Macro Chapter 6
A job paid $57,000 in 2002. The CPI in 1960 was 29.6, compared to 179.9 in 2002. In 1960, what salary would be comparable to 2002's $57,000 in real terms
$9378.54.
Here are some data for the U.S. economy on June 01 comma 2018: There were 227.2 million individuals 16 years of age and older. There were 155.6 million individuals employed. There were 6.6 million individuals unemployed. *Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis. Using the information given above for the U.S. economy, on June 01 comma 2018, the labor force was _______ million Using the information given above for the U.S. economy, on June 01 comma 2018, the labor force participation rate was ________ percent. Using the information given above for the U.S. economy, on June 01 comma 2018, the unemployment rate was ___________ percent.
162.2 71.4 4.1
Adults have substantially ______ unemployment rates than teenagers. Minorities have ________ unemployment rates. African American teenagers have extremely _________ unemployment rates. Unemployment rates for married men and married women are __________ than unemployment rates of women who maintain families alone.
lower higher high lower
labor force participation rate
the percentage of the population over 16 years of age that is in the labor force
The value of a price index in the base year is equal to _____
100
Suppose the starting salary for a new assistant economics professor was $14,000 in 1976 and $70,000 in 2014. The value of the CPI for 2014 was 236.7, compared to 56.9 in 1976. A newly-hired professor earned more in real terms in _______, with a real salary of $ _________.
2014, 29573
Robert is 62 and lost his job in an engineering firm. Pamela is 53 and also lost her job. What options do you think Robert has that Pamela does not? A. Both Robert and Pamela can collect unemployment so their situation is the same. B. Robert can retire and collect Social Security but Pamela cannot. C. Robert has a better career network since he is older. D. None of the above.
B. Robert can retire and collect Social Security but Pamela cannot.
The single largest component of the basket of goods that comprises the CPI is the category for A. food and beverages. B. medical services. C. rent. D. transportation
C. rent.
T/F When the economy is at full employment, there is only cyclical unemployment.
False. The economy is at full employment when unemployment is at the natural rate. The natural rate of unemployment occurs when there is only frictional and structural (but no cyclical) unemployment.
Unlike the CPI, the chain-weighted price index for GDP does not include used goods or (intermediate, durable, imported) goods.
Imported The chain-weighted price index for GDP does not measure price changes from either used goods or imports because it is based on the calculation of goods and services produced in the United States in the current year.
T/F Economists believe that the CPI tends to overestimate the increase in the cost of living over time.
T Economists believe that the CPI overestimates the increase in the cost of living because by using a fixed basket of goods, the CPI doesn't account for consumers buying less of goods whose price has increased.
T/F Individuals who are working part time for economic reasons and would like to work full time are not counted as unemployed in the traditional unemployment statistics
T : Unemployed are those who do not have current jobs and are actively looking
(T/F) Shoe-leather costs typically increase with the rate of inflation.
True
(T/F) Debtors gain from unanticipated inflation
True Creditors lose from unanticipated inflation because the amount they're paid back from loans is worth less than expected. Conversely, debtors gain from unanticipated inflation because it will be easier for them to repay their loans with inflated dollars. Thus, unanticipated inflation arbitrarily redistributes income from creditors to debtors.
Consumer Price Index (CPI)
a price index that measures the cost of a fixed basket of goods chosen to represent the consumption pattern of a typical consumer
hyperinflation
an inflation rate exceeding 50 percent per month
Cost-of-living adjustments (COLAs)
automatic increases in wages or other payments that are tied to the CPI
shoe-leather costs
costs of inflation that arise from trying to reduce holding of cash
Unlike the chain-weighted price index for GDP, the CPI asks how much a fixed basket of goods costs in the _______ year compared to the cost of those same goods in a ___________ year. Because consumers tend to buy less of goods whose prices rise, the CPI will tend to ___________ true changes in the cost of living.
current, base, overstate
Suppose the U.S. government hires workers who are currently unemployed but does not give them any work to do. What will happen to the measured U.S. unemployment rate? The unemployment rate will...
