ECON EXAM 3

U-1

unemployed 15 weeks or longer

classified not in non-institutionalized population

children (must be 16 or older), military members, institutionalized persons

Employment situation technical note

household survey: sample selected to reflect the entire non- institutionalized population

Means of payment

i. Medium of exchange ii. Means of unilateral payment

total inflation rates

includes all goods

Increased fluctuation in inflation rates =

increased risk in borrowing and lending (why the fed is obsessed with constant rate)

A continual increase in the aggregate price level is

inflation

The month-to-month percent change in the total CPI is the most publicized measure of

inflation rate

Structural unemployment occurs because 1. an economy can experience periods of recession. 2. there are long-term mismatches between workers' skills and available jobs. 3. jobs differ in their location, skills required, and working conditions. 4. it takes time to match potential workers and jobs.

there are long-term mismatches between workers' skills and available jobs. 1 = cyclical 3 = just a fact 4 = frictional

U-3

total unemployment (official unemployment rate)

U-4

total unemployment + discouraged workers

U-5

total unemployment + discouraged workers + all other marginally attached to labor force

U-6

total unemployment + discouraged workers + all other marginally attached to labor force + total employed part time for economic reasons (underemployed)

What gives Federal Reserve notes their value?

"this note is legal tender for all debts, public or private", it has value because the government says so and in those two places (public = debts to the government, taxes, only accept dollars to pay debt, it will function as a means of unilateral payment) (private = borrowing and lending, must pay in dollars)

Suppose the CPI equaled 100 in 2011 and 110 in 2016 and a typical household's nominal income equaled $40,000 in 2011 and $45,000 in 2016. Between 2011 and 2016 the aggregate price level _____ and real household income _____, everything else held constant. a. increased; increased b. increased; decreased c. decreased; increased d. decreased; decreased

(+ = inc, - = dec) Real = nominal - inflation (110-100)/100 = 10% rate of inflation (1/10) (45-40)/40 = 12.5% nominal income change (1/8) a. Increase, increase

frictional/structural unemployment

a person unemployed, and there is a job opening

Seasonal unemployment

- Short-term; adjustments - cultural, atmospheric

categories of employment

1) employed 2) unemployed 3) not in the labor force 4) not in non-institutionalized population

_____ unemployment is the most detrimental to the performance of a dynamic market economy.

3. Cyclical = recession, effects all sectors of the economy

According to the BLS Household Survey, the unemployment rate in the United States was _____ percent in February 2017.

4.7

According to the BLS Household Survey, the unemployment rate in the United States was _____ percent in January 2017.

4.8

Policy Goal: Full Employment

4.9% is classified as full employment

seasonally adjusted percentage

5.8%

Civilian Labor Force

= a (employed) + b (unemployed)

Civilian Noninstitutional Population

= a (employed) + b (unemployed)+ c (not in the labor force)

In January 2017 the month-to-month percent change in the total CPI was +0.6. In February 2017 the month-to-month percent change in the total CPI was +0.1. Thus the inflation rate in February was _____ than it was in January and the aggregate price level in February was _____ than it was in January. a. greater; greater b. greater; less c. less; greater d. less; less

CPI are measures of the inflation rate Inflation rate is lower, but it is still positive, which means prices are going up, but at a slower rate C. less, greater

Suppose David is 40 years old and had been working as a lifeguard until he was bitten by a shark three weeks ago. Suppose further that he expects to return to his job in the next two weeks. During his recovery David has not looked for another job. According to the BLS household survey, David would be classified as

Has been out of work temporarily for the past 3 weeks and won't be back for another 2 weeks Illness / injurey Therefore; 1. employed

seasonal adjustment

Over the course of a year, the size of the nation's labor force and the levels of employment and unemployment undergo regularly occurring fluctuations. These events may result from seasonal changes in weather, major holidays, and the opening and closing of schools. The effect of such seasonal variation can be very large.

If nominal income has increased by 4 percent and the aggregate price level has decreased by 3 percent, then real income has _____ by _____ percent, everything else held constant. a. increased; 1 b. decreased; 1 c. increased; 7 d. decreased; 7 e. increased; 12 f. decreased; 12

Real = nominal - inflation (aggregate price level) c. Increase by 7

Suppose a privately-owned laundromat in Mexico purchases a new clothes dryer produced in the U.S. Everything else held constant, this will cause the _____ component of Mexican GDP to increase. a. consumption (C) b. investment (I) c. government spending (G) d. export (X) e. import (IM)

b. investments (I)

The Fisher effect is the tendency for _____ interest rates to be _____ when the inflation rate is low. a. nominal; high b. nominal; low c. real; high d. real; low

b. nominal and low

The inflation rate is a _____ variable; the civilian labor force is a _____ variable. a. stock; stock b. stock; flow c. flow; stock d. flow; flow

c. flow, stock

Suppose LSU purchases a new desk that was produced in the U.S. for use in the Economics Department office. Everything else held constant, this will cause the _____ component of U.S. GDP to increase. a. consumption (C) b. investment (I) c. government spending (G) d. export (X) e. import (IM)

c. government spending (G)

Suppose that a department store added domestically-produced refrigerators to its inventory in June 2016 because it expected an increase in demand for them. The store miscalculated the preferences of its customers, however, and was not able to sell the refrigerators until January 2017. The refrigerators added to the store's inventory in June 2016 a. will be counted in 2017 GDP because they were sold that year. b. will not be counted in 2016 GDP because they were intermediate goods that year. c. will be counted in 2016 GDP as part of consumption (C). d. will be counted in 2016 GDP as part of investment (I).

d. will be counted in 2016 GDP as part of investment (I).

