Chapter 9
If a 3-month Treasury bill pays 5.5% and the change in the consumer price index (CPI) is 4.7%, what is the real interest rate (the true return to lending)?
0.8%
Suppose that the economy enters into a recession and that, as a result, Rusty Z. Wrench loses his job as a delivery truck mechanic and remains unemployed. When the economy recovers, Rusty's previous employer rehires him. What is the best classification for his time as an unemployed truck mechanic?
Cyclically unemployed
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
Discouraged workers are not considered unemployed. Underemployed people are considered employed. It does not account for inaccurate responses to the Current Population Survey. It fails to account for illegal activities.
Which of the following causes changes in the CPI to overstate the true inflation rate?
Increase in quality bias New product bias Substitution bias
The BLS uses the establishment survey LOADING... to collect information on employment in the economy. Indicate one drawback of the establishment survey compared to the current population survey and indicate one advantage.
It does not include information about self-employed people. It is based on company payroll and not on unverifiable answers.
Suppose the fixed interest rate on a loan is 5.75% and the rate of inflation is expected to be 4.25%. The real interest rate is 1.5%. Suppose now that instead of 4.25%, the inflation rate unexpectedly reaches 5.5%. Who gains and who loses from this unanticipated inflation? (Mark all that apply.)
Lenders lose from a lower real interest rate. Borrowers gain from a lower real interest rate.
Even perfectly anticipated inflation imposes costs. Why?
Paper money loses its purchasing power by the rate of inflation. Some wages will fail to keep up with anticipated inflation. Menu costs.
Suppose that Sally J. Society recently lost her job as an underwater welder. In looking for a new job, she discovers that the only available jobs are for economists and that there are no openings for underwater welders because the trade is now obsolete. If Sally J. Society decides to return to school to earn an Economics degree, what is the best classification of her unemployment status?
Structurally unemployed
Use the graph to the right to help determine which of the following statements regarding the labor force participation rates of adult men and women since 1950 is false.
The labor force participation rates of adult men and adult women were equal in 1990.
In August 2013, the working-age population of the United States was 245.9 million. The working-age population is divided into those in the labor force (155.5 million) and those not in the labor force (90.4 million). The labor force is divided into the employed (144.2 million) and the unemployed (11.3 million). Those not in the labor force are divided into those not available for work (84.1 million) and those available for work (6.3 million). Finally, those available for work but not in the labor force are divided into discouraged workers (0.9 million) and those currently not working for other reasons (5.4 million).
The unemployment rate is 11.3 million/ 155.5 million×100=7.3%. The labor force participation rate is 155.5 million/ 245.9 million×100=63.2%.
How do unemployment insurance payments LOADING... in the United States and social insurance programs in other countries increase the unemployment rate?
They decrease the opportunity cost of job search.
Indicate whether the following statement is true or false and why. "A wage rising slower than the rate of inflation is actually falling."
True. If wages are increasing slower than the average price of goods and services, purchasing power falls.
Even if they don't find a job right away, people entering the job market after graduating from high school or college will
be counted as part of the labor force by the BLS if they are actively looking for work.
When the economy is at full employment, which types of unemployment remain?
frictional and structural
Increases in the minimum wage will
increase unemployment among teenagers.
The difference between a nominal variable and a real variable is that
nominal variables are calculated in current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation.
An article in the Wall Street Journal contained the following observation: "Every month, millions of workers leave the job market because of retirement, to care for children or aging parents, to pursue more education, or out of discouragement. Millions of others jump in after graduating." Source: Josh Zumbrun, "Labor-Market Dropouts Stay on the Sidelines," Wall Street Journal, December 28, 2014. The millions of workers leaving the job market for the reasons given are
not counted as unemployed in the BLS data because they are no longer actively looking for work.
The unemployment rate
shows the percentage of the labor force that is considered unemployed.
When the economy is at full employment,
the natural rate of unemployment prevails. the unemployment rate is greater than zero. all remaining unemployment is either frictional or structural.
Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104?
$70,288
The BLS surveys 30,000 households on their spending habits. The results are used to construct a market basket of goods and services purchased by the typical urban family of four. The chart on the right shows these goods and services grouped into eight broad categories for December 2014. The percentages represent the expenditure shares of the categories within the market basket.
housing, transportation, and food
The unemployment rate in the United States is usually ________ than the unemployment rates in most other high-income countries, partly because the United States has _________ requirements for the unemployed to receive government payments.
lower; more stringent
When compared to the Great Depression, the typical length of unemployment in the modern (post-Great Depression-era) U.S. economy is
relatively brief.
The "normal" underlying level of unemployment in the economy is
the natural rate of unemployment. the full-employment rate of unemployment. the sum of structural unemployment and frictional unemployment.
The labor force participation rate is calculated by
the percentage of the working-age population that is in the labor force or Labor force/Working−age population×100.
