Chapter 