ECON 205 Business Cycles Unemployment and Inflation

If the unemployment rate were zero, there would be neither __________ unemployment nor ___________ unemployment.

frictional, structural

In an economy, there will always be __________ unemployed workers searching for positions or in between jobs.

frictionally

When someone has stopped actively searching for a position,:

he or she is not considered a part of the labor force.

In general, the greater your education level, the _________ your average weekly nominal earnings.

higher

The consumption category that accounts for the largest proportion of consumer spending is .

housing

Real income equals ________ _income divided by the Consumer Price Index times 100.

nominal

The number of dollars you receive for your labor is:

nominal income.

We distinguish between ________ income and _________ income because receiving a salary increase is better than not getting one, but the additional dollars may not allow you to buy as many goods and services as last year due to inflation.

nominal, real

Sue was a nurse. She quit her job and is now studying to be a doctor. Sue is:

not part of the labor force.

The unemployment rate equals the:

number of unemployed workers divided by the sum of the employed and unemployed workers and multiplied by 100.

In the calculation of Consumer Price Index (CPI), a lawyer's fee is counted in the category of:

other goods and services.

The unemployment rate in an economy is calculated as the ___________ of the labor force that is unemployed.

percentage

Inflation is defined as the general increase in the _________ of goods and services produced in an economy.

price

The percentage change in real income is approximately equal to the percentage change in nominal income minus the percentage change in the _________ level.

price

The ___________ phase of the business cycle represents the lowest level of economic activity.

trough

The labor force is important because it is the basis for calculating the:

unemployment rate.

A percentage change in a value equals the:

value in the later year minus the value in the earlier year divided by the value in the earlier year and multiplied by 100.

The inflation rate equals the:

value of the CPI in the later year minus the value of the CPI in the earlier year divided by the value of the CPI in the earlier year and multiplied by 100.

A graph of the business cycle shows the level of real GDP on the __________ axis and time on the _________ axis.

vertical, horizontal

The Consumer Price Index is computed as:

(Value of the market basket in year t/Value of the market basket in the Base Year) x 100.

Indicate the order in which the U.S. Bureau of Labor Statistics calculates the Consumer Price Index.

1. Data on detailed consumption habits are collected through interviews and weekly diaries 2. The relative importance, or weights, of the purchased goods and services is determined 3. An index is computed for the average market basked purchased by the typical consumer

The CPI will always be ________ for the base year, because we are comparing the value of the basket to itself

100

What is the value of the Consumer Price Index in the base year?

100

If nominal income increases by 3 percent and prices by 1 percent, the percentage change in real income will be

2 percent

If nominal income increases by 5 percent and prices by 3 percent, the percentage change in real income will be

2 percent

If the CPI was 240 in Year 1 and 245.1 in Year 2, what is the inflation rate between year 1 and year 2?

2.13%

If 160 million workers are in the labor force and of those workers 2.5 million are frictionally unemployed and 3.5 million are structurally unemployed, the natural rate of unemployment is

3.75 percent

If the labor force in an economy is 160 million and the number of employed is 125 million, the number of unemployed equals _________ million workers.

35

Suppose there are 150 million workers in the labor force of an economy. Out of those workers, 2.5 million are frictionally unemployed and 3.5 million are structurally unemployed. The natural rate of unemployment in the economy is _______ percent.

4

IC unemployed, the unemployment rate equals ________ percent.

4.3

Suppose the labor force in an economy equals 153 million workers. Out of 153 million workers, 145.2 million workers are employed and 7.8 million are unemployed. Hence, the unemployment rate equals

5.10 percent

The Bureau of Labor Statistics estimates the size of the labor force each month by surveying approximately:

60,000 households and 140,000 businesses.

The natural rate of unemployment for an economy experiencing frictional unemployment of 3 percent and structural unemployment of 4 percent is

7 percent

Which of the following persons would not be considered unemployed?

A construction worker who has given up looking for work after 18 months without a job

Which of the following people would be considered unemployed?

A recent high school graduate looking for a first job

___________ unemployment happens all the time as people decide to move to different places, learn new skills, and mature in their careers.

Frictional

Which of the following does the Bureau of Labor Statistics compute?

CPI

[(Value of a market basket in Year T / Value of a market basket in base year) X 100] = __________

CPI

Which of the following can be used to compare today's income levels to those of earlier years?

Consumer Price Index

An economic indicator known as the CPI is the:

Consumer Price Index.

An economic indicator used to measure the average price of a market basket of goods and services over time is the:

Consumer Price Index.

