Economics Micro & Macro (CliffsAP)

12. What would be the effect of a large increase in labor productivity on the real GDP and the price level?

Real GDP Price Level

A. Increase Increase

B. Increase Decrease

C. No effect Increase

D. Decrease Increase

E. Decrease Decrease

13. The CPI measures which of the following?

A. The change over time in weighted prices of a particular group of goods and services

B. The change over time of the weighted wholesale price index

C. The change over time of the difference between GDP and the wholesale price index

D. Inflation in GDP

E. Inflation in the producer price index

14. What will be the result of an increase in the labor force participation rate?

A. Increased investment

B. Increased savings and decreased investment

C. No effect on unemployment

D. Decreased revenue for firms

E. Decreased purchasing power for consumers

15. What term is defined as two consecutive quarters of declining GDP?

A. Inflation

B. Stagflation

C. Recession

D. Expansion

E. A peak in the business cycle

Answers to Review Questions

1. C.GDP can be calculated using two different approaches: the expenditures approach and the income approach.


2. E.None is the correct answer because cyclical unemployment is when a worker is laid off or unemployed
   because of the contraction phase of the business cycle.


3. B.Cost-push inflation refers to a rise in the price level due to high production costs. When producers have to pay
   more for raw materials and/or energy outputs, they raise their prices in an effort to retain profits.


4. D. The CPI measures the price level by comparing a market basket of goods from the present year with a base
   year’s prices of that identical market basket. The CPI cannot measure well-being, GDP, unemployment, or taxes.


5. C.The GDP deflator is used to adjust GDP for inflation. It does this by taking nominal GDP and comparing it to
   a base year.


6. D. In range 2 the price level rises as demand begins to increase. Productive capacity is approached and then
   passed, and unemployment decreases as more workers are employed and the economy is growing.

National Income Accounting