Econ 201- Chapter 9

People who lost their jobs as hand-drawn animators because of the popularity of computer-generated 3D animation are examples of persons who are suffering

structural unemployment.

The unemployment rate is an important economic statistic that can tell us about the health of the economy. If the unemployment rate turns out to be high or higher than anticipated, we would expect

that stock prices are more likely to fall

Frictional unemployment is the result of

the search process of matching workers with jobs.

According to the text, economists consider full employment to occur when

the unemployment rate consists of only frictional and structural unemployment.

If an economy experiences deflation, the real interest rate

will be greater than the nominal interest rate.

Discouraged workers are

workers who have stopped looking for work because they believe there are no jobs for them.

Which of the following explains the changes in the U.S. adult male labor force participation rate since 1948?

younger men are remaining in school longer as compared to the past

If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is

5%

Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid?

8 Percent

If the number employed is 190 million, the number unemployed is 10 million, and the working-age population is 250 million, then the labor force participation rate is

80%

An unemployment insurance program has which of the following effects?

It increases the amount of time spent searching for a job.

The costs to firms of changing prices are called

Menu Costs

The real interest rate equals the nominal interest rate ________ the inflation rate.

Minus

Someone who is available for work but has not actively looked for work in the previous four weeks would be classified as

Not in the labor force

The Bureau of Labor Statistics would categorize a retiree who is not working as

Out of the labor force

The nominal interest rate equals the real interest rate ________ the inflation rate.

Plus

Suppose the labor force stays constant, and the working-age population stays constant, but a greater number of persons who were unemployed become employed. The labor force participation rate will

Remain Constant

Emma is a road construction worker. During the winter months, emmy finds it more difficult to get work. The unemployment Emma experiences in the winter is

Seasonal

A lumberjack loses his job because timber cutting restrictions were imposed by the EPA to protect the spotted owl habitat. This lumberjack would be

Structurally Unemployed

The average price of goods and services in the economy is also known as

The price level

You earned $30,000 in 1990, and your salary rose to $80,000 in 2011. If the CPI rose from 82 to 202 between 1990 and 2011, which of the following is true?

The purchasing power of your salary increased between 1990 and 2011.

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 unemployment.

Housing is the largest component of the U.S. CPI market basket.

True

If inflation is anticipated, some effects of inflation on the redistribution of income can be avoided.

True

If inflation is higher than expected, this helps borrowers (by reducing the real interest rate they pay) and hurts lenders (by reducing the real interest rate they receive).

True

If inflation is unanticipated, no redistribution of income can occur.

True

The inflation rate measures the percentage increase in the price level from one year to the next

True

The unemployment rate in the United States is typically lower than in Western Europe because it is more difficult in the United States for the unemployed to qualify for government payments and the benefits are for a shorter period of time.

True

The average period of unemployment was ________ following the 2007-2009 recession as following any other recession since the end of World War II.

Twice as high

Structural unemployment is the result of

a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs.

Which of the following describes a situation in which the person is hurt by inflation?

a person paid a fixed income during an inflationary period

In the modern U.S. economy, the typical unemployed person stays unemployed for

a relatively short time, less than six months.

Which of the following individuals would be most negatively affected by anticipated inflation?

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

Cyclical unemployment is the result of

a slowdown in the economy

The costs to firms of changing prices

are called a menu costs.

Suppose that in 2012, all prices in the economy double and that all wages and salaries have also doubled. In 2012 you

are no better off or worse off than you were in 2011 as the purchasing power of your salary has remained the same.

Suppose that at the beginning of a loan contract, the real interest rate is 4% and expected inflation is currently 6%. If actual inflation turns out to be 7% over the loan contract period, then

borrowers gain 1% of the loan value.

When actual inflation is less than expected inflation,

borrowers lose and lenders gain.

Which of the following policies would reduce frictional unemployment?

building an on-line job database that helps workers find jobs

The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket.

change; over-estimates

Which of the following price indices comes closest to measuring the cost of living of the typical household?

consumer price index

Workers laid off as a result of a recession suffer

cyclical unemployment.

The labor force is the sum of

employed workers and unemployed workers

The natural rate of unemployment is made up of

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.

The short-term unemployment arising from the process of matching workers with jobs is called

frictional unemployment.

An advantage of the establishment survey over the household survey of the labor market is that the establishment survey

is based on actual payrolls, rather than on unverified answers.

