MACROECONOMICS EXAM 2 CH. 9

What does CPI stand for and what does it mean?

-consumer price index -measures the movement of prices of a typical urban family

Which of these persons is officially unemployed?

A non-working individual who has looked for a job in the past week.

What is the employment-population rate?

Employment/Working-age population * 100

When the economy is at full employment, which types of unemployment remain?

Frictional and structural

Natural-rate of Unemployment

Frictional+Structural

Of the eight categories in the CPI market basket, which three categories make up more than 75% of the basket?

Housing, transportation, and food

Which of these statements about interest rates and inflation is true?

If there is zero inflation, the nominal interest rate is equal to the real interest rate.

BLS establishment. surgery advantage and disadvantage

It does not include information about self-employed people, it is based on company payroll and not on unverifiable answers.

What is the Labor-force participation rate?

Labor force/Working-age population * 100

Unemployment Rate Formula

Number of unemployed/Number in labor force*100

Which of the following can give an early warning of future increases in the price level?

Producer price index

What can increasing minimum wages cause unemployment to do?

Rise

What effect do labor unions have on the unemployment rate?

Since few non-government workers are unionized, there is so significant effect on the unemployment rate.

Even perfectly anticipated inflation imposes costs. Why?

Some wages will fail to keep up with anticipated inflation, paper money loses its purchasing power by the rate of inflation, and menu costs

Which of the following causes changes in the CPI to overstate the true inflation rate?

Substitution bias, new product bias, and increase in quality bias

How do you calculate CPI?

The CPI in the current year is the cost to purchase the basket of goods this year, divided by the cost in the base year. By convention, we multiply this by 100, so that the CPI in the base year is 100. OR -Basket of goods -Cost to purchase basket of goods in a base year -Prices in the current year OR CPI=Current $/Base year $ * 100

Which market basket specifically targets intermediate goods?

The basket used by the producer price index.

What is the working-age population?

The working-age population is the total population in an area that is considered able and likely to work based on the number of people in a predetermined age range. The working-age population measure is used to give an estimate of the total number of potential workers within an economy.

How do unemployment insurance payments in the United States and social insurance programs in other countries increase the unemployment rate?

They decrease the opportunity cost of job search

"A wage rising slower than the rate of inflation is actually falling."

True. If wages are increasing slower than the average price of goods and services, purchasing power falls.

Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?

Underemployed people are considered employed, it does not account for inaccurate responses to the Current Population Survey, it fails to account for illegal activities, and discouraged workers are not considered unemployed.

What is the unemployment ratio?

Unemployed/Labor Force * 100

The producer price index tracks the prices firms receive for goods and services at:

all stages of production

What is efficiency wages?

an above-market wage that a firm pays to increase workers' productivity

In general, ___________ have much lower unemployment rates than other individuals with other levels of education.

college graduates

At full employment

cyclical unemployment is zero

The short-term unemployment that arises from workers, in the process of changing jobs is called...

frictional unemployment

The "normal or natural" underlying level of unemployment. in the economy is the _______________.

full employment rate of unemployment

Unanticipated deflation

hurts net debtors

If the inflation rate is anticipated

inflation may not be a major problem

If inflation is anticipated,

it costs less to society than if unanticipated

In calculating the CPI, the ______________.

market basket does not include large equipment purchased by firms

The consumer price index:

measures the cost of an unchanging basket of goods and services

What is the percent change formula?

new-old/old x 100

Economic variables that are calculated in current year prices are referred to as ______________ variables, while variables that have been corrected to account for the effects of inflation are ____________ variables.

nominal, real

When compared to the Great Depression, the typical length of unemployment in the modern U.S. economy is...

relatively brief

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and job requirements is called...

structural unemployment

The natural rate of unemployment is the __________________.

unemployment rate that results when the economy produces the potential level of real GDP