Inflation, Unemployment and Business Cycles MCQs 2026

Inflation is best defined as

1. Aa one-day fall in one commodity price✓
2. Ba sustained rise in the general price level✓
3. Ca rise in unemployment only✓
4. Da fall in money supply only✓

The sacrifice ratio in disinflation policy refers to

1. Athe WTO accession fee✓
2. Bthe CRR percentage only✓
3. Cthe budget deficit ratio only✓
4. Doutput/unemployment cost of reducing inflation✓

A coincident indicator moves

1. Aonly decades after recessions✓
2. Bindependently of GDP always✓
3. Croughly with current economic activity✓
4. Donly with foreign tariffs✓

During recovery, capacity utilization typically

1. Afalls to zero✓
2. Bequals the tariff rate✓
3. Crises as firms use more of existing plant✓
4. Dreplaces the money supply✓

Built-in (inertial) inflation persists due to

1. Aa one-time oil shock only✓
2. Ba single bad harvest only✓
3. Cexpectations and wage-price contracts that keep inflation going✓
4. Da temporary tax cut only✓

Galloping inflation is

1. Avery high and accelerating inflation, short of hyperinflation✓
2. Bstable 1% annual inflation✓
3. Cpure deflation✓
4. Dzero money growth✓

Real interest rate approximately equals

1. Anominal rate plus CPI✓
2. Bnominal interest rate minus expected inflation✓
3. CCRR minus SLR✓
4. Dexports minus imports✓

Inflation targeting by a central bank means

1. Afixing the unemployment rate at zero✓
2. Bsetting and pursuing a public inflation rate objective✓
3. Cbanning all commercial banks✓
4. Dsetting tariff rates for WTO✓

A boom phase of the cycle is associated with

1. Adeep recession and mass layoffs✓
2. Bdeflation and idle factories only✓
3. Chigh output growth and low cyclical unemployment✓
4. Dzero credit creation✓

Demand-deficient unemployment is another name for

1. Africtional unemployment only✓
2. Bcyclical unemployment✓
3. Cseasonal farm work only✓
4. Dvoluntary leisure✓

Cost-of-living adjustments (COLA) aim to

1. Aprotect real incomes against inflation✓
2. Braise structural unemployment✓
3. Celiminate frictional search✓
4. Dfix the exchange rate✓

Unemployment rate is calculated as

1. Apopulation divided by GDP✓
2. BCPI divided by GDP deflator✓
3. CM2 divided by M0✓
4. Dunemployed persons divided by the labour force, times 100✓

Labour force participation rate measures

1. Alabour force as a percentage of working-age population✓
2. Bonly employed persons over GDP✓
3. Conly unemployed over CPI✓
4. Dexports over imports✓

Underemployment differs from unemployment in that workers

1. Ahave no job and seek none✓
2. Bhave jobs but work fewer hours or below skill level✓
3. Care retired permanently✓
4. Dare only students✓

The misery index is often computed as

1. Aexports minus imports only✓
2. BCRR plus SLR only✓
3. Cinflation rate plus unemployment rate✓
4. Dtariff plus quota rates✓

Anticipated inflation is less harmful than unanticipated inflation because

1. Aprices never change✓
2. Bcontracts and wages can adjust in advance✓
3. Cmoney ceases to exist✓
4. Dunemployment becomes zero✓

Shoe-leather costs of inflation arise from

1. Apeople holding less cash and making more trips to the bank✓
2. Bbuying more shoes only✓
3. Chigher unemployment benefits✓
4. Dquota license fees✓

Menu costs of inflation refer to

1. Acosts of printing restaurant menus only✓
2. BCRR deposits at SBP✓
3. Ctariff schedules at WTO✓
4. Dcosts of frequently changing posted prices✓

Debtors tend to gain from unexpected inflation because

1. Athey repay loans in money that buys less✓
2. Binterest rates always fall to zero✓
3. Ccreditors forgive all debt✓
4. DCPI becomes negative always✓

Inflation reduces the real value of

1. Areal GDP by definition always✓
2. Bphysical capital stock overnight✓
3. Cmoney balances and fixed nominal incomes✓
4. Dcomparative advantage✓

A lagging indicator typically

1. Amoves after the economy has already changed direction✓
2. Bpredicts peaks months ahead always✓
3. Cis identical to CPI basket weights✓
4. Dreplaces monetary policy✓

A leading indicator of the business cycle tends to

1. Aalways lag GDP by two years✓
2. Bchange before overall economic activity turns✓
3. Cnever move with the cycle✓
4. Dequal the money multiplier✓

Contraction (recession) features

1. Afalling output and rising unemployment✓
2. Bfull employment boom only✓
3. Czero price changes always✓
4. Donly surplus budgets✓

Expansion (recovery) in the business cycle is marked by

1. Arising output, employment and income✓
2. Bfalling GDP every quarter✓
3. Crising mass unemployment only✓
4. Dcollapse of all banks✓

The trough of a business cycle is

1. Athe highest boom point✓
2. Ba permanent depression forever✓
3. Cidentical to hyperinflation✓
4. Dthe lowest point of activity before recovery begins✓