decrease
If unemployed individuals left the labor force because they no longer believed they could get jobs, the measured unemployment rate will
fall
Anticipated inflation
inflation that is expected
unanticipated inflation
inflation that is not expected
deflation
negative inflation or falling prices of goods and services
Most economists believe that in reality all the price indexes, including the chain-weighted index for GDP and the CPI, ______ actual changes in prices. In other words, the increase in prices is probably ___________ than the reported indexes tell us. A principal reason for this is that we have a difficult time measuring __________ improvements
overstate, less, quality
unemployment insurance
payments unemployed people receive from the government
seasonal unemployment
the component of unemployment attributed to seasonal factors
menu costs
the costs associated with changing prices and printing new price lists when there is inflation
natural rate of unemployement
the level of unemployment at which there is no cyclical unemployment it consists of only frictional and structural unemployment
full employment
the level of unemployment that occurs when the unemployment rate is at the natural rate
inflation rate
the percentage of rate change of a price index
unemployment rate
the percentage of the labor force that is unemployed
Inflation that is unexpected is known as ________ inflation
unanticipated
cyclical unemployment
unemployment that occurs during fluctuations in real GDP
structural unemployment
unemployment that occurs when there is a mismatch of skills and jobs
frictional unemployment
unemployment that occurs with the normal workings of the economy, such as workers taking time to search for suitable jobs and firms taking time to search for qualified employees
The labor force participation rate shows A. the percentage of the relevant population that is in the labor force. B. the percentage of the relevant population that is employed. C. the percentage of the labor force that is unemployed. D. the percentage of the labor force that has a job.
A. the percentage of the relevant population that is in the labor force.
discouraged workers
workers who left the labor force because they could not find jobs
If a price index is 50 in 1998 and 70 in 1999, the rate of inflation between the two years is ________ percent
40
An economy has 110,000,000 people employed, 6,000,000 unemployed, and 3,000,000 discouraged workers. The conventional measure of the unemployment rate is _________ percent
5.17 The conventional measure of unemployment is the number unemployed divided by the size of the labor force. Discourage workers are not included in either
Hyperinflation occurs when the inflation rate exceeds ___ percent per month
50%
An economy has 110,000,000 people employed, 6,000,000 unemployed, and 3,000,000 discouraged workers. The conventional measure of the unemployment rate is 5.17 percent The best alternative measure that takes into account discouraged workers is an unemployment rate of _______ percent.
7.56 If discouraged workers were incorporated into the unemployment rate (and the labor force), then an alternative measure of unemployment would be the number unemployed plus the number discouraged divided by the size of the labor force.
As the inflation rate increases, you would take out A. less cash per ATM visit because inflation erodes its value; your shoe-leather costs would increase. B. more cash per ATM visit because inflation increases its value; your shoe-leather costs would decrease. C. less cash per ATM visit because inflation increases its value; your shoe-leather costs would decrease. D. more cash per ATM visit because inflation erodes its value; your shoe-leather costs would increase.
A. Inflation will erode the value of the cash people hold. They will respond by holding less cash at any one time. If they hold less cash, they must visit the bank or their ATM more frequently because they will run out of cash sooner. Shoe-leather costs to refer to the additional costs people incur to hold less cash.
Suppose the U.S. government hires workers who are currently unemployed but does not give them any work to do. What will happen to the measured U.S. unemployment rate? The unemployment rate will decrease. Under these circumstances, do changes in the measured U.S. unemployment rate accurately reflect changes in the underlying economic situation and production? A. No. GDP will increase though the underlying economic situation will not have improved. B. Yes. GDP will increase and the underlying economic situation will have improved. C. Yes. GDP will remain unchanged though the underlying economic situation will have improved. D. No. GDP will remain unchanged and the underlying economic situation will not have improved.
A. No. GDP will increase though the underlying economic situation will not have improved.
If there is unanticipated inflation, A. debtors will gain at the expense of creditors. B. individuals will spend more of their time trying to be more productive at their jobs. C. creditors will gain at the expense of debtors. D. potential homeowners will only be able to borrow from banks at fixed rates of interest.
A. debtors will gain at the expense of creditors.
Robert is 62 and lost his job in an engineering firm. Pamela is 53 and also lost her job. What options do you think Robert has that Pamela does not? The labor force participation rates A. for men will decline if Robert retires but will be unchanged for women if Pamela seeks another job. B. for men will rise if Robert retires but will be unchanged for women if Pamela seeks another job. C. for men will decline if Robert retires but will decrease for women if Pamela seeks another job. D. for men will decline if Robert retires but will increase for women if Pamela seeks another job.
