Ch. 13 Study Guide
Multiple Choice
____1.Which of the following might cause the inflation rate to spike up sharply?
A. / The items in the CPI market basket change to account for changing consumer buying habits.B. / The purchasing power of the average consumer decreases due to a sluggish economy.
C. / Prices on world oil markets rise steeply due to war in the Middle East.
D. / Plentiful rainfall and moderate temperatures result in good harvests of wheat and soybeans.
____2.A knitting factory worker who loses her job because the company has relocated the plant to another country is an example of
A. / frictional unemployment. / C. / cyclical unemployment.B. / structural unemployment. / D. / seasonal unemployment.
____3.According to the demand-pull theory, what is responsible for inflation?
A. / Producers raise prices to meet existing demand.B. / The economy is in a wage-price spiral.
C. / Too much money is in circulation.
D. / Demand for goods and services exceeds existing supply.
____4.How has the distribution of income in the United States changed over the last 30 years?
A. / It has become more equal.B. / It has become less equal.
C. / It became more equal for about 10 years but has become less equal.
D. / It has not changed appreciably.
____5.Economists look to which of the following explanations for inflation?
A. / too much money in the economyB. / demand for goods exceeds supply, as in wartime
C. / producers raise prices in order to meet increased costs
D. / all of the above
____6.According to the cost-push theory, what is responsible for inflation?
A. / Producers raise prices to meet increased costs.B. / Demand for goods and services exceeds existing supply.
C. / Too much money is in circulation.
D. / The economy is operating as though there was a war.
____7.What does it mean when a person is underemployed?
A. / The person had been working but now is laid off.B. / The person is looking for work in a special field.
C. / The person is not making as much money as they need.
D. / The person has a job but they are overqualified for it.
____8.Which of the following is a result of unemployment that is very low?
A. / The few people who are unemployed stop looking for jobs.B. / Wages drop below the level of minimum wage.
C. / Companies have difficulties recruiting workers.
D. / Companies stop looking for people to fill unfilled jobs.
____9.What is a major problem for businesses during a period of chronic inflation?
A. / They cannot anticipate their costs. / C. / They do not know when the inflation will stop.B. / Their money becomes worthless. / D. / They have difficulty hiring help.
____10.Which of the following families is statistically the most likely to live below the poverty threshold?
A. / a two-parent family of Hispanic origin living in the inner cityB. / a black family headed by a single mother living in the inner city
C. / a black family headed by a single mother living in the suburbs
D. / a two-parent white family living in a rural area
____11.When Alison, a college math professor, leaves her job at a small rural college and starts looking for a job at large urban university, she is
A. / frictionally unemployed. / C. / cyclically unemployed.B. / structurally unemployed. / D. / a discouraged worker.
____12.The “market basket” that is used by the Bureau of Labor Statistics to calculate prices is made up of which of the following?
A. / food items onlyB. / nonfood items only
C. / typical goods and services for an urban household
D. / food and necessary services for any family
____13.If Jackson is paid an interest rate of 10% on his savings, but the inflation rate has risen to 20%, the purchasing power of his savings is
A. / decreased by 10%. / C. / increased by 10%.B. / increased by 20%. / D. / decreased by 20%.
Short Answer
14.Identify and explain the 2 of the 3 main reason why prices rise.
1