Suppose AJ purchases a new reception desk that was produced in the U.S. for use in her privately-owned law office in Baton Rouge. Everything else held constant, this will cause the _____ component of U.S. GDP to increase. a. consumption (C) b. investment (I) c. government spending (G) d. export (X) e. import (IM)

e. investments (I)

U-2

job losers and people who complete temporary job

Procyclical

measures of economic activity that increase when the economy is expanding a fall when the economy is contracting. Examples of pro-cyclical economic variables are real GDP, interest rates, and inflation

Standard of value

mental construct, a way of measuring somethings value/worth ex. reservation price

Medium of exchange

money for good and services transfer

Fisher Effect

nominal interest rates (dependent) and inflation rates (Independent) higher inflation, higher nominal

classified not in labor force

not employed or unemployed but apart of the non-institutionalized population

Discouraged workers

not employed, available for work (start immediately) but they haven't made an effort to find employment in over four weeks, (not in the labor force)

Discouraged workers are classified as _____ in the official (U-3) unemployment rate definition and _____ in the U-6 unemployment rate definition.

not in the labor force; unemployed

Full Employment

not too low, not too high, when there is only frictional and structural unemployment, never have a zero % unemployment rate not desirable; equilibrium for every one person unemployed there is exactly one job available, neither a surplus nor shortage

Weekly jobless claims

number of people who have lose their job for the first time and filed for unemployment each week

Suppose Brian lost his job as a tennis instructor when his hotel on Long Island, New York closed for the winter. In this situation, Brian would be considered _____ unemployed.

seasonal

business cycle

short term economic growth rates

The term "business cycle" refers to the _____ fluctuations in _____.

short-term, economic growth rates

stock

something you can measure at a given point in time, steady

flow

something you have to measure over a period of time, can't say what it is at a single instance

Suppose Elizabeth lost her assembly job three years ago when the shoe factory she worked at ceased production and moved its operations to Brazil. Ever since then she has been continuously seeking employment and is available to begin working immediately. In this situation Elizabeth would be considered _____ unemployed.

structurally

"True" problem of unemployment

wasted resources

shortage of workers

when: (workers are the selling side of the labor market; buyer is the employer) more job openings than people looking for jobs (when unemployment % is too low), price of labor goes up (wages, salaries, etc.) (2/3 of costs are labor costs) in turn goods and services price increases

Underemployment

working part time because they cannot find a full time job

Unit of account

written record, ex. printed record of a transaction

Expenditure Approach (who is spending):

y = C + I + G + X - IM i. Consumption (C) plus ii. Investment (I) plus iii. Government spending (G) plus iv. Exports (X) minus v. Imports (IM)

demand deposit account balances and other checkable deposit account balances

zero interest baring account, promises, created by commercial banks

Recession

period where the economy is contracting or growing slower (downside of the business cycle)

Expansion

period where the economy is growing (upside of the business cycle)

new home sale, when the economy is good, people buy houses, would be considered...

procyclically

making a deposited is a lend therefore it is most advantageous to save at the

real

indexing

- Adjust nominal values to hold real values constant - Application: Social Security benefits (each year the min wage goes up with inflation, constant in real value)

Structural unemployment

- Definition no skills match or geometric match - Long-term: skills of the worker don't match the skills needed for the job; undesirable: these people are unemployed and causes wasted resources; inevitable; policies unemployed with no job opened

coin in circulation

- coins held by people not in banks, coin value is negligible, issued by federal government

classified employed

- did any work at all as paid employee - worked in own business, farm, or profession - worked w/o pay for 15 hours or more for family business or farm - temporary absent b/c of illness, bad weather, vacation, labor-management dispute, or personal reasons

Cyclical unemployment

- economic; recessions (when unemployment rates are increasing) (macro economy) - Short or long-term; very undesirable; policies

Frictional unemployment

- employer not aware of employee, employee not aware of employer -Short-term; desirable: good type of unemployment for the economy as a whole, allows the best person to get the job; inevitable: will always have people frictionally unemployed

currency in circulation

- issued by the federal reserve, or central bank

travelers checks

- nonbank financial company

classified unemployed

- not employed - available to work immediately - made effort to find a job within last four week period - person laid off and expecting recall don't need to be looking to be unemployed - doesn't depend on eligibility/receipt of unemployment insurance benefits

Suppose Becky is a 16-year-old, full-time high school student who works 12 hours per week, without pay, in her family's seafood restaurant. At present she is actively seeking a paid job at a local bookstore, one which she could begin immediately. According to the BLS household survey, Becky would be classified as

1. Unemployed, needs to be (15 hours) Keep in mind age (under 16 is not in civilian noninstitutional population, even if they are getting paid) Would be not in the labor force if not looking, and/or cannot begin immediately

An economy that is operating at full employment is experiencing only _____ unemployment.

