CH 8: Unemployment and Inflation

D

One factor that raises the natural rate of unemployment is: A. the loss of labor union membership across industries. B. the use of new technology in the workplace that increases labor productivity. C. the loss of retirement funds, so that more people in the baby boom generation continue to work past the typical retirement age. D. a population boom that increases the number of young workers joining the labor force.

D

Last week Stephanie quit her job as a copywriter at an advertising agency. She has spent the past few days browsing the help wanted ads but hasn't found anything that matches her skills. Stephanie is best classified as: A. structurally unemployed. B. a discouraged worker. C. out of the labor force. D. frictionally unemployed.

D

When hyperinflation forces Emily to visit her bank very frequently to keep her cash holdings to a minimum, economists say that Emily has a: A. unit-of-account cost. B. menu cost. C. Fisher effect. D. shoe-leather cost.

the government's direct role in creating human capital is primarily focused on...

improving the education system

real income

income divided by the price level

real wage

is the wage rate ( hourly) divided by the price level.

structural unemployment

more people are seeking jobs in a particular labor market than there are jobs available at the current wage rate, even when the economy is at the peak of the business cycle.

interest rate

the price, calculated as a percentage of the amount borrowed, that a lender charges a borrower for the use of their savings for one year

disinflation

the process of bringing down inflation that has become embedded in expectations

employment

the total number of people currently employed for pay in the economy, either full time or part time

marginally attached workers

those who were available and actively looked for work in the past 12 months, but are not currently looking for job in the past 4 weeks.

discouraged workers

unemployed people who have given up looking for work, because they couldn't find job for a very long time.

cyclical unemployment

unemployment correlated with the business cycle—the deviation from the natural rate.

frictional unemployment

unemployment due to time workers spend in job search

efficiency wages

wages that employers set above the equilibrium wage rate as an incentive for workers to deliver better performance

job search

when workers spend time looking for employment

structural unemployment examples

-can be caused by labor unions -can be cause by minimum wages -is affected by the duration of unemployment benefits -can be caused by efficiency wages -occurs as a result of labor surplus in a given market -attempt to reduce by offering training to workers whose firms laid them off because of competition from foreign firms

unit-of-account costs

-costs arising from the way inflation makes money a less reliable unit of measurement -can reduce the quality of economic decisions -makes money a less reliable source measurement -can cause distortion to the tax system -causes difficulty in forms and individuals financial planning -arise from the way inflation makes money a less reliable source of measurement

frictional unemployment examples

-includes those involved in job search -can be a result of new people entering the labor force -establishing a state employment agency that speeds up the process of matching unemployed workers with unfilled jobs is an attempt to lower frictional employment

factors that increase the natural rate of unemployment

-increasing the minimum wage -extra financial benefits for the unemployed -a large number of young people entering the labor force -an increase in union membership

factors that decrease the natural rate of unemployment

-reducing workers collective bargaining rights -more funding for government worker training programs -an increase in information about job opportunities

shoe-leather costs

-the increased costs of transactions caused by inflation -discourage people from holding money (cash) -people spend time converting money into something that better holds value -arise from the way inflation results in the additional transaction costs

natural rate of unemployment

-the normal unemployment rate around which the actual unemployment rate fluctuates -the unemployment rate that arises from the effects of frictional and structural unemployment

labor force participation rate

-the percentage of the population age 16 or older that is in the labor force -[(employment + unemployment) / population age 16+] x 100

unemployment rate

-the percentage of the total number of people in the labor force who are unemployed, calculated as unemployment / (unemployment + employment) -reported by the U.S. Bureau of Labor Statistics

menu costs

-the real cost of changing a listed price -causes costs associated with changing prices in stores -can lead to stores listing prices in more stable currencies -arise from the way inflation requires the regular updating of prices

labor force

-the sum of employment and unemployment -the number of people who are currently working plus the number of people who are currently looking for work

unemployment

-the total number of people who are actively looking for work but aren't currently employed -duration of unemployment for the typical person lasts less than 6 months

C

A survey reveals that on a small island initially 1,000 people have jobs, 200 people are unemployed but are looking for jobs, and 200 people are neither working nor looking for work. Suppose that 100 of the 200 people who weren't looking for work now begin looking for work and that half of the new entrants find a job. The unemployment rate: A. Nothing happens to the unemployment rate. B. rises to 21.4%. C. rises to 19.2%. D. rises to 28.6%. unemplyed=200+50=250 labor force= 250+1050=1300 unemployment= 250/1300*100=

C

All of the following are examples of job search EXCEPT: A. visiting a former college professor to learn about work as a research assistant. B. calling a former college roommate to see if there are any job openings in her company. C. attending class at a community college to learn database management. D. reading the employment section of the local newspaper while sitting at a coffee shop.

D

An increase in the price level that is extremely rapid (say 400% per year) is called: A. deflation. B. inflation. C. hyperdeflation. D. hyperinflation.

B

Cyclical unemployment: A. is a part of natural unemployment. B. rises during a recession. C. falls during a recession. D. rises during an expansion.

D

Efficiency wages are: A. market equilibrium wages. B. set below the equilibrium wage to increase profits. C. allowed to be below minimum wage. D. set above equilibrium wages to act as an incentive for better performance.

FALSE

Frictional unemployment is a special type of structural unemployment. False True

TRUE

If Jenny's income is $120,000 and the price level is 4, then Jenny's real income is $30,000. True False

A

If the U.S. dollar were replaced with a "new dollar" at an exchange rate of 1 new dollar for 4 old dollars, then an hourly wage of $10 would become an hourly wage of _____ new dollars. A. 2.50 B. 10 C. 6 D. 60 10/4

D

If the population of the United States is 260 million, the labor force is 130 million, and 120 million workers are employed, the rate of unemployment is: A. 8.3%. B. 92%. C. 50%. D. 7.7%. 130-120/120*100=

B

In February 2012, the Bureau of Labor Statistics calculated the unemployment rate to be 8.3%. If frictional unemployment was 2% and structural unemployment was 3.2%, then cyclical unemployment was: A. 5.5%. B. 3.1%. C. 2.5%. D. 12.5%. 3.2+2=5.2 8.3-3.2=

A

Increases in the average level of prices are called: A. inflation. B. deflation. C. depreciation. D. expectations.

B

The National Bureau of Economic Research announced that the U.S. economic recession that began in December of 2007 hit a trough in June of 2009. During that period, which type of unemployment increased for sure? A. natural B. cyclical C. structural D. frictional

jobless recovery

a period in which GDP growth rate is positive but the unemployment rate is still rising

governments play an indirect role in private savings and investment through...

regulating the financial system

nominal interest rate

the interest rate in dollar terms

real interest rate

the nominal interest rate minus the inflation rate

underemployment

the number of people who work part time because they cannot find full-time jobs