ECON 211 MCQs Questions

ECON 211 Unit 2 Assignment Guide SU18 - Chapters 21 & 22 Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Substitution bias in the CPI refers to the fact that the CPI

A) takes into account the substitution of goods by consumers when relative prices change.

B) substitutes relative prices for absolute prices of goods.

C) takes no account of the substitution of goods by consumers when relative prices change.

D) substitutes quality changes whenever they occur without taking account of the cost of the quality changes.

2) In the equation, GDP = C + I + G + X - M, G refers to

A) the taxes and expenditures of all government units.

B) local, state, and federal government spending for all purposes.

C) local, state, and federal government expenditure on goods and services, but does not include transfer payments.

D) federal government expenditures plus all transfer payments.

3) Which of the following expenditures is for an intermediate good?

A) You buy new tires for your used car.

B) The government buys new tires for its military vehicles.

C) General Motors buys new tires to put on the cars it's building.

D) A U.S. tire firm sells new tires to Canada.

4) The table below shows the price index for Zimbabwe starting in 2000.


Price Index















Which of the following statements CORRECTLY describe the behavior of prices in Zimbabwe?

I. The cost of the CPI basket increased.

II. The inflation rate was 73.4 percent between 2000 and 2001.

A) I only B) II only

C) both I and II D) neither I nor II

5) All of the following are components of the expenditure approach to measuring GDP EXCEPT

A) Shaniq's purchase of a meal at the Olive Garden in Atlanta.

B) Ford Motor Company buying new Dell computers for use in its marketing department in Dearborn, Michigan.

C) a Senator from Iowa being paid the monthly salary.

D) the army buying new M1 Abram tanks.

6) The natural unemployment rate ________.

A) equals zero

B) is the same from year to year

C) is greater than the actual rate of unemployment

D) is the unemployment rate when there is no cyclical unemployment

7) The chain-weighted output index

A) uses only the current year's prices to calculate growth in real GDP.

B) is an inaccurate way to measure growth in real GDP and so has been replaced by the "nominal-to-real" index.

C) uses prices for the current year and the previous year to calculate growth in real GDP.

D) must be calculated only every other year.

8) The chain-weighted output index method of measuring real GDP is based on

A) averaging the market value of the expenditures over a two year period and then comparing with a base period.

B) averaging the nominal and real measures of GDP to come up with a more accurate figure.

C) using current prices rather than base year prices.

D) using the prices of two adjacent years to calculate the growth rate of real GDP.

9) Suppose the country of Tiny Town experienced frictional unemployment. This frictional unemployment would

A) signal that the number of discouraged workers is growing.

B) definitely signal that the country is in a recession.

C) be considered a natural occurrence in a growing economy.

D) signal that there are more job leavers than job losers.

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10) In the above figure, household income is shown by flow

A) A. B) B.

C) C. D) F.

11) In the above figure, consumption expenditure is shown by flow

A) A. B) B.

C) C. D) F.

12) In a period of rapid, unexpected inflation, resources can be lost

A) because rapid inflation almost always turns into a hyperinflation.

B) when firms invest in research and development instead of forecasting inflation.

C) when firms use resources to forecast inflation.

D) Both answers B and C are correct.

13) Inflation in Vietnam rose to 27 percent in July 2008—the highest inflation rate in Asia. "Squeezed on all sides, people are cutting back on food, limiting travel, looking for second jobs, delaying major purchases and waiting for the cost of a wedding to go down before marrying...Given this slowdown, Vietnam... is scaling back its plans for growth and economic development. ... Some are losing confidence in the ability of the government to manage the economy. And rumors of price increases have caused panic buying of fuel and rice.", 8/23/2008

The story provides an example of how inflation

A) diverts resources from production. B) leads to increases in the consumer price index.

C) redistributes income. D) can lead to changes in the CPI market basket.

14) Of the following sequences of price levels, which CORRECTLY represents a 5 percent inflation rate?

