Question 1. If the real rate of interest is 2% and the rate of inflation is

1. If the real rate of interest is 2% and the rate of inflation is 3%, what is the nominal rate of interest, the rate that people see advertised? (Points : 5)

-1%
1%
5%
6%
2. The business cycle is: (Points : 5)

the term used to describe fluctuations in output around its long-term trend.
the length of time required by a firm to buy inputs and produce and sell output.
the pattern of increases and decreases in the inflation rate.
regular and predictable.

3. Cyclical unemployment is caused by fluctuations in economic activity. (Points : 5)

True
False

4. Prior to the Industrial Revolution (pre-industrial society), unemployment was not generally considered a social problem because: (Points : 5)

there were no fluctuations in how much people spent so there was nothing similar to recessions.
a reduction in spending would cause wages and income to fall rather than unemployment to rise.
governments, influenced by religious values, provided jobs to anyone unfortunate to be unemployed.
employers before the Industrial Revolution generally offered workers lifetime contracts and rarely dismissed them.

5. The size of a country’s underground economy will affect its reported gross domestic product. (Points : 5)

True
False

6. The reason economists include only the value of final goods and services when they calculate GDP is that intermediate goods: (Points : 5)

do not create value added.
do not add to economic welfare.
have no social value.
would be double counted otherwise.
7. The largest expenditure component of GDP is: (Points : 5)

consumption.
investment.
net exports.
government spending.

8. If a country’s real GDP and population are, respectively, $500 billion and 200 million, then its per capita real output is: (Points : 5)

$250.
$1,000.
$2,500.
$10,000.

9. During the business cycle, an economic expansion occurs: (Points : 5)

at the peak of the business cycle.
at the trough of a business cycle.
in between the peak and trough.
in between the trough and peak.

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