Econ 2
Which category do underemployed workers fall under?
Employed workers
Which of the following cannot produce a shift in the credit supply curve?
A change in the real interest rate.
if pi denotes the rate of inflation and i denotes the nominal rate of interest, then the amount a borrower repays in a year on a one-dollar loan is ________ and the inflation-adjusted purchasing power of the originally borrowed dollar is _________. The result is the ____________.
1 + i , 1 + pi inflation-adjusted cost of the loan. real price of the loan. real interest rate. (all of the above)
Scenario: 100 people live in Country X, and 60 of these people are working full time. Tara and Jen have been able to find only part time jobs. John, Peter, and Luna just had to close their coffee shop; and John and Peter are looking for a new business venture. Luna has inherited a large sum of money and feels that she does not need to work anymore. Her sister Sara feels the same way. Four people in Country X are living in care facilities. Ten people are full time students, and two of them currently are hoping to find a job. All other people are retirees or under the age of 16. How many people in Country X are not considered to be potential workers?
26
If the annual inflation rate is predicted to be 2.8 percent and the real interest rate is 1.1 percent, the nominal interest rate is 3.93.9 percent. (Round your response to one decimal place.)
3.9
If the number of employed people in a country is 21 million and the number of unemployed workers in a country is 10 million, the size of the labor force in the country is equal to ________.
31 million
Toby takes a one year loan from the bank for $40,000. The bank charges a nominal interest rate of 7.25% per annum. The total amount Toby will have to pay to the bank after a year will be $_______. Which of the following equations correctly describes the Fisher equation? The credit demand curve is the schedule that reports the relationship between the quantity of credit demanded and the _______ interest rate.
42900 Nominal interest rate = Real interest rate + Inflation. real
Scenario: 100 people live in Country X, and 60 of these people are working full time. Tara and Jen have been able to find only part time jobs. John, Peter, and Luna just had to close their coffee shop; and John and Peter are looking for a new business venture. Luna has inherited a large sum of money and feels that she does not need to work anymore. Her sister Sara feels the same way. Four people in Country X are living in care facilities. Ten people are full time students, and two of them currently are hoping to find a job. All other people are retirees or under the age of 16. What is the size of the labor force in Country X?
64
What is deposit insurance? Excluding cases where banks had accumulated a lot of non-deposit liabilities that are not covered by FDIC insurance, would analysts generally agree that deposit insurance has been successful in preventing bank runs?
A program implemented in most countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its withdrawals. Yes, since bank runs and bank failures have been relatively rare since the advent of deposit insurance.
How might federal deposit insurance, as administered by the FDIC, lead to moral hazard?
A. Insurance may cause bank shareholders to be less vigilant in monitoring the investment strategies of bank managers. B. Insurance gives bank managers incentives to pursue added risks since losses can be shifted to the FDIC. C. Depositors may pay less attention to the lending practices of banks since their deposits are covered up to some cap. D. (All of the above)
What is the shadow banking system?
A. Nonbank financial institutions that behave like banks in many respects. B. Financial institutions that make loans from funds raised by means other than by accepting deposits. C. A group of several thousand disparate nonbank financial intermediaries. D (All of the above)
Explain why banks would be expected to try to minimize the amount of excess reserves that they hold. Based on what you learned about banking in the chapter, explain why you think that the crisis prompted banks to dramatically expand the amount of excess reserves they held.
A. Normally, other assets can be expected to generate much higher returns for banks. B. Banks are privately owned businesses and thus have the goal of maximizing profits for their shareholders. C. Excess reserves yield little in the way of earnings for banks, thus making difficult the generation of satisfactory profit. D. (All of the above.) A. Confidence was shaken so severely by the crisis that banks chose to effectively ration credit among viable borrowers, including other banks. B. The Federal Reserve made excess reserves attractive to hold by paying interest for the first time in history. C. There was a sharp decline in profitable private sector lending opportunities for financial intermediaries. D. (All of the above.)
Scenario: The unemployment rate in Country Y is 6 percent, and the labor force is equals about 200 million people. Which statement is true about Country Y?
About 188 million people have a job.
Which of the following is an example of what economists refer to as job search? What type of unemployment does job search lead to?
All of the above. Frictional unemployment.
