the last worker hired exceeds the benefit to some firm from hiring the last worker
d. disequilibrium, and the benefit to some firm from hiring the last worker exceeds the opportunity cost to the worker
e. disequilibrium, where the quantity of labor demanded exceeds the quantity of labor supplied
19. Recessions do not last forever because there are
a. disincentives to increase the level of employment since the benefit to firms from additional employment exceeds the opportunity cost to workers
b. incentives to increase the level of employment since the benefit to firms from additional employment exceeds the opportunity cost to workers
c. incentives to increase the level of employment since the benefit to firms from additional employment lags behind the opportunity cost to workers
d. disincentives to increase the level of employment since the benefit to firms from additional employment lags behind the opportunity cost to workers
e. incentives to decrease the level of employment since the benefit to firms from additional employment lags behind the opportunity cost to workers
20. If you took a poll of firms and people in the labor force, which of the following responses would lead you to believe that the economy was in a recession?
a. firms would benefit from hiring more workers and people would like to work less
b. firms would benefit from hiring more workers and people would like to work more
c. firms would benefit from firing more workers and people would like to work more
d. firms would not benefit from firing or hiring more workers and no one would like to work more or less
e. firms would benefit from firing more workers and people would like to work less
21. What is similar in both booms and busts is the existence of
a. unemployment at disturbing levels
b. economic growth
c. pessimism on the part of individuals untrained in economics
d. incentives to change the level of unemployment
e. inflationary tendencies
22. A shock that could trigger a boom is a
a. large increase in oil prices
b. financial crisis
c. sudden cutback in military spending
d. large decrease in oil prices
e. sudden increase in the interest rate
23. According to the text, which of the following shocks have caused most of the recessions since 1950?
a. both c and e
b. all of the following
c. oil price increases
d. the beginning of a war
e. financial crises
24. Why does unemployment remain so high after an initial positive shock to job destruction?
a. job creation does not increase enough to absorb all the workers
b. because shocks to job destruction are large and long-lasting
c. job creation never increases but remains low and steady
d. job creation does not go up until well after the recession is over
e. most of the unemployed become discouraged and leave the labor force
25. If you observed that the number of overtime hours was increasing far above normal levels, what would you say about the state of the economy?
a. the economy is heading toward a recession
b. the economy is in a boom
c. the economy is in a recession
d. the economy is at the end of a boom
e. the economy is at its potential output level
26. If you observed firms increasing their prices and utilization rates decreasing toward normal levels, what would you say about the state of the economy?
a. the economy is heading toward a recession
b. the economy is in a boom
c. the economy is already in a recession
d. the economy is at the end of a boom
e. the economy is at potential output
27. Which of the following occurs during recessions?
a. employment falls below the full-employment level and firms temporarily operate at above-normal rates of utilization
b. employment rises above the full-employment level and firms temporarily operate at below-normal rates of utilization
c. employment falls below the full-employment level and firms temporarily operate at below-normal rates of utilization
d. employment rises above the full-employment level and firms permanently operate at below-normal rates of utilization
e. employment falls below the full-employment level and firms permanently operate at below-normal rates of utilization
28. The labor market clears
a. only when workers are not able to collect welfare
b. unless unions exist
c. as capacity utilization falls
d. during the long run
e. only in the short run
29. Anyone seeking to understand the causes of recessions must examine
a. the saving behaviors of different age groups
b. investment patterns in the housing market
c. disequilibrium in the manufacturing sector
d. changes in the level of spending
e. the work-leisure tradeoff
30. Which of the following is a common reaction to an increase in the interest rate?
a. a decline in oil prices
b. a war
c. a decrease in spending on new homes
d. a boom
e. an increase in military spending
Answer Key
1. > d
2. > c
3. > c
4. > c
5. > e
6. > a
7. > d
8. > e
9. > e
10. > d
11. > c
12. > a
13. > c
14. > b
15. > b
16. > e
17. > a
18. > d
19. > b
20. > b
21. > d
22. > d
23. > a
24. > a
25. > b
26. > d
27. > c
28. > d
29. > d
30. > c
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