A) 100, 105, 110, 115 B) 100, 100, 100, 100

C) 100, 105, 105, 105 D) 100, 105, 110.25, 115.76

15) If Ford sells 200 Explorers for a total of $400,000 to Germany, while the United States imports 100 BMWs for a total of $500,000 from Germany

A) U.S. GDP decreases because net exports are negative. B) Germany's GDP decreases.

C) U.S. net exports is positive. D) U.S. GDP increases because it sells more Explorers.

16) Which of the following is NOT included in real GDP?

A) production that takes place in the underground economy

B) production of goods that last less than a year, such as production of hot dogs

C) production of services, such as the services of hair dressers

D) production of goods that last more than a year, such as a pair of roller blades


population (millions)

Currently employed (millions)

Not working and looking for work (millions)

Want to work but no longer looking for work






17) In the table above, the official U-3 unemployment rate is

A) 10 percent. B) 5 percent.

C) 15 percent. D) 50 percent.

18) The labor force is defined as

A) workers with jobs and unemployed workers. B) people with full time jobs.

C) all people capable of work. D) All of the above answers are correct.

19) In China, suppose that the price level was 100 in 2014, 110 in 2015, and 120 in 2016. Over these three years

A) inflation did not occur. B) the inflation rate was positive.

C) the inflation rate accelerated. D) prices were stable.

20) Which of the following best fits the definition of unemployed?

A) not working and not looking for work B) retired and not working

C) working less than a full work week D) not working but looking for a job

21) The term "business cycle" most closely refers to the

A) fiscal year. B) accounting period used by firms.

C) alternating periods of expansions and recessions. D) fluctuating profits of firms.

22) Suppose that the unemployment rate equals 4.5 percent and that the natural unemployment rate is 5.5 percent. We can conclude that

A) the output gap is positive. B) we have mismeasured the natural unemployment rate.

C) the output gap is negative. D) the output gap equals zero.

23) Suppose the country of Quasiland experienced a decrease in real GDP and people were laid off from their jobs. The people would be considered part of

A) cyclical unemployment. B) frictional unemployment.

C) structural unemployment. D) discouraged workers.

24) The ________ equals the number of ________.

A) unemployment rate; people unemployed B) labor force; persons over 16 years old

C) working age population; employed persons D) labor force; unemployed and employed persons

25) The unemployment rate is found by dividing the number of unemployed people by the

A) number of the working-age population, and multiplying by 100.

B) number of working individuals, and multiplying by 100.

C) sum of working individuals plus unemployed workers, and multiplying by 100.

D) number in the labor force, and dividing by 100.

26) ABC news in Australia reported that the average annual wage in 2008 was $13,308. To calculate the real wage rate in Australia, you would need to know

A) the exchange rate between the U.S. dollar and the Australian dollar.

B) Australia's inflation rate between 2007 and 2008.

C) the core inflation rate in Australia in 2008.

D) Australia's price level in 2008.

27) The table below shows the price index for Zimbabwe starting in 2000.


Price Index















The data show that

A) new goods bias and quality change bias are responsible for most of Zimbabwe's inflation.

B) the inflation rate between the base year and 2001 is 73.4 percent.

C) the inflation rate between 2005 and 2006 was 319.2 percent.

D) while Zimbabwe experienced a high price level, it did not experience high inflation.

28) Suppose the natural unemployment rate equals 6 percent and the current unemployment rate is 8 percent. We can conclude that

A) full employment is not occurring. B) there is no cyclical unemployment.

C) there is no structural unemployment. D) there is no frictional unemployment.

"As the credit crisis unfolded over the past year, one of the few certainties in the global economy seemed to be China's ability to plough on regardless of double-digit growth rates...The ...crisis has also focused ...on the need to update a growth model still dependent on assembling goods for export without adding much value and on heavy industries that create pollution. Chinese companies have continued to find new foreign markets for their products...several other factors point to a slowing property market...production of steel, cement and air conditioners was down... Retail sales have risen by 23 per cent in each of the last two months".

Beijing's Burden,, by Geoff Dyer, Sept. 23, 2008

29) According to the article, ________ are expected to contribute ________ to China's real GDP in 2008.

