ECO 202 Chapter 9

In 1970, the price of a Big Mac was $0.50 Year CPI 1970 38.8 2006 201.6 the value of a 1970 Big Mac in 2006 dollars is$( ) the actual price of a Big Mac in 2006 was approximately $2.99. Thus the price of Big Macs has risen (faster than/ slower than) the cost of living

$2.60 faster than Inflation rate= percentage change in CPI from 1970 to 2006 inflation rate=(201.6-38.8)/38.8=4.19588 value of big mac in 2006= value from 1970*(1+inflation rate) =0.50*(1+4.19588)=$2.60 the price of the big mac has risen faster than the cost of living because the cost of living estimates the big mac to be worth less than the real price of a big mac

in an economy, the working-age population is 400 million. of this total, 320.0 million workers are employed 12.0 million workers are unemployed 56.0 million workers are not available for work 8.0 million workers are available for work but are discouraged and thus not seeking work 4.0 million workers are available for work but are not currently seeking work due to transportation or childcare problems what is the labor force participation rate?

83.0% LFPR=labor force/working age population *100 labor force= unemployed+ employed workers LFPR=332/400*100=83%

how does the us economy create and destroy millions of jobs each year? (mark all that apply) a. in the market system, new firms are constantly entering and exiting various industries b. when unemployment is high, the federal government hires more workers to offset the effects of unemployment c. some businesses are expanding, while others are contracting d. the federal government determines that certain industries are obsolete and closes firms

A and C

The BLS uses the establishment survey 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 (has multiple answers) a. it does not include information about self employed people b. it is based on unverifiable, self reported survey responses c. it is based on company payroll and not on unverifiable answers d. it includes complete information about unemployment

A- drawback C-advantage

Suppose John Q. Worker is currently unemployed. Each​ day, John Q. Worker spends the entire day searching available job openings for an appropriate position given his set of​ skills, abilities, and interests. If someone asks John Q. what he does for​ work, he tells them that he is currently​ "in-between jobs." Which of the following best classifies John​ Q.'s unemployment​ status? a. frictionally unemployed b. structurally unemployed c. seasonally unemployed d. cyclically unemployed

A.

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? a. structurally unemployed b. frictionally unemployed c. seasonally unemployed d. cyclically unemployed

A.

The chapter explains that it is impossible to know whether a particular nominal interest rate is "high" or " low" because a. it all depends on the inflation rate b. it all depends on the federal funds rate c. it all depends on the fed's monetary policy rule d. it is controlled by the fed's open market operations

A.

The natural rate of unemployment is a. the sum of structural unemployment and frictional unemployment b. the sum of seasonal unemployment and cyclical unemployment c. the sum of structural unemployment and cyclical unemployment d. the sum of cyclical unemployment and frictional unemployment

A.

Which of the following can give an early warning of future increases in the price level? a. producer price index b. GDP deflator c. consumer price index d. all of the above

A.

Which of the following is an example of cyclical unemployment? a. in an economic downturn, a manufacturing plant reduced production and temporarily lays off workers b. due to technological change, typewriter workers lose jobs and must retrain to find jobs in other industries c. a student graduates from college and searches for a first job d. workers at ski resorts in colorado are laid off during the summer

A.

the real interest rate equals a. the nominal interest rate minus the inflation rate b. the nominal interest rate divided by the CPI for a given year c. the inflation rate minus the nominal interest rate d. the nominal interest rate plus the inflation rate

A.

what is the relationship between the unemployment rate and enacting or increasing a minimum wage? when a minimum wage is enacted or increased across a country, the unemployment rate a. will increase some but the impacts will be much longer for some groups of workers b. is not affected because the minimum wage does not affect firm hiring decisions c. will decrease because workers will have more money which will increase demand and cause firms to hire more workers d. will increase and impacts will be spread evenly across all groups of workers

A.

if the inflation rate is 6 percent and the nominal interest rate is 4 percent then the real interest rate is a. -2 percent, which is the nominal interest rate minus the inflation rate b. 10 percent, which is the sum of the nominal interest rate and the inflation rate c. 2 percent, which is the inflation rate minus the nominal interest rate d. 1.5 percent, which is the ratio of the nominal interest rate to the inflation rate

