Chapter 9 Test

What is outlet bias? - the tendency for households to spend their money at discount stores as prices rise - the tendency for consumers to purchase newer, more technologically advanced products even though they have higher prices - the tendency for the quality of products to improve over time even though the CPI does not measure changes in quality - the tendency for households to spend more money over time

the tendency for households to spend their money at discount stores as prices rise

If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge? - 1% - 5% - 6% - 9%

5%

Sarah is a full-time student who is not looking for work. What kind of unemployment is Sarah experiencing? - frictional - structural - cyclical - Sarah is not experiencing unemployment of any kind because she is not currently part of the labor force.

Sarah is not experiencing unemployment of any kind because she is not currently part of the labor force.

You agree to lend $1,000 for one year at a nominal interest rate of 10%. You anticipate that inflation will be 4% over that year. If inflation is instead 3% over that year, which of the following is true? - The real interest rate you earn on your money is lower than you expected. - The real interest rate you earn on your money will be negative. - The person who borrowed the $1,000 will be worse off as a result of the unanticipated decrease in inflation. - The purchasing power of the money that will be repaid to you will be lower than you expected.

The person who borrowed the $1,000 will be worse off as a result of the unanticipated decrease in inflation.

The equilibrium wage in a local labor market is $6 per hour. If a minimum wage of $8 per hour is imposed, which of the following will occur? - There will be an increase in the quantity of labor demanded by firms. - There will be an increase in unemployment. - There will be a decrease in the quantity of labor supplied by households. - Everything described by all of the answers will occur.

There will be an increase in unemployment.

Which of the following individuals would be most negatively affected by anticipated inflation? - a full-time employee at a pizza parlor who makes more than the minimum wage - a retired railroad engineer who receives a fixed income payment every month - a union contractor whose pay is adjusted based on changes in the CPI - a student who borrows $10,000 at a nominal interest rate of 5% to finance educational expenses

a retired railroad engineer who receives a fixed income payment every month

Labor unions cause unemployment because the union contract wage is set - above the market wage, causing a surplus of labor. - above the market wage, causing a shortage of labor. - below the market wage, causing a surplus of labor. - below the market wage, causing a shortage of labor.

above the market wage, causing a surplus of labor.

Which of the following would reduce the labor force participation rate, all else equal? - an increase in the unemployment rate - an increase in the working-age population - a decrease in the unemployment rate - an increase in the number of people in the labor force

an increase in the working-age population

If consumers purchase fewer of those products that increase most in price and more of those products that decrease in price as compared to the CPI basket, then - changes in the CPI overstate the true rate of inflation. - changes in the CPI understate the true rate of inflation. - changes in the CPI accurately reflect the true rate of inflation. - changes in the CPI are unrelated to the true rate of inflation.

changes in the CPI overstate the true rate of inflation.

The labor force is the sum of - employed workers and discouraged workers. - employed workers and unemployed workers. - employed workers and the working age population. - unemployed workers and the working age population. - employed workers and individuals not looking for work.

employed workers and unemployed workers.

If your nominal wage rises more slowly than the price level, we can say your real wage has ________ and the purchasing power of a dollar has ________. - fallen; fallen - fallen; risen - risen; fallen - risen; risen

fallen; fallen

If inflation is completely anticipated, - lenders lose in the economy. - firms lose because they incur menu costs. - no one loses in the economy. - borrowers lose in the economy.

firms lose because they incur menu costs.

Jack just told his boss that he thinks his boss is an idiot. It is likely that Jack will be experiencing ________ unemployment in the near future. - structural - permanent - cyclical - frictional

frictional

The natural rate of unemployment is made up of - cyclical and structural unemployment. - seasonal and structural unemployment. - frictional and cyclical unemployment. - frictional, cyclical, and structural unemployment. - frictional and structural unemployment.

frictional and structural unemployment.

Establishing a state employment agency that speeds up the process of matching unemployed workers with unfilled jobs is an attempt to lower - frictional unemployment. - seasonal unemployment. - cyclical unemployment. - unnatural unemployment. - structural unemployment.

frictional unemployment.