From each of the two lists select the categories that are appropriate to each side of the balance sheet.
Assets reserves, long-term investments, cash equivalents liabilities and Stockholders' equity long-term debt, short-term borrowing, stockholders' equity, demand deposits
Which of the following is likely to be true of a household's balance sheet? Which of the following assets is an average household likely to hold? The most liquid assets for a household are _______________. On a household's annual balance sheet, a one-time loan made to a relative would ____________ and purchasing a car with cash would _________________________. During the financial crisis of 2007-2008, the federal government decided to bail out the big banks, but not any of the households that had lost money because of their investments or house purchases. (Which of the following justifies this type of government federal policy)
Assets and liabilities will not necessarily be equal because many households face large debts and their liabilities are greater than their assets. Cash, retirement accounts, and equities cash and checking accounts be included as a loan on the assets side, decrease the cash available to the buyer on the assets side The government can easily impose restrictions on the transactions of banks, but it is difficult for the government to monitor the finances of individuals.
If a group of students decided to try to find jobs while they are studying, which of the above rates would change at first? Assume that it takes the students a few months to actually find a job.
Both the labor participation rate and the unemployment rate would increase.
Which of the following factors does not cause a shift in the labor demand curve?
Changes in the wage rate.
Country B is a popular place for people to retire. Consequently, there has about twice as many retirees as there are in Country A. Without these immigrant retirees, ________.
Country A would likely have more potential workers than Country B
How does fiat money differ from commodities like gold and silver that were used as money? If fiat money is intrinsically worthless, then why is it valuable?
Fiat money is intrinsically worthless, whereas gold and silver have intrinsic value. Fiat money is used as legal tender by government decree and other people will accept it as payment for transactions.
How would the failure of a systemically important financial institution (SIFI) affect the economy? What steps do bank regulators take to prevent SIFIs from failing or to minimize the effect of such failures?
Financial intermediation would likely be impaired, with negative consequences for the economy's performance. A. Require banks to establish "living wills," procedures for their treatment in the event they become insolvent. B. Require banks to take on less risk. C. Mandate that banks hold more stockholders' equity. (All of the above.)
Based on the information given in this chapter, which of the following factors could explain why asset prices fluctuate? (Check all that apply.)
Fluctuations reflect the rational appraisals by investors of new information relevant to asset profitability. There are psychological factors and biases that can produce excessive reactions to booms and busts.
How does a bank manage risk? Maturity transformation is a process that transfers ___________ into long-term investments. To avoid maturity mismatch, banks hold back some fraction of the deposit pool as ____________. Which of the following statements are true when a bank is insolvent? (Check all that apply.)
It invests in a diverse set of assets. short-term liabilities reserves The government bank regulator shuts down this bank's operations and makes payouts to its depositors. The bank owes more than it owns. The bank's stockholders' equity goes to zero.
In February 2014, the United States added 175,000 jobs to the economy.
It may increase, decrease, or not change depending on how many people started searching for jobs during the month.
Which of the following is true regarding wage rigidity? Which of the following is true regarding wage rigidity?
It occurs when wages are held fixed above the competitive equilibrium level. an increase in the time needed to search for available jobs.
Which of the following is true regarding wage rigidity? Which of the following is not one of the factors that can increase wage rigidity in the labor market?
It occurs when wages are held fixed above the competitive equilibrium level. government taxation of labor income
How would narrow banking reduce the level of risk in the banking system? If narrow banking reduces systemic risk, why do banks still practice maturity transformation?
It would reduce risk in the banking system by reducing the likelihood of bank runs and liquidity problems for banks. Banks still practice maturity transformation simply because it is generally very profitable to do so.
Given this information, which of the following purposes of currency was definitely fulfilled by salt? Given this information, which of the following is likely to happen with the rapid infusion of currency into society?
Medium of exchange The value of salt would weaken, leading to an inflation in the price of salt.
What are the two views on why asset prices fluctuate so much that they lead to financial crises and bank failures?
One view holds that asset prices are rationally based on fluctuating fundamentals, while the other asserts that psychological factors and biases play a significant role.
What are some factors that explain why people save for the future? (Check all that apply.)