A. real interest rate= nominal interest rate- inflation rate =4-6=-2

Which of the following is not a measure of the price level? a. GDP deflator: broadest measure of the average price level as it includes prices of every final good and service b. Government Price Index: an average of the prices paid by the government for goods and services used only by different government agencies c. Producer Price Index: an average of prices received by firms for goods and services at all stages of production d. Consumer Price Index: an average of the price of goods and services a typical family of four would purchase

B

Inflation can affect the distribution of income because a. people with fixed incomes, such as retired persons who may be receiving a pension of a fixed number of dollars each year, are not affected by the inflation rate, but people with varying incomes are. b. people with incomes rising faster than the rate of inflation enjoy an increasing purchasing power, while people with incomes rising more slowly than the rate of inflation are hurt by a decreasing purchasing power c. when inflation is fully anticipated, mortgage lenders face very high default risk d. people with incomes rising slower then the rate of inflation enjoy an increasing purchasing power, while people with incomes rising more quickly than the rate of inflation are hurt by a decreasing purchasing power

B.

The labor force participation rate is calculated by a. the percentage of the employed workers that is in the labor force or employed/ labor force *100 b. the percentage of the working age population that is in the labor force or labor force/working age population *100 c. the percentage of the retired population that is in the labor force or retired people/ labor force *100 d. the percentage of the labor force that is in the working age population or working age population/ labor force *100

B.

The unemployment rate in the united states is usually (...) than the unemployment rates in ost other high income countries, partly because the united states has (...) requirements for the unemployed to receive government payments. a. lower; less stringent b. lower; more stringent c. higher; more stringent d. higher; less stringent

B.

When​ Ségolène Royal was running unsuccessfully for president of​ France, she proposed that workers who lost their jobs would receive unemployment payments equal to 90 percent of their previous wages during their first year of unemployment. If this proposal were​ enacted, the unemployment rate in France a. would have stayed the same because unemployment insurance programs do not affect the unemployment rate. b. would have gone up as the opportunity cost of job search would have decreased. c. would have gone up as people from other countries would migrate to France because of their generous unemployment insurance. d. would have gone down as the opportunity cost of job search would have increased.

B.

the unemployment rate a. is the amount of the labor force that is not working b. shows the percentage of the labor force that is considered unemployed c. shows the percentage of the population that is considered unemployed d. is the amount of people in the population that are not working

B.

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? a. $16,447 b. $70,288 c. $34,000 d. $73,100

B. equivalent value= value from 1984*(1+inflation rate) inflation rate=(215-104)/104=1.06731 equivalent value= $34,000*(1+1.06731)=$70,288

When compared to the great depression, the typical length of unemployment in the modern U.S. economy is a. significantly longer b. slightly longer c. relatively brief d. approximately the same

C

When the economy is at full employment, unemployment is equal to a. Zero b. Normal rate of unemployment- abnormal rate of unemployment c. the natural rate of unemployment d. cyclical unemployment-seasonal unemployment

C

What effect do labor unions have on unemployment rate? a. by increasing the wage above market equilibrium, labor unions considerably decrease the unemployment rate b. by increasing the wage above market equilibrium, labor unions considerably increase the unemployment rate c. since few non government workers are unionized, there is no significant effect on the unemployment rate d. labor unions can significantly increase the unemployment rate when members go on strike

C.

When the economy is at full employment, which types of unemployment remain? a. frictional and cyclical b. cyclical and structural c. frictional and structural d. none of the above. full employment means that there is no unemployment, so the unemployment rate would be zero.

C.

Which of the following formulas does the bureau of labor statistics use to calculate the unemployment rate? a. number of unemployed/number of employed *100 b. number of unemployed/working age population *100 c. number of unemployed/ number in labor force *100 d. number in labor force/ number of unemployed *100

C.

an efficiency wage is a. an above market wage paid by a firm to maximize the output of the firm b. a below market wage paid by a firm to maximize firm profits c. an above market wage paid by a firm to maximize worker productivity d. equal to the market clearing wage, so that social welfare is maximized

C.

how do unemployment insurance payments in the united states and social insurance programs in other countries increase the unemployment rate? a. the payments are costly and firms are forced to lay off workers b. they are paid as long as the unemployed person remains unemployed c. they decrease the opportunity cost of job search d. they increase the opportunity cost of job search