The Bureau of Labor Statistics (BLS) collects information on employment as part of the monthly:

Current Population Survey.

___________ unemployment often involves little hardship, so it tends to require minimal government action.

Frictional

All adults over 16 years of age are included in the labor force. (True or False)

False

__________ unemployment results from workers searching and waiting for job opportunities.

Frictional

__________ results in a reduction in someone's ability to buy goods and services.

Inflation

Vegetables are purchased by a restaurant. Which major group of the CPI does this purchase belong to?

It is not included in any CPI category

The CPI is computed by the U.S. Bureau of ___________ Statistics.

Labor

________ income is the number of dollars you receive for your labor.

Nominal

Who among the following is included in the labor force?

People working or actively searching for a job

__________ income equals nominal income divided by the Consumer Price Index times 100.

Real

___________ income measures the purchasing power of what you earn every month.

Real

____________ income is the the amount of goods and services that can be purchased with actual income.

Real

___________ unemployment is usually the longest type of unemployment.

Structural

Which of the following offers an example of cyclical unemployment?

The increase in unemployment during recessions

Which of the following offers an example of frictional unemployment?

The unemployment associated with workers changing jobs

Not everyone is counted in the labor force. (True or False)

True

The price of a good is a measure of how much money it takes to buy that good.

True

Unemployment benefits have nothing to do with the unemployment calculations conducted by the Bureau of Labor Statistics. (True or False)

True

Jamie has been out of work for a full year. She has given up searching for work. She is:

a discouraged worker.

The producer price index measures the ________ change in the selling prices received by the producers of goods and services.

average

The natural rate of unemployment changes over time because:

frictional unemployment structural unemployment and the labor force change on a continuous basis.

Someone needs to be working or actively searching for a job to:

be included in the labor force.

Short-term fluctuations experienced in the economy due to changes in levels of economic activity:

can vary in duration and severity.

The Consumer Price Index measures the average price for a market basket of goods and services purchased by the typical __________ from one year to the next.

consumer

The __________ ___________ _________ is constructed using the prices and quantities of goods and services purchased by a typical household over time.

consumer price index

Because ____________ unemployment can last many months or years, providing unemployment benefits to these individuals can also lessen the sting of losing a paycheck for an extended period of time.

cyclical

Inflation represents a(n) _________ in someone's ability to buy goods and services.

decrease

Inflation is caused by increases in aggregate

demand

When comparing periods of time separated by decades or generations:

income comparisons are not exact because of the different goods and services that can be purchased in different eras.

Economists define _________ as a general increase in the prices of goods and services.

inflation

The Consumer Price Index allows us to calculate ________ for the typical consumer in the economy.

inflation

The U.S. Bureau of Labor Statistics uses the Consumer Price Index to track ______ over time.

inflation

We distinguish between nominal income and real income because receiving a salary increase is better than not getting one, but the additional dollars may not allow you to buy as many goods and services as last year due to

inflation

In general, an increase in the money supply causes:

inflation.

A graph of the business cycle shows the:

level of real GDP on the vertical axis and time on the horizontal axis

The Bureau of Labor Statistics estimates the size of the labor force each

month

The Consumer Price Index (CPI) is calculated ___________

monthly

A fully employed economy is one that is operating at what economists call the __________ rate of unemployment.

natural

Comparing the actual unemployment rate with the __________ rate of unemployment can help us gauge the current state of the economy relative to normal times.

natural

The __________ rate of unemployment in an economy equals the sum of frictional and structural unemployment rates.

natural

The unemployment rate provides information on the _________ of the labor force that is employed and unemployed.

proportion

From 1979 to 2013, _____ earnings decreased for those having only a high school education or less.

real

The percentage change in __________ income is approximately equal to the percentage change in _________ income minus the percentage change in prices.

real, nominal

The period of expansion following a recession when output is increasing but is still lower than its long-run level is known as

recovery

There will always be __________ (choose your answer from frictionally/structurally) unemployed workers whose skills are obsolete and thus not wanted in the economy.

structurally

From 1979 to 2019, real earnings decreased for those having only a high school education or less. Among the possible explanations for this trend offered by economists are:

technological change occurring in recent decades has increased the demand for people with more education. globalization has helped those with greater education more than those with less education.

The consumer price index (CPI) measures:

the average price of a market basket of goods.

Any salary that is rising slower than the rate of inflation is actually falling, in real terms. This statement refers to

the difference between real and nominal income.

For the average worker in the United States

the higher the unemployment rate, all else held the same, the more unemployed people are looking for jobs, and the longer someone is likely to be searching for a position