People save to invest in a personal business People save for retirement. People save for a 'rainy day'
Scenario: 100 people live in Country X, and 60 of these people are working full time. Tara and Jen have been able to find only part−time jobs. John, Peter, and Luna just had to close their coffee shop; and John and Peter are looking for a new business venture. Luna has inherited a large sum of money and feels that she does not need to work anymore. Her sister Sara feels the same way. Four people in Country X are living in care facilities. Ten people are full−time students, and two of them currently are hoping to find a job. All other people are retirees or under the age of 16. How would the Bureau of Labor Statistics classify Luna?
Potential worker
What would be the effects of such a policy? Identify a possible problem with this policy.
Printing paper money has a small direct cost and so gives the government money to spend. Printing too much money may lead to a high rate of inflation, reducing the amount of goods and services that the government can purchase with the newly printed notes.
What are the functions of money in a modern economy? (Check all that apply.)
Store of value. Unit of account. Medium of exchange
Which functions of money are cigarettes fulfilling in this case? (Check all that apply.) Are credit cards money? Do these checks constitute money?
Store of value. Unit of account. Medium of exchange. No, because you credit cards are not assets. No, because checks simply represent a means of access to money, not money itself.
What is stockholders' equity? Who bears the risk that a bank faces when stockholders' equity is greater than zero?
The difference between a bank's total assets and total liabilities. The bank's stockholders.
After every meeting, the Federal Open Market Committee (FOMC) releases a statement that summarizes their policy decisions. "Information received since the Federal Open Market Committee met in October suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft. Overall, taking into account domestic and international developments, the Committee sees the risks to the outlook for both economic activity and the labor market as balanced. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective. Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation." Based on the information above, which of the following factors were considered by the committee in making their decision?
The inflation rate and the level of employment l in the economy
Consider a simple mutual fund. Households and businesses invest in the fund by buying shares; the fund uses this money, in turn, to invest in a range of assets, including equities and bonds. If an investor wishes to divest from the fund, she can "redeem" her shares. Redeeming involves selling the shares back to the mutual fund for a price called the 'net asset value" (NAV). The NAV is equal to the difference between assets and liabilities, divided by the total number of investors in the fund. The NAV is updated at the end of each day. Thus, every investor who redeems on a given day will get the same price. (Which of the following statements is likely to be true of the fund's balance sheet?) Suppose several large investors in the mutual fund start getting nervous about market conditions and decide to redeem, all on the same day. ( Given this information, which of the following are likely to happen? (Select all that apply) ) Which of the following is likely to be true of the behavior of an investor who anticipates large redemptions in a day? Assume that the economy has 15 other identical mutual funds. As the fund discussed in the previous step begins selling assets to pay back its investors, the market price of those assets drops. ( Given the information, which of the following is likely to be true of the balance sheets of the other mutual funds that invest in those assets? ) The ________ in the net asset value of other mutual funds __________.
The liabilities side will show the money given by the individual investors, and the assets side will show all the investments that the manager of the fund has chosen. There will be a decrease in the liabilities of the fund. There will be a decrease in the assets of the fund. The investor will likely redeem on that day because he would know that the net asset value on the next day would be lower. The value of the assets will decrease, leading to a decrease in the net asset value of the mutual funds. decline, is an example of systemic risk
Which of the following would be true for the banking system if there were no government regulation?
The money supply would be determined by individual banks.
What is the difference between nominal and real interest rates?
The nominal interest rate is the rate you pay on a loan. The real interest rate is the nominal interest rate adjusted for inflation.
How is the rate of inflation related to the nominal interest rate that credit card companies charge, and why would lenders need to increase the nominal interest rate when the inflation rate increases? Why would credit card companies move to states without usury laws during a period of high inflation, like the 1970s?
The nominal rate of interest is the real rate of interest plus the rate of inflation; lenders need to raise the nominal rate when inflation increases to maintain their desired real return. Because usury law ceilings may limit the real return lenders can earn during inflationary periods, lenders have an incentive to move to states without such laws.
As per the records of the Bureau of Labor Statistics (BLS), which of the following was true of the U.S. economy in 2016?