C.

in august 2015, which of the following demographic groups had a higher rate of unemployment than the unemployment rate for the total population? a. whites b. asians c. high school dropouts d. college graduates

C.

increases in the minimum wage will a. increase the level of unemployment for all group workers b. increase unemployment among workers whose market wage is higher than the new minimum wage c. increase unemployment among teenagers d. have a large effect on the unemployment rate in the united states

C.

indicate whether the following statement is true or false and why. " a wage rising slower than the rate of inflation is actually falling" a. false. a higher wage increases purchasing power regardless of inflation b. true. if wages are increasing slower than the average price of goods and services, purchasing power increases c. true. if wages are increasing slower than the average price of goods and services, purchasing power falls d. false. a higher wage decreases purchasing power regardless of inflation

C.

If the CPI was 207 in 2009 and 225 in 2013, what wage would someone who earned a $50,000 income in 2009 have to earn in 2013 to keep her purchasing power constant? a. $54,000 b. $51,252 c. $54,348 d. none of the above

C. 50,000/(207/100)=24154.58937 24154.58937* 2013 CPI/100=$54,348

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)? a. 10.2% b. 4.7% c. 0.8% d. 5.5%

C. Real interest rate= 5.5%-4.7%=0.8%

A politician makes the following​ argument: ​"The economy would operate more efficiently if frictional unemployment were eliminated.​ Therefore, a goal of government policy should be to reduce the frictional rate of unemployment to the lowest possible​ level." Eliminating all frictional unemployment a. will be good for the economy since the presence of frictional unemployment increases job destruction b. will be good for the economy because the total unemployment will fall. c. will not be good for the economy since the presence of frictional unemployment decreases job creation. d. will not be good for the economy since the presence of frictional unemployment increases economic efficiency.

D.

The "normal" underlying level of unemployment in the economy is a. the full-employment rate of unemployment b. the natural rate of unemployment c. the sum of structural unemployment and frictional unemployment d. all of the above

D.

When the economy is at full employment a. the natural rate of unemployment prevails b. all remaining unemployment is either frictional or structural c. the unemployment rate is greater than zero d. all of the above

D.

Which of the following causes changes in the CPI to overstate the true inflation rate? a. substitution bias b. increase in quality bias c. new product bias d. all of the above

D.

Which of the following is a problem of unanticipated inflation? a. redistribution of income from borrowers to lenders b. decreases in structural unemployment c. increases in the cost of capital for business investments d. redistribution of income from lenders to borrowers

D.

as of august 2015, which of the following demographic groups has the highest unemployment rate? a. hispanics b. asians c. whites d. african americans

D.

even perfectly anticipated inflation imposes costs. Why? a. paper money loses its purchasing power by the rate of inflation b. menu costs c. some wages will fail to keep up with anticipated inflation d. all of the above e. a and c only

D.

Nominal Average Year Hourly Earnings CPI 2008 $16.00 202 2009 $17.00 207 2010 $18.00 209 what is the real average hourly wage in 2009? a. $7.92 b. $17.42 c. $8.61 d. $8.21 what can be said about real average hourly earnings and nominal average hourly earnings between 2008 and 2010? a. real average hourly earnings increased and nominal average hourly earnings decreased b. both real and nominal average hourly earnings decreased c. real average hourly earnings decreased and nominal average hourly earnings increased d. both real and nominal average hourly earnings increased

D. D. real average hourly wage= nominal average hourly earnings/(CPI/100) real average hourly wage in 2009= $17/(207/100)=$8.21 nominal average hourly earnings increased each year 2008 RAHW: 16/(202/100)=$7.92 2009:$8.21 2010:18/(209/100)=$8.61 Real average hourly wages increase also

Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy? a. it does not account for inaccurate responses to the current population survey b. discouraged workers are not considered unemployed c. underemployed people are considered employed d. it fails to account for illegal activities e. all of the above

E.

If inflation is unexpectedly high, borrowers will benefit and lenders will be harmed. True or False

True

Suppose an economy is given by the following: Population=299 million labor force=166 million # of people employed=154.4 million # of people unemployed=11.6 million what is the unemployment rate?

unemployment rate=#unemployed/labor force*100 =11.6 million/ 166 million *100=7%