You lend $5,000 to a friend for one year at a nominal interest rate of 10%. Inflation during that year is 5%. As a result, you will receive ________ at the end of the year, but that money has a purchasing power of ________.

$5,500; $5,250

The CPI in 1990 was 131, and the CPI in 2010 was 218. If you earned a salary of $40,000 in 1990, what would be a salary with equivalent purchasing power in 2010?

$66,565

The formula for calculating the CPI is

(Expenditures in the current year/Expenditures in the base year) × 100.

Labor Force Participation Formula

(Labor Force/ Working Age Population) x 100

Formula to calculate the unemployment rate

(Number of unemployed/Labor Force) x 100

If the nominal interest rate is 6% and the inflation rate is 9%, then the real interest rate is

-3%

Monthly expenditures for a family of 4 in 2010 averaged $1,400. In 2011, the cost of the same purchases was $1,500. If 2010 is the base year, what was the CPI in 2011?

107

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?

3%

If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest?

3.5%

Assume the average annual CPI values for 2010 and 2011 were 207.3 and 215.3, respectively. What was the percent increase in the CPI between these two years?

3.86

The full-employment rate of unemployment is zero.

False

Which of the following policies would reduce structural unemployment?

A Job retraining program

The labor force participation rates of men have gradually increased since 1948.

False

There are no costs to inflation if it is fully anticipated.

False

If you have trouble finding a job because of a slowdown in the overall economy, we would say that you are

Cyclically Unemployed

Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to understate the true extent of joblessness?

Discouraged Workers

The real wage equals the nominal wage ________ the CPI, all times 100.

Divided by

The Bureau of Labor Statistics would categorize a person as ________ if they were temporarily away from their job because they were ill.

Employed

The labor force equals the number of people

Employed plus unemployed

Labor Force Equals

Employment + Unemployment

Suppose you lend $1,000 at an interest rate of 10 percent over the next year. If the expected real interest rate at the beginning of the loan contract is 4 percent, then what rate of inflation over the upcoming year would be most beneficial to you as the lender? An inflation rate

Equal to 0 Percent

Which of the following explains why many European countries have unemployment rates that are higher than in the United States?

European countries offer higher unemployment benefits than the United States.

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

Suppose you borrow $1,000 at an interest rate of 12 percent. If the expected real interest rate is 5 percent, then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation

Greater than 7%

The percent increase in the CPI from one year to the next is a measure of the

Inflation Rate

If inflation increases unexpectedly, then

lenders receive a lower real interest rate than they expected.

Your grandfather tells you that he earned $7,000/year in his first job in 1961. You earn $35,000/year in your first job in 2011. You know that average prices have risen steadily since 1961. You earn

less than 5 times as much as your grandfather in terms of real income.

Inflation that is ________ than what is expected benefits ________ and hurts ________.

less; lenders; borrowers

The consumer price index is the

measure of the average change over time in the prices of the goods and services purchased by a typical urban family of four.

If firms pay what are called "efficiency wages," they pay wages that

motivate workers to increase their productivity.

The "new product bias" in the consumer price index refers to the idea that

new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.

The stated interest rate on a loan is the

nominal interest rate.

The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but ________ quality increases. This causes the CPI to ________ the cost of the market basket.

not; overstate

Most economists believe that the biases in the consumer price index cause the CPI to overstate the true inflation rate by about

one-half to one percentage point.

Discouraged workers are classified by the BLS as

out of the labor force

The producer price index measures the prices that firms

receive for goods and services at all stages of production.

By offering training to workers whose firms laid them off because of competition from foreign firms, the federal government is attempting to reduce

structural unemployment.

The broadest measure of the price level that includes all final goods and services is

the GDP deflator.

The most widely used measure of inflation is based on which of the following price indices?

the consumer price index

The CPI is also referred to as

the cost-of-living index.

The real rate of interest is

the nominal interest rate minus the inflation rate.

The unemployment rate is

the percentage of the labor force that is unemployed.

The labor force participation rate is defined as

the percentage of the working-age population in the labor force.

Deflation occurs when

there is a decline in the price level.

If inflation is positive and is perfectly anticipated,

those that hold paper money lose.

Why might firms pay wages that are above the equilibrium wage in a market?

to increase the productivity of their workers

Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to overstate the true extent of joblessness?

unemployed persons falsely report themselves to be actively looking for a job

If the minimum wage is set above the market wage,

unemployment will rise.