Frictional and structural

Suppose Zoe quit her job in San Francisco eight weeks ago and moved to New Orleans, her dream city. Ever since then she has been continuously seeking employment and is available to begin working immediately. In this situation Zoe would be considered _____ unemployed.

Frictionally - Cyclical will mean that a recession is going on - Seasonal will mean holidays and such

y = C + I + G + (X - IM)

GDP = market value of all goods and services in a country in a period of time C = individual spending I = spending done by businesses, as well as construction of new housing (b/c building new house) G = government spending on employees and infrastructure (doesn't include social security, medicare) X = IM = (X - IM) =

Suppose 25-year-old Jennifer quit her job in the food service industry six weeks ago and has not worked since then. Suppose further that she submitted job applications at a bank and at a mortgage lending company two weeks ago, is currently waiting to hear back from both businesses, and is available to begin work immediately. According to the BLS household survey, Jennifer would be classified as

Looking work as recently as two weeks ago, within last four weeks, and is avaiable to begin immediately Therefore 2. unemployed

Money as a Medium of Exchange

M1 - narrowest definition of money, too narrow 1. coins in circulation 2. currency in circulation 3. demand deposit accounts balances 4. other checkable deposit balances 5. travelers checks

Money as a Store of Value a. Concept of Liquidity

M2 everything in M1 plus 1. savings account balances 2. money market accounts 3. small CD's balances 4. shares in money market mutual friends

Real Rate = Nominal Rate - Rate of Inflation

Note: Nominal and real rates can be economic growth rates, income growth rates, and interest rates.

Store of value

a way of keeping value over time ex. saving, stocks; US dollars are good stores of value

Standard of deferred payment

a way of measuring deferred payment, you pay after the time of transaction

A bag of flour purchased by a bakery from a wholesale distributor a. will not be counted in GDP because it is an intermediate good. b. will be counted in GDP as part of consumption. c. will be counted in GDP as part of investment.

a. Intermediate good - don't want to double count the flour (baking a cake)

Money: the basics 1. Five functions

a. Means of payment i. Medium of exchange ii. Means of unilateral payment b. Unit of account c. Standard of value d. Store of value e. Standard of deferred payment

In which of the following situations would the nominal interest rate be the highest? a. The real interest rate is -2 percent and the expected inflation rate is 7 percent. b. The real interest rate is -1 percent and the expected inflation rate is 5 percent. c. The real interest rate is 0 percent and the expected inflation rate is 3 percent. d. The real interest rate is 1 percent and the expected inflation rate is 1 percent. e. The real interest rate is 2 percent and the expected inflation rate is 4 percent

a. n = 5 b. n = 4 c. n = 3 d. n = 2 e. n = 6 Therefore, e

In which of the following situations would it be MOST advantageous to be lending? a. The nominal interest rate is 0 percent and the expected inflation rate is 3 percent. b. The nominal interest rate is 1 percent and the expected inflation rate is 2 percent. c. The nominal interest rate is 3 percent and the expected inflation rate is -1 percent. d. The nominal interest rate is 8 percent and the expected inflation rate is 5 percent. e. The nominal interest rate is 10 percent and the expected inflation rate is 10 percent.

a. r = -3 b. r = -1 c. r = 4 d. r = 3 e. r = 0 Lenders want the highest real rate, therefore, c

In which of the following situations would the real interest rate be the lowest? a. The nominal interest rate is 1 percent and the expected inflation rate is 0 percent. b. The nominal interest rate is 3 percent and the expected inflation rate is 1 percent. c. The nominal interest rate is 7 percent and the expected inflation rate is 7 percent. d. The nominal interest rate is 12 percent and the expected inflation rate is 8 percent. e. The nominal interest rate is 20 percent and the expected inflation rate is 17 percent.

a. r = 1 b. r = 2 c. r = 0 d. r = 4 e. r = 3 Therefore, c

In the United States unemployment rates tend to move _____. This means that when the economy is experiencing _____, unemployment rates increase, everything else held constant.

countercyclically, a recession

Undergraduate degrees move ...

countercylically

Suppose a privately-owned laundromat in Mexico purchases a new clothes dryer produced in the U.S. Everything else held constant, this will cause the _____ component of U.S. GDP to increase. a. consumption (C) b. investment (I) c. government spending (G) d. export (X) e. import (IM)

d. exports (X)

nominal

ex. test score

real

ex. test score with curve

core inflation rates

excludes food and energy

Unemployment would be decrease = expansion/recession?

expansion

Answer true or false to the following statement. An economy that is operating at full employment is experiencing a zero percent rate of unemployment.

false

Means of unilateral payment

only paid, ex. ticketed, taxes

surplus of workers

surplus in the labor market, wages go down, economy being too cold, when unemployment rates are too high

Cyclical/seasonal unemployment

unemployed with no job opened