A) exports and consumption; positively B) exports and investment; negatively

C) consumption and government spending; negatively D) rental income and investment; negatively

30) According to the article, ________ is expected to increase and add to China's ________ component of GDP.

A) rental income; exports B) rental income; investment

C) retail sales; consumption D) retail sales; investment

31) According to the article, ________ can be expected to ________ this year.

A) exports; increase B) consumption; decrease

C) net interest income; decrease D) imports; decrease

2012 2013
















32) In 2012, consumers in Dexter consumed only books and pens. The prices and quantities for 2012 and 2013 are listed in the table above. The reference base period for Dexter's CPI is 2012. What is the CPI in 2012?

A) 3.20 B) 320

C) 1.00 D) 100

33) Which type of graph is used to identify trends?

A) cross-section B) time-series

C) scatter diagram D) None of the above answers is correct.

34) Frictional unemployment

A) is unemployment associated normal labor turnover.

B) includes discouraged workers.

C) is voluntary part-time unemployment.

D) is unemployment associated with declining industries.

35) Net exports of goods and services equal the

A) exports of goods and services plus the imports of goods and services.

B) imports of goods and services minus the exports of goods and services.

C) exports of goods and services minus the imports of goods and services.

D) exports of goods and services divided by the imports of goods and services.

36) If unemployment equals the natural unemployment rate, then there

A) is less than full employment. B) is only frictional or structural unemployment.

C) are no job openings existing at the time. D) is zero unemployment.

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37) Using the above figure, during which month was the price for crude oil the highest?

A) July B) May

C) December D) October

38) Gross investment is equal to

A) depreciation plus net investment. B) depreciation minus net investment.

C) net investment minus capital stock. D) net investment plus capital stock.

39) Which of the following is TRUE regarding a trend?

I. A cross section graph shows trends.

II. A time-series graph shows trends.

III. A scatter plot shows trends over time.

A) I B) II

C) I and II D) II and III

Canada's economy expanded by...0.1 percent in the second quarter...further evidence that the economy has stalled...following a first quarter slip in gross domestic product. The second quarter figures fell well below forecasts of a 0.7 per cent growth in real GDP. Exports....fell for the fourth consecutive quarter. The accumulating gloom is increasingly discouraging business investment. Consumer spending remains strong and corporate profits were at their highest since 2004. "The sources of strength in the second quarter are clearly unsustainable," said Sal Gautieri, senior economist at BMO capital markets.

Canada Avoids Fall into Recession,, by Christopher Mason, August 30, 2008

40) According to the article, ________ in ________ have contributed to Canada's ________ change in real GDP.

A) increases; consumption and exports; expected B) decreases; exports and government spending; expected

C) decreases; exports and investment; unexpected D) increases; consumption and investment; unexpected

41) The official U-3 unemployment rate

A) includes persons without a job who have made efforts in the last week to find a job.

B) counts discouraged workers as unemployed.

C) includes persons without a job, whether they are actively searching for work or not.

D) counts people with part-time jobs who want full-time jobs as unemployed.

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42) In the above figure, which point represents an economy which is at the peak part of a business cycle?

A) point I B) point F

C) point G D) point K

43) In the above figure, which point represents the under use of resources?

A) point K B) point G

C) point F D) point H

44) The New York Times reported in November 2008 that 240,000 additional people lost their jobs which increased the unemployment rate to 6.5 percent. In addition, it was noted that a large number of college graduates were "taking jobs that do not require a college degree." It was also expected that "teens will be thrown out of the labor market....causing youths to miss experience" that could help them prepare for higher-skilled jobs.

The article reflects the idea that unemployment is a problem because it results in

A) a decrease in the labor force. B) a loss of human capital.

C) a loss of income. D) fewer discouraged workers.

45) Which of the following is TRUE regarding the chain-weighted output index method?

I. It is the method used to measure the growth rate of nominal GDP.

II. It uses data from the current year and from the previous year.

III. It is a method of measuring the growth rate of real GDP.

A) I and II B) II and III

C) I and III D) I, II and III

46) If the Consumer Price Index last year was 110 and 115 this year, the inflation rate is approximately

A) 15.0 percent. B) 5.0 percent.

