EC102 Exam 1 Problem Set 2

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?

Borrowers gain from a lower real interest rate. Lenders lose from a lower real interest rate.

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

Which of the following is an example of cyclical​ unemployment?

During a recession, aircraft assemblers are laid off but expect to be recalled as the economy improves

Currently, the Bureau of Labor Statistics does not include homemakers in its employment and labor force totals. What would happen to the unemployment rate and the labor force participation rate if homemakers were included in these​ numbers?

The unemployment rate would decrease and the labor force participation rate would increase.

Why do economic growth rates​ matter?

When a country sustains high growth​ rates, life expectancy at birth increases. High levels of sustained economic growth reduce infant mortality. High growth rates coincide with improved living standards.

What advice for finding a job would you give someone who lost his or her job because of machine​ learning?

You should tell the worker that he or she needs to learn new skills or move to another city to find a job.

Suppose that the inflation rate turns out to be much lower than most people expected. In that​ case,

a borrower will lose from the situation while a lender will gain.

The natural rate of unemployment is

the sum of structural unemployment and frictional unemployment.

When the economy is at full​ employment,

the unemployment rate is greater than zero. the natural rate of unemployment prevails. all remaining unemployment is either frictional or structural.

Price indexes can be used to compare prices across different periods. Suppose that a year of tuition for college at public institutions averaged a cost of $1,928 in 1989 and that the CPI index was 128 in 1989. If the CPI index was 211 in​ 2009, then the cost of tuition in​ 2009, as the result of​ inflation, would equal... Suppose that the actual average cost of tuition in 2009 was ​$7,029. Relative to the expected cost computed​ above, the cost of tuition increased by....the amount of inflation.

$3178 more than

Situation​ 1: Suppose the interest rate on your car loan is 17.00 percent and the inflation rate is 16.00 percent. Calculate the real interest rate Situation​ 2: Suppose the interest rate on your car loan is 7.00 percent and the inflation rate is 4.00 percent. Calculate the real interest rate. Situation 1 will be .... Situation 2 because the.....is lower. Now suppose you are JPMorgan​ Chase, and you are making car loans. Which situation above would you now​ prefer? JPMorgan Chase would prefer....

1.00% 3.00% better than.... real interest rate Situation 2

Suppose an economy has an inflation rate of 3.4​% and a bank makes a loan with an interest rate of 6.1​%. In this​ case, the real interest rate is

2.7%

If real GDP per capita grows at a rate of 2.9 percent per​ year, it will take...years to double

24.1

According to Ray Fisman of Boston University and Michael Luca of the Harvard Business​ School, Amazon's voluntary decision to raise its minimum hourly wage to​ $15 per hour when the federal minimum wage is​ $7.25 may be good for​ "both Amazon's employees and its bottom​ line." ​Wouldn't paying higher wages to its employees reduce​ Amazon's profits? Why would they have adopted such a​ policy?

No, the higher wage would not decrease profits if it motivates workers to work harder and be more productive.

An efficiency wage is

an​ above-market wage paid by a firm to maximize worker productivity.

the minimum wage law

has only a small effect on the unemployment rate since only a small part of the labor force earns the minimum wage

An efficiency wage

increases the unemployment rate since firms pay a​ higher-than-market wage that increases the quantity of labor supplied.

The rule of 70

is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to double.

The real interest rate

is equal to the nominal interest rate minus the inflation rate.

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." The millions of workers leaving the job market for the reasons given are... Even if they​ don't find a job right​ away, people entering the job market after graduating from high school or college will...

not counted as unemployed in the BLS data because they are no longer actively looking for work. be counted as part of the labor force by the BLS if they are actively looking for work.

Which of the following is the best measure of the standard of living of the typical person in a​ country?

real GDP per person

The effect of labor unions on overall unemployment is...since only a....percentage of the labor force outside the government is unionized.

small small

According to the​ BLS, in what category of unemployment would that person​ belong? If someone lost his or her job because of machine​ learning, that person would be considered...

structurally unemployed.

Menu costs are... The Internet has...the size of menu costs.

the costs to firms of changing prices. reduced

When the economy is at full​ employment, unemployment is equal to

the natural rate of unemployment.

If the economy is experiencing​ deflation,

the nominal interest rate will be lower than the real interest rate

If inflation is expected to​ increase

the nominal interest rate will increase.

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