The number of employed workers > The number of adults out of the labor force > The number of unemployed workers
In August, 1979, the annual rate of inflation in the U.S. was nearly 12%, and the U.S. short-term nominal interest rate was nearly 10%. Over the next 35 years, both the rate of inflation and short-term nominal interest rate tended to fall. By August 2014, the rate of inflation was about 2% and the short-term nominal interest rate was close to 0%. How has the real short-term interest rate changed from 1979 to 2014? Why do the inflation rate and the nominal interest rate tend to move together over the long-run?
The real rate remained stable at −2%. A. This synchronized movement indicates that credit market conditions have tended to be relatively stable over time. B. Their up and down together movement tells us that the real interest rate is relatively stable in the long run. (both A and B)
What was the root cause of hyperinflation in Zimbabwe? What were some of the costs of the hyperinflation? (Check all that apply.) What were some of the benefits? (Check all that apply.) What were some of the adaptations that the country adopted to cope with the situation? (Check all that apply.)
There was an increase in the money supply in excess of the growth rate of real GDP. Price controls were applied.. People spent time exchanging money multiple times per day. Businesses were forced to adjust prices several times per day. The government gained the seignorage. The use of the black market for many transactions. Redenominations of the Zimbabwean dollar. The use of foreign currencies for transactions.
Which of the following statements describe hyperinflationary episodes? (Check all that apply.) Identify whether an unanticipated increase in inflation helps or hurts Leah, Jasmine, and Kate. Leah is working on a contract basis for 2 years and has already fixed her salary with her employer for the 2-year period. A 72 year old Jasmine is living off her flexible pension which is indexed to quarterly inflation. Kate, a graduate student, took a 7-year bank loan at a fixed interest rate last year to fund her tuition fees.
They are likely to be caused by a government printing currency to buy goods and services. They are likely to be accompanied by a rise in the money supply. They are likely to be caused by a government printing currency to finance budget deficits. hurts has no effect helps
Which of the following statements best describes financial intermediaries?
They provide a bridge from lenders to borrowers of financial capital.
Total assets =
Total liabilities + Stockholders' equity
What are the costs associated with inflation? (Check all that apply.)
Uncertainty about the aggregate price level, which can distort prices and make planning difficult. Logistical costs related to the need to frequently change prices. Unproductive policies such as price controls, which may be due to voter dissatisfaction.
A financial intermediary that invests in start up companies that have no track record. A financial intermediary that gathers funds from a small number of very wealthy individuals and buys stock in companies that are in deep financial trouble. A financial intermediary that takes loans from large investors and uses them to create new financial products that it could sell to other institutions and wealthy investors. A financial intermediary that gathers funds from a small number of wealthy institutions and buys a privately owned family business. A financial intermediary that enables Sam and Emma to use their savings to buy a share of ownership in Microsoft Corporation and to lend money to Microsoft Corporation respectively.
Venture capital fund Hedge fund Shadow banking system Private equity fund Asset management company
The depositors of JS bank were worried that the value of this bank's assets was less than the value of its liabilities, so they started to withdraw their deposits from the bank. This expanding panic and rising flood of withdrawals is called ___________. An institutional bank run takes place when economic agents such as ____________ withdraw their deposits and their short-term loans from a weak bank. Such bank runs _________ be prevented by the relevant (government) insurance agency. Which of the following strategies can a bank adopt to prevent a bank run without facing any repercussions?
a bank run firms and banks cannot It starts holding lots of stockholders' equity.
All of the following individuals would be negatively impacted by rising inflation except ____________.
a homeowner with a fixed-rate mortgage.
The credit demand curve slopes downward because ____________. A shift in the credit demand curve can be caused by ___________.
a lower real interest rate raises a borrowing firm's profit and hence its willingness to borrow. changes in government policy. changes in household preferences or expectations. changes in perceived business opportunities for firms. (all of the above)
Groceries Galore is a new start-up company that provides grocery shopping, grocery delivery, and catering services for busy professionals with no time to shop. The initial research shows good growth potential. Groceries Galore is most likely to be funded by ____________.
a venture capital fund.
A cash equivalent would be recorded as ________ on the bank's balance sheet and is considered _________, as its value ____________ from day to day
an asset, riskless, remains constant
A bank run is ____________.
an extraordinarily large volume of withdrawals driven by a concern that a bank will run out of liquid assets with which to pay withdrawals.
Price controls like these often result in ____________.
an inefficient solution to inflation by creating disruptions in supply and a shortage of goods.