C) 10.0 percent. D) 4.5 percent.

47) Trend refers to

A) decreases but not increases of a variable. B) the scale used on the x- and y-coordinates.

C) a general tendency for a variable to rise or fall. D) increases but not decreases of a variable.

48) The word "final" in the definition of GDP refers to

A) valuing production at market prices.

B) not counting intermediate goods or services.

C) the time period when production took place.

D) counting the intermediate goods and services used to produce GDP.

49) The following data show Uruguay's GDP using purchasing power parity in billions of dollars.

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008

GDP($) 26.1 25.8 23.3 24.3 27.9 30.1 33.9 37.2 40.2

Using the data, we can conclude that

A) potential GDP more than doubled between 2000 and 2008.

B) Uruguay's standard of living increased steadily between 2000 and 2008.

C) Uruguay's economy reached a trough in 2002.

D) Uruguay's economy entered a recession in 2005.

50) An article in the Financial Times reports on a trend by college students to take a year off after graduation given the lack of success in finding a job. "In a survey published last month by TMP Worldwide... 54 per cent of the final-year undergraduate interviewees were thinking about taking a gap year and one in 10 was planning to wait for a year to escape the financial chaos and wait for the economy to either improve or for the picture to become clearer.", 10/13/2008

These choices add to the fluctuations seen in the ________ as workers leave the labor force given their unsuccessful job searches.

A) employment rate B) labor force participation rate

C) efficiency wage D) inflation rate




Net taxes


Personal consumption





Government expenditure


Gross investment


Net exports


Compensation of employees


51) Using the information in the table above, calculate gross domestic product.

A) $86 B) $108

C) $118 D) $78

52) Real GDP in 2015 is $10 trillion. Between 2015 and 2016, using 2015 prices, GDP grew 3 percent and using 2016 prices real GDP grew 7 percent. Using the chain-weighted output index method, real GDP in 2016 is ________ trillion.

A) $11 B) $12.72

C) $10.5 D) $10.1

53) The horizontal axis on a time-series graph

A) measures the variable being graphed. B) measures units of time such as years.

C) runs parallel to the y-axis. D) measures how the variable being graphed changes.

54) The table below shows data regarding Germany's labor market.


Labor Force


Number of Employed
















The data show that Germany's unemployment rate in 2007 was

A) 5.6 percent

B) 8.4 percent

C) 9.8 percent.

D) More information is needed to answer this question.

55) If the basket of goods and services used to calculate the CPI cost $200 in the reference base period and $450 in a later year, the CPI for the latter year equals

A) 450. B) 325.

C) 200. D) 225.

56) ________ refers to a period when the ________ decreases.

A) Productivity growth slowdown; growth rate of output per person

B) Recession; growth rate of output per person

C) Recession; growth rate of nominal GDP

D) Productivity growth slowdown; growth rate of real GDP

57) The chain-weighted output index method of calculating real GDP compares

A) quantities produced in different years with the prices that prevailed during the year in which the output was produced.

B) quantities produced in different years using prices from a year chosen as a reference period.

C) prices at different points in time using a sample of goods that is representative of goods purchased by households.

D) compares the quantities of goods produced in consecutive years using prices in both years and averaging the percentage changes in the value of output.

58) The best example of a cyclically unemployed individual is

A) Mary who lost her job in the textile industry following a decrease in the tariff on textiles.

B) Alice who quit her job to enter college.

C) Charles who lost his job as a real estate salesperson when the housing market went soft because of a recession.

D) Bob who has just graduated from college and is entering the labor market.


Number (millions)

Discouraged workers


Unemployed workers


Employed workers


Population (16 years and over)


59) In the above table, the number of marginally attached workers is

A) 15 million. B) 55 million.

C) 40 million. D) 100 million.

60) Which of the following people would be considered unemployed by the Bureau of Labor Statistics?

I. Mrs. X retires from her job at the age of 55 and does not look for another job.

II. Mr. Y was laid off from his job as a welder, but expects to be rehired in 8 months.

A) I only B) II only

C) both I and II D) neither I nor II