A. for men will decline if Robert retires but will be unchanged for women if Pamela seeks another job.
The natural rate of unemployment consists of only A. frictional and structural unemployment and is the rate of unemployment when there is full employment. B. frictional and cyclical unemployment and is the rate of unemployment when there is no unemployment. C. cyclical and structural unemployment and is the rate of unemployment when there is full employment. D. frictional and structural unemployment and is the rate of unemployment when there is no unemployment.
A. frictional and structural unemployment and is the rate of unemployment when there is full employment. The natural rate of unemployment consists of only frictional unemployment and structural unemployment. The natural rate of unemployment is the economist's notion of what the rate of unemployment should be when there is full employment.
The costs of anticipated inflation include A. menu costs. B. lost skills. C. redistribution of income. D. All of the above.
A. menu costs. There are costs of anticipated inflation. Suppose the economy had been experiencing 5 percent annual inflation for many years and everyone was fully adjusted to it. Even in this case, inflation still has some costs. First, there are the actual physical costs of changing prices, which economists call menu costs. Restaurant owners, catalog producers, and any other business that must print prices will have to incur costs to physically change their prices because of inflation. For example, they will need to pay to reprint their menus or billboards. Economists believe these costs are relatively small for the economy. Second, inflation will erode the value of the cash people hold. They will respond by holding less cash at any one time. If they hold less cash, they must visit the bank or their ATM more frequently because they will run out of cash sooner. Economists use the term shoe-leather costs to refer to the additional costs people incur to hold less cash. Economists who have estimated these costs find that they can be large, as much as 1 percent of GDP.
Suppose that a state increases the length of time that the unemployed can receive benefits because it is experiencing a recession. A journalist notices that employment in the state is falling at the same time as unemployment insurance is increasing and writes that this proves that increases in unemployment insurance reduce employment. His reasoning is A. not correct. The state is reacting to the higher unemployment by increasing unemployment insurance - it is not causing it to occur. B. correct. Since employment in the state is falling at the same time as unemployment insurance is increasing, this proves that increases in unemployment insurance reduce employment.
A. not correct. The state is reacting to the higher unemployment by increasing unemployment insurance - it is not causing it to occur.
Which of the following is not a cost of unemployment? A. unemployment insurance reduces the length of time workers are unemployed B. there is a loss of output and unused resources C. there is increased crime, divorce, and suicide rates D. workers lose skills
A. unemployment insurance reduces the length of time workers are unemployed
The three key types of unemployment are A. cyclical, frictional, and structural. B. frictional, natural, and total. C. cyclical, natural, and full. D. none of the above.
A. cyclical, frictional, and structural.
Paul has young children at home and his wife is an executive at a major corporation. He has decided to work part time as a freelance blogger for an entertainment Web site. nothing Paul is considered to be A. employed. B. voluntarily unemployed. C. unemployed. D. working part time for economic reasons.
A. employed Workers who would like to be employed full-time but hold part-time jobs are counted as employed by the Bureau of Labor Statistics, because they have a job. However, they would like to be working more hours. They are known as individuals working part time for economic reasons. Individuals who prefer part-time employment are not included in this category.
During a recession, the fraction of workers with spells of unemployment less than five weeks can be expected to A. increase. B. decrease. C. remain unchanged. D. increase then decrease.
B. decrease. During better economic times with lower overall unemployment, the percentage of short duration spells of unemployment increases and percentage of long term spells decrease.
If the government decided that homemakers should be counted as employed because they perform important services, this would A. increase the labor force, decrease the labor force participation rate, and decrease the unemployment rate. B. increase the labor force, increase the labor force participation rate, and decrease the unemployment rate. C. increase the labor force, increase the labor force participation rate, and increase the unemployment rate. D. decrease the labor force, decrease the labor force participation rate, and increase the unemployment rate.
B. increase the labor force, increase the labor force participation rate, and decrease the unemployment rate.
The effects of unemployment today may carry over into the future because A. a person must be actively seeking work to be counted as unemployed. B. those that experience prolonged unemployment lose job skills that are difficult to recover. C. discouraged workers are not measured in the unemployment rate. D. none of the above.