When a bank experiences withdrawals of deposits and short-term loans by firms and other banks, the situation is described as ____________. When large firms and the general banking community lose confidence in a weak bank, FDIC insurance is ______________ the situation.
an institutional bank run. incapable of alleviating
All of the following reasons would cause the credit demand curve to shift to the left except ____________.
a business-savvy president being elected.
Money functions as a medium of exchange when you ___________.
buy jeans at the mall.
If the economy experiences an unexpectedly high rate of inflation, the group that would tend to benefit is ___________.
debtors (people or businesses who owe money).
Economic agents who borrow funds—such as entrepreneurs, home buyers, and medical students—are known as _________. The funds they borrow are referred to as ________.
debtors, credit
Economic agents who borrow funds are known as _________, the funds that they borrow are referred to as ____________, and this activity occurs in the____________ market.
debtors, credit, credit or loanable
When employed individuals become unemployed, the civilian labor force ______________________.
does not change
The charging of interest _________ savers to lend their excess money to borrowers as compensation for risk. Therefore, the credit market can _________ the allocation of resources in the economy. A downside of charging interest could be the _________ accumulation of the overall money supply by lenders.
encourages, improve, increased
Whenever the economy's actual rate of unemployment exceeds its natural rate as was the case in September, 2021, , it can be deduced that potential real GDP _________ actual real GDP for that period.
exceeds
Banks and other financial institutions of an economy are in the business of channeling funds from suppliers of financial capital to users of financial capital. This process is known as ____________. The two basic types of financial capital are ____________.
financial intermediation. credit and equity.
Frictional unemployment can result when ____________. (Check all that apply.)
firms and workers have imperfect information about the state of the economy firms and workers have imperfect information about each other it takes time for firms to find applicants with the right skills and experience
Inflation is the ____________. Deflation is ____________. Hyperinflation is ____________.
growth rate of the overall price level in the economy. the rate of decrease of the overall price level in the economy. a doubling of the price level within three years.
The credit supply curve slopes upward because a ____________. A shift in the credit supply curve can be caused by ____________. (Check all that apply.)
higher real interest rate induces more investment. higher real interest rate encourages more saving. an elevated perception on the part of households that the future may hold many "rainy days." a heightened desire on the part of firms to internally fund their future activities. an aging population that is ill-prepared for retirement.
By moving short-term liabilities into long-term investments, banks increase their _______. This ________ the risk associated with bank runs, as it can make it harder for banks to cover their _________.
illiquidity, increases, deposits
Failure of an investment bank is typically more serious than failure of a regional bank because ____________.
investment banks are not FDIC insured, liabilities are larger, and bank runs can trigger stock market collapses.
As the real interest rate rises, the opportunity cost of current consumption ______. This causes the credit supply curve to have a _______ slope. If an economy has a large aging population that is increasing, one would expect the credit supply curve to shift ___________.
rises, positive, rightward
Hyperinflation is most likely caused by ____________.
large budget deficits financed by printing more money.
from XYZ Investment House for capital improvements. It must pay this amount back with interest in exactly one year. ABC Bank has taken on a _______ debt, which is recorded as _________ on its balance sheet.
long-term, a liability
The value of the marginal product of labor is the ____________. Determine the value of the marginal product of labor of the employee that Anthony is considering hiring.
market value of a worker's additional output for a firm. $80
A key role of banks is to identify profitable lending opportunities. Banks perform this function by ____________.
matching lenders to the more creditworthy borrowers.
Banks provide credit by ____________.
matching people with savings to those who want to use those savings.
Actions of the newly elected head of state make citizens feel pessimistic about the future. The government increases its spending on infrastructure by financing it through borrowing. Banks raise the nominal interest rate by 2 percentage points after inflation rises by 4 percentage points.
move credit demand left move credit demand right lower interest rate
______ GDP is the total value of production (final goods and services) using current prices. If 2013 is the base year, the real GDP in 2014 is The nominal GDP in 2014 has __________ by _____ percent from what it was the year before. (Round your answer to two decimal places.) Which of the following statements are true regarding the quantity theory of money? (Check all that apply.)
nominal 400 increased, 50 A. Growth rate of money supply = Growth rate of nominal GDP. B. Growth rate of money supply=Inflation rate + Growth rate of real GDP.