The peak of a business cycle is the phase when

1. Aoutput is at its lowest trough✓
2. Brecovery has not yet started✓
3. Ceconomic activity reaches a high point before turning down✓
4. Dprices are frozen by law✓

During a recession, cyclical unemployment typically

1. Afalls to zero automatically✓
2. Brises as output and hiring fall✓
3. Cbecomes only frictional✓
4. Dequals the inflation rate✓

Okun's law relates

1. Achanges in unemployment to changes in real GDP growth✓
2. Btariffs to quotas only✓
3. CCRR to SLR only✓
4. Dabsolute to comparative advantage✓

Demand-pull inflation is more likely when the economy is

1. Ain deep depression with idle resources✓
2. Bbarter-only with no money✓
3. Cautarkic with zero trade✓
4. Dnear or at full capacity✓

Core inflation typically excludes

1. Aall services forever✓
2. Bonly housing rents always✓
3. Cvolatile food and energy prices✓
4. Dthe entire CPI basket✓

Imported inflation can occur when

1. Aexports become free✓
2. Brising import prices raise domestic costs and CPI✓
3. Ctariffs fall to zero always✓
4. Dremittances stop forever✓

A wage-price spiral contributes to

1. Apermanent deflation only✓
2. Bzero money demand✓
3. Cfixed exchange rates only✓
4. Dcost-push inflation as wages and prices chase each other✓

Disinflation means

1. Aprices rising faster every month✓
2. Bcomplete elimination of money✓
3. Ca slowdown in the rate of inflation, not necessarily falling prices✓
4. Dzero GDP growth by law✓

Deflation means

1. Aa sustained fall in the general price level✓
2. Ba rise in CPI every month✓
3. Can increase in money wages only✓
4. Da budget deficit always✓

Disguised unemployment is common in

1. Ahigh-tech robotics plants only✓
2. Bcentral bank open market desks only✓
3. CWTO dispute panels only✓
4. Dovermanned agriculture where marginal product of labour is near zero✓

Full employment in macroeconomics usually means

1. Aliterally no one without a job✓
2. Bonly government jobs for all✓
3. Czero labour force participation✓
4. Dabsence of cyclical unemployment, not zero unemployment✓

The natural rate of unemployment includes

1. Aonly cyclical unemployment in deep recession✓
2. Bonly hyperinflation effects✓
3. Cfrictional and structural unemployment✓
4. Dzero unemployment by definition✓

Seasonal unemployment occurs when

1. Aall industries shut forever✓
2. Bmoney supply doubles overnight✓
3. Ctariffs are removed✓
4. Djobs are available only in certain seasons of the year✓

Cyclical unemployment is associated with

1. Avoluntary leisure only✓
2. Bdownturns in the business cycle and deficient demand✓
3. Cperfect full employment always✓
4. Donly seasonal tourism peaks✓

Structural unemployment arises when

1. Aworkers' skills or locations do not match available jobs✓
2. Beveryone is between jobs for one week✓
3. Cprices fall temporarily✓
4. Dbanks raise CRR slightly✓

Frictional unemployment results from

1. Aa permanent collapse of all industries✓
2. Bnormal job search and matching between workers and vacancies✓
3. Conly technological obsolescence of skills✓
4. Donly seasonal farm work✓

In the long run, the Phillips curve is often viewed as

1. Ahorizontal at zero inflation forever✓
2. Bidentical to the demand curve✓
3. Ca 45-degree line through origin✓
4. Dvertical at the natural rate of unemployment✓

The Phillips curve traditionally suggests a short-run trade-off between

1. Aexports and imports only✓
2. Binflation and unemployment✓
3. Ctaxes and subsidies only✓
4. Dsaving and investment only✓

Stagflation describes a situation of

1. Afull employment with falling prices only✓
2. Brapid growth with zero inflation only✓
3. Cbudget surplus with free trade only✓
4. Dhigh inflation combined with high unemployment and stagnant growth✓

Creeping inflation is characterized by

1. Aprices falling by 50% monthly✓
2. Ba slow and mild rise in prices over time✓
3. Ccomplete price freeze by law✓
4. Dzero change in any price✓

Hyperinflation refers to

1. Aextremely rapid and out-of-control price increases✓
2. Bmild seasonal price dips✓
3. Cstable zero inflation forever✓
4. Ddeflation of asset prices only✓

The GDP deflator differs from CPI mainly because it

1. Acovers all domestically produced final goods and services, not a fixed consumer basket✓
2. Bincludes only imported luxury cars✓
3. Cignores all price changes✓
4. Dis always equal to the unemployment rate✓

The Consumer Price Index (CPI) measures

1. Aonly stock market capitalization✓
2. Bonly government bond yields✓
3. Conly the money multiplier✓
4. Dchanges in the cost of a fixed basket of consumer goods and services✓

Cost-push inflation is mainly caused by

1. Aa sudden fall in all input prices✓
2. Bexcess unused capacity only✓
3. Crising production costs such as wages or raw materials✓
4. Da permanent budget surplus only✓

Demand-pull inflation arises when

1. Acosts of production fall sharply✓
2. Bmoney supply is frozen forever✓
3. Caggregate demand exceeds aggregate supply at full employment✓
4. Dexports become zero✓