B. those that experience prolonged unemployment lose job skills that are difficult to recover.
Many "cell phones" today are more than cell phoneslong dashthey are mini-computers on which you check your email and surf the web. If the BLS treated them as old-fashioned cell phones, the telecommunication component of the price index would have been measured as A. too low due to the improved quality of the cell phones. B. too high due to the improved quality of the cell phones. C. too low due to the improved quantity of the cell phones. D. too high due to the improved quantity of the cell phones
B. too high due to the improved quality of the cell phones.
Critically evaluate the following statement: "Tokyo is an expensive place to live. They must have a high inflation rate in Japan." A. False. Tokyo and Japan do not face the same prices. B. False. The inflation rate tends to overstate the cost of living. C. False. Inflation measures price changes, not price levels. D. True. If Tokyo is expensive, then Japan's inflation rate will be high.
C. False. Inflation measures price changes, not price levels.
Which of the following is not included in the labor force? A. People who are employed. B. People working 30 hours a week. C. People who do not have jobs, and do not want one. D. People who do not have jobs, but who are actively searching for one.
C. People who do not have jobs, and do not want one.
In a major city, the vacancy rate for apartments was approximately 7 percent, yet substantial numbers of individuals were searching for new apartments. Why would this occur, and how is this phenomenon similar to unemployment? A. Some renters are spatially mismatched with apartments just as some unemployed workers are spatially mismatched with jobs. B. Low-income renters receive public housing assistance if they search for new abodes just as unemployed workers receive unemployment compensation if they search for new jobs. C. Some renters are looking for better apartment matches just as some unemployed workers are looking for better job matches. D. All of the above.
C. Some renters are looking for better apartment matches just as some unemployed workers are looking for better job matches.
The natural rate of unemployment consists solely of A. cyclical and structural unemployment. B. frictional and cyclical unemployment. C. frictional and structural unemployment. D. none of the above.
C. frictional and structural unemployment.
In many African countries, the government and international corporations pay high wages for jobs in the major cities, and many people migrate to the cities from farms where earnings are low. Unemployment rates in the city, therefore, are large. This can be explained in terms of A. structural unemployment because there is a mismatch of skills and jobs. B. cyclical unemployment because people need to migrate. C. frictional unemployment because people are migrating and changing jobs. D. unexpected unemployment because they come from farms where earnings are low.
C. frictional unemployment because people are migrating and changing jobs. Frictional unemployment is the unemployment that occurs naturally during the normal workings of an economy. It occurs because it simply takes time for people to find the right jobs and for employers to find the right people to hire. This happens when people change jobs, move across the country, get laid off from their current jobs and search for new opportunities, or take their time after they enter the labor force to find an appropriate job.
Deflation is illustrated by inflation changing from A. 5% to 3%. B. 3% to 5%. C. 0.1% to 1%. D. 3% to minus0.3%.
D. 3% to minus0.3%.
Japan was concerned about "NEETs," which meant "not in education, employment, or training." In the United States, we also have young, discouraged workers. What are the types of young, discouraged workers you would most likely find in the United States? A. Young, minority workers who feel discriminated against. B. Young, single workers with children who need flexible work schedules. C. Young workers living in inner cities where few jobs are available. D. All of the above.
D. All of the above.
How do you think the Internet and online shopping would affect the menu costs of inflation? A. Prices on the Internet will be changed faster than prices in print, saving money by allowing quicker adjustments. B. Prices on the Internet will be more expensive to change than prices in print because an employee with computer skills must be hired to make the changes. C. Prices on the Internet will be changed at lower cost than prices on menus or billboards because they're not in print. D. Any of the above are reasonable arguments.
D. Any of the above are reasonable arguments.
When online movies began to replace stores renting DVDs, what type or types of unemployment was created? A. Structural and cyclical. B. Discouraged and cyclical. C. Frictional and cyclical. D. Structural and frictional.
D. Structural and frictional.
Unadjusted unemployment data show that the number of unemployed rise in June because A. people look for jobs to earn extra money for vacations. B. teachers are looking for summer jobs. C. many businesses close for the summer. D. teenagers are looking for summer jobs.
D. teenagers are looking for summer jobs.
(T/F) Inflation in the United States was higher from 1990 to 2009 than it was from 1970 to 1980.
F