We know that Alex is ____________, and we know that John is ____________.
not in the labor force; not in the labor force
The size of the labor force in a country is equal to the ________.
number of employed workers plus the number of unemployed workers in the country
Banks usually hold a small pool of reserves because ____________. If a bank runs short of reserves, a reasonable step would be to ____________.
on most days the withdrawals of existing deposits are roughly offset by inflows of new deposits. A. apply for a taxpayer-funded bailout. B. stop making new loans. F. (B and C only.)
When repaying a loan, the payment a borrower makes consists of ____________.
principal and interest.
The fact that unemployment is lower among workers with a relatively higher level of education can be explained in part by the _____________. What other reasons might explain why unemployment is lower among workers with a relatively higher level of education?
principle of optimization all of the above
When the value of a bank's assets is greater than its liabilities, the bank is said to be ____________. When the value of a U.S. bank's assets become less than its liabilities, the government, through the FDIC, ___________.
solvent A. shuts the bank down and makes payouts to its depositors. B. searches for a healthy bank to take over its operations. (both A and B)
Fiat money is ____________.
something that is used as legal tender by government decree and is not backed by a physical commodity.
When a bank records a loss in assets, that loss flows to the ____________ portion of the balance sheet. For a bank to be considered insolvent, stockholders' equity must be _______.
stockholders' equity, zero
An economy's natural rate of unemployment reflects the combined effect of frictional and ___________ unemployment
structural
If demographic trends reduce the saving behavior of households, the credit _________ curve will shift to the ________. . As a result of this shift, and assuming the demand for credit among households and businesses does not change, the equilibrium real interest rate will _______ and the equilibrium quantity of credit demanded will ________.
supply, left, rise, decrease
By affecting certain key interest rates, the Fed can indirectly control the money ________. The Fed's dual mandate is to maintain ________ levels of inflation while allowing for sustainable levels of _________.
supply, low, GDP growth
A central bank is the government institution ____________. The functions of a central bank are to ____________. (Check all that apply.)
that runs a country's monetary system. control certain key interest rates. monitor financial institutions. indirectly control the money supply.
According to the quantity theory of money, the inflation rate is_________ If the inflation rate is negative, what must be true?
the gap between the growth rate of money supply and the growth rate of real GDP. The growth rate of real GDP > the growth rate of money supply.
The quantity theory of money assumes that ____________. In this case, inflation is ____________. Are the predictions of the quantity theory of money borne out by historical data?
the ratio of money supply to nominal GDP is exactly constant. equal to the gap between the growth rate of money supply and the growth rate of real GDP. Yes, the long-run data show a one-for-one growth rate of money supply and inflation.
The Federal Reserve influences the long-run real interest rate through ____________.
the short-term federal funds rate.
As used in finance, the term maturity refers to the ____________. For banks and other financial institutions, the discrepancy between the short-term maturities of their deposits and the long-term maturities of their assets is referred to as ____________.
time until a debt must be repaid. a maturity mismatch.
Maturity transformation is the process by which banks ____________.
transfer short-term liabilities into long-term investments.
One of the major functions of banks is to ____________.
transform short-maturity liabilities into long-maturity assets.
The labor supply curve shows that the quantity of labor supplied will decrease as ____________. This results in a labor supply curve that is _____________. The labor supply curve is derived from the concept that ____________.
wages decrease upward-sloping as wages increase, the opportunity cost of leisure increases, leading people to work more hours.
Scenario: The unemployment rate in Country Y is 6 percent, and the labor force is equals about 200 million people. Who is considered part of the 6 percent of unemployed workers in Country Y?
Peter, an engineer who became a stay - at-home husband after his start-up up company went bankrupt, but he wants to find a new engineering job
Scenario: The unemployment rate in Country Y is 6 percent, and the labor force is equals about 200 million people. Who of the people listed below would be considered part of the work force in Country Y?
Peter, who is currently finishing his degree in economics and has a part-time job
The real wage is the ____________. What is the significance of the real wage as it relates to inflation?
inflation-adjusted wage. Since an increase in inflation reduces the real wage that firms must pay, firms are more willing to hire workers, thus stimulating economic activity.