Macro Ch 9

if real economic growth is 3% and inflation rate is 5% and the nominal interest rate is 7% then the real rate of interest is

2%

the formula for the rule of 70 that calculates the time for the price level to double is

70 divided by the annual percentage increase in the rate of inflation

Economist say that the economy is at full employment when the

Cyclical unemployment rate is at 0

the difference between actual and potential GDP is called a GDP

Gap

the phase of the business cycle at which the economy is at full employment is known as a

Peak

the major source of cost-push inflation has been so called _________shocks

Supply

the labor force is

The sum of the employed and unemployed

inflation is when there is

a rising aggregate price level

when negative shocks occur changes in output and unemployment occur in the short run and prices

adjust slowly

A lender who charges and inflation premium to a borrower is altering the redistribution of income due to

anticipated inflation

suppose that the expected inflation is 5% and the actual inflation rate is 7% then Borrowers

are better off and lenders are worse off

Savers are hurt by unanticipated inflation because

as prices rise the real value of savings decreases

A key issue in macroeconomics is why the economy sees

business cycle fluctuations rather than slow smooth growth

Social Security payments automatically increase when the CPI goes up because of the

cost of living adjustments

the increase in unemployment that occurs during recession and depression is called

cyclical unemployment

unanticipated inflation benefits debit orders because

debit or pay back loans with less valuable dollars

inflation caused by an excess of total spending beyond the economy's capacity to produce is called

demand pull inflation

the following explain why flexible income receivers may be unaffected or benefit by unanticipated inflation

demand pull inflation may cause some nominal incomes to increase faster than inflation and lead to real income increases they receive colas their incomes May automatically increase when the CPI increases business owners profits may rise if product prices rise faster than resource prices

a worker who after unsuccessfully seeking employment for some time becomes frustrated and drops out of the labor force is defined as a __________worker

discouraged

Automobiles and refrigerators are examples of _________goods while food and clothes are example of__________ goods

durable and non-durable

the business cycle affects output and employment in capital and durable goods Industries more severely than Industries producing nondurable Goods because

during a recession business investment in new capital goods and consumer spending on new durable goods can be postponed

those were working are defined as _______and those who are not working but actively seeking work are defined as_________

employed and unemployed

when prices are sticky in the short run the economy is forced to respond to shocks in the economy with changes in

employment and output

when inflation occurs each dollar of income will buy ________goods and services than before

fewer

the following is a consequence of unexpected lower total spending in the short run when prices are

firm sell fewer units of output

when inflation occurs people with _______ income see their real incomes fall

fixed

the following is inevitable and at least in part desirable

frictional unemployment

________ unemployed workers live in areas where jobs exist and they have marketable skills while ________unemployed workers do not

frictionally and structural

the distinction between frictional and structural unemployment is

frictionally unemployed workers have marketable skills and live in areas where jobs exist and structurally unemployed workers do not

the economy attains __________when the unemployment rate equals the natural rate of unemployment

full employment

the Bureau of Labor Statistics list all part-time workers as

fully employed

the long-run trend of the US economy is expansion and

growth

on average less educated workers have _____________unemployment rates then workers with more education

higher

unanticipatedly inflation __________fixed-income recipients Savers and creditors

hurts

real income will be affected

if the change in the price level differs from the change in the person's nominal income

the following is a result of unexpected higher total spending in the short run when prices are sticky

incomes rise

________ redistributes total real income

inflation

real interest rates are the

interest rates quoted in the market minus the inflation rate

which of the following best describes the nominal interest rate

interest rates that are quoted in the market

the unemployment rate equals

labor force - employed / labor force

according to McConnell which of the following are reasons why teenagers have a much higher unemployment rate than adults

last Geographic Mobility quit more frequently are frequently fired lower skill levels

several possible sources of shots that can cause business Cycles include

monetary factors productivity changes unexpected political events irregular innovation

the intensity and duration of the decline in GDP during the Great Depression was _________ the more us recessions

more severe than

business Cycles are

movements of GDP above or below trends

real income will remain the same when

nominal income Rises at the same percentage rate as does the price index

the formula for real income is

nominal income divided by the price

when they expected rate of inflation is added to the real interest rate the result is called

nominal interest rate

the interest rates quoted in the market are known as

nominal interest rates

sticky prices prevent the economy from adjusting to a shock because prices cannot quickly equalize the demand and of_______ goods

output

a GDP Gap actual GDP minus ________ GDP

potential

___________is a major factor preventing the economy from rapidly adjusting to shocks

price stickiness

the Consumer Price Index relies on the calculation of

prices of a fixed basket of goods that changes every two years

several possible sources of shocks that can cause business Cycles include

productivity changes unexpected political events irregular Innovation monetary factors

firms and industries producing capital goods are affected most by the business cycle and the negative effects of a recession because

purchases of capital goods can be postponed

household purchases are affected by the business cycle and the negative effects of a recession because

purchases of durable goods can be postponed

services and non-durable consumer goods are somewhat insulated from severe effects of a recession because

purchases of services and non-durable goods cannot be postponed

income that has been adjusted for changes in prices over time is called

real income

the phase of the business cycle that describes a decline in total output income and employment is called a

recession

inflation

reduces the purchasing power of money

if Sally's nominal income Rises by 6% and the price level rises by 6% in the same. Sally's real income will

remain unchanged

unexpected events that drive economic cycles and fluctuations are called economic

shocks

an auto worker in Michigan who loses his job because the company relocated the plant to another country is an example of

structural unemployment

what does the Consumer Price Index measure

the cost of living over time

cost-push inflation is caused by

the increase in the per-unit production cost at each level of spending

nominal income is

the number of dollars received as wages rent interest or profits and current dollars

the rate of inflation is equal to

the percentage growth of CPI from one year to the next

an expansion is a period in which

the price level may rise and output Rises

demand pull inflation is

too much spending chasing too few goods

it is widely accepted that the immediate cause of large cyclical changes in the levels of output and employment is the level of unexpected

total spending

true or false full employment is something less than hundred percent employment of the labor Force

true

true or false unanticipated inflation reduces the real burden of the public debt because the nominal national income and the tax collections rise with inflation the amount of the public debt does not

true

people with flexible incomes may be

unaffected or benefit by unanticipated inflation

by counting part-time workers as fully employed the BLS's official unemployment rate is

understated

by not counting discouraged workers as unemployed did the BLS official unemployment rate is

understated

the unemployment rate can be most accurately described as the number of________ divided by the labor force x 100

unemployed

frictional unemployment is defined as

unemployment for workers who are searching for jobs or waiting to take jobs in the future

I'll put moves up and down rather than staying on a smooth growth trend line because of

unexpected changes in the level of total spending