prashantsahni

Which type of unemployment describes a situation where workers who have been laid off due to economic changes and they are unable to find work due to a lack of education or the necessary skills to move into another available job?

A) Frictional.

B) Cyclical.

C) Structural.

---

Structural unemployment is due to structural changes in the economy that eliminate some jobs while generating job openings for which unemployed workers are not qualified. Cyclical unemployment is when the economy is operating at less than full capacity.

prashantsahni

Which of the following is best described as an example of structural unemployment?

A) Smith was laid off due to negative growth of GDP, and did not seek other employment until he was recalled to his job.

B) Although there were jobs available, Johnson was unable to find an employer with a satisfactory opening.

C) When the plant was modernized, Jones lost her job because she did not have the skill needed to operate the new equipment.

---

Structural unemployment exists when changes in the economy eliminate some jobs while generating new job openings for which unemployed workers are not qualified.

prashantsahni

Which one of the following is most likely to experience loss of wealth from an increase in the inflation rate?

A) An individual investor who recently purchased a substantial amount of variable rate bonds.

B) A commercial bank that has a large quantity of fixed-rate mortgages in its loan portfolio.

C) An individual investor who financed the purchase of a home with a 30-year fixed rate mortgage.

---

If an economy experiences inflation, the losers are those who hold long-term contracts in which they are to receive fixed payments. A bank that has a large quantity of fixed-rate mortgages in its loan portfolio (i.e., they are investments for the bank) is receiving fixed-rate payments. Both remaining choices are investors who are either making fixed rate payments (the homeowner) or receiving floating-rate payments (the investor in variable rate bonds).

prashantsahni

Which of the following statements regarding inflation is most accurate?

A) As a result of inflation, all borrowers gain at the expense of lenders.

B) The purchasing power of money increases as a result of inflation.

C) Inflation is a persistent increase in the general price level of goods and services.

---

Inflation is defined as a persistent increase in the price level over time. Inflation indicates that there has been a general decline in the purchasing power of a currency. Fixed-rate borrowers gain at the expense of lenders when inflation is greater than expected.

prashantsahni

Which of the following statements regarding inflation is most accurate?

A) Inflation occurs when there is a steady increase in the relative prices of key commodities.

B) Inflation is present if the prices of some goods and services are increasing.

C) An economy experiences inflation when there is a persistent increase in the prices of almost all goods and services.

---

Inflation is a persistent increase in the price level over time. Inflation occurs when there is a sustained increase in the prices of almost all goods and services. Inflation indicates a decline in the purchasing power of a currency.

prashantsahni

Joe Lebow, an analyst, is discussing the difference between inflation and price level. Lebow states: "The higher the price level in the current year compared to the price level in the previous year, the higher is the inflation rate of a country. Any increase in the price level is evidence of positive inflation." Lebow's statement is:

A) correct.

B) incorrect because it inaccurately describes the calculation of an inflation rate.

C) incorrect because not all increases in the price level indicate inflation.

---

Lebow is incorrect because a one-time increase in the price level is not necessarily inflation. Inflation is an on-going process, not a one-time increase in the price level.

prashantsahni

An economy with a consistently negative inflation rate is best described as experiencing:

A) disinflation.

B) deflation.

C) hyperinflation.

---

Deflation is a sustained decline in the price level, which is reflected in a negative inflation rate. Disinflation refers to a decrease in the inflation rate over time but does not imply a negative inflation rate. Hyperinflation is an extremely high and accelerating inflation rate.

prashantsahni

The current annual inflation rate, as measured by using the Consumer Price Index (CPI), is best defined as:

A) percentage change in the CPI from a year ago.

B) percentage change in the CPI from its base period.

C) increase in the CPI from a year ago.

---

The inflation rate is the percentage change in the price index from a year earlier.

prashantsahni

Which of the following statements most accurately describes the difference between headline inflation and core inflation?

A) Headline inflation is a better measure of the underlying trend in prices.

B) Core inflation does not include food and energy prices.

C) Core inflation refers to producer prices.

---

Core inflation excludes food and energy and is thus a better measure of the underlying trend in prices.

prashantsahni

Consumer price indexes are least likely to:

A) be calculated for stages of processing.

B) reflect the typical purchasing patterns of consumers.

C) compare current prices to prices in a base year.

---

Stages of processing are components of producer price indexes. Consumer price indexes compare the current prices of a typical consumption basket to prices in a base year.