The deflation of the 1930s impacted the U.S. economy because it led some consumers to ________ and because it ________. - increase purchases to take advantage of the falling prices; increased the burden on lenders. - borrow more money since money was now cheap; reduced the amount of money consumers would have to pay back on their outstanding loans. - postpone purchases while they waited for prices to fall even lower; increased the burden on borrowers. -demand higher wages in anticipation of prices eventually rising again; increased manufacturing since firms could afford to hire more labor.

hases while they waited for prices to fall even lower; increased the burden on borrowers.

The CPI in 1990 was 131, and the CPI in 2008 was 215. If you earned a salary of $40,000 in 1990, what would be a salary with equivalent purchasing power in 2008? - $52,400 - $65,649 - $86,000 - $105,649

$65,649

If the nominal interest rate is 6% and the inflation rate is 9%, then the real interest rate is - -3%. - 3%. - 6.67%. - 15%.

-3%.

Monthly expenditures for a family of 4 in 2008 averaged $1,400. In 2009, the cost of the same purchases was $1,500. If 2008 is the base year, what was the CPI in 2009? - 110 - 107 - 100 - 93

107

You lend $5,000 to a friend for one year at a nominal interest rate of 10%. The CPI over that year rises from 180 to 190. What is the real rate of interest you will earn? - 0% - 4.4% - 5.5% - 5.8%

4.4%

Which of the following is an example of a worker experiencing cyclical unemployment? - A lifeguard who was hired during the summer season is laid off after summer is over. - A worker that changes jobs to move closer her family. - An assembly line worker who loses his job because of automation. - A freightliner employee that got laid off because of the recession of 2007-2009. - A worker quits his job because he does not get along with his boss.

A freightliner employee that got laid off because of the recession of 2007-2009.

Which of the following causes the unemployment rate to understate the true extent of joblessness? -Persons who collect unemployment benefits report themselves to be searching for a job. - Discouraged workers are not counted as unemployed. - Many full time workers really want to be part time workers. - A drug dealer reports herself as unemployed. - Discouraged workers are counted as unemployed.

Discouraged workers are not counted as unemployed.

Which of the following is not a cost posed by inflation? - Banks can lose if they under predict inflation and charge an interest rate that does not completely compensate for inflation. - Firms must pay for changing prices on products and printing new catalogs. - Inflation reduces the affordability of goods and services to the average consumer. - The money that consumers and firms hold loses its purchasing power.

Inflation reduces the affordability of goods and services to the average consumer.

If inflation increases unexpectedly, then - lenders receive a lower real interest rate than they expected. - lenders gain and borrowers gain. - borrowers pay a higher real interest rate than they expected. - neither borrowers nor lenders lose.

lenders receive a lower real interest rate than they expected.

A full-time student who is not working is categorized as - not in the labor force. - a discouraged worker. - employed. - unemployed. - frictionally unemployed.

not in the labor force.

By offering training to workers whose firms laid them off because of competition from foreign firms, the federal government is attempting to reduce - seasonal unemployment. - unnatural unemployment. - frictional unemployment. - structural unemployment. - cyclical unemployment.

structural unemployment.

The CPI is also referred to as - the producer price index. - the inflation-consumption index. - the GDP deflator. - the cost-of-living index.

the cost-of-living index.

We say that the economy is at full employment if the unemployment rate is equal to - the sum of structural and cyclical unemployment. - the amount of cyclical unemployment. - the sum of frictional and cyclical unemployment. - the natural rate of unemployment. - zero.

the natural rate of unemployment.

During a deflationary period, - the nominal interest rate is less than the real interest rate. - the nominal interest rate does not change. - the real interest rate is less than the nominal interest rate. - the price level rises.

the nominal interest rate is less than the real interest rate.

Mike has been unemployed for over a year. He hasn't looked for a job in the last three months, but he's just started looking for work again. Because Mike started looking for a new job, - the unemployment rate decreased. - the unemployment rate increased. - the working-age population increased. - the labor force participation rate decreased.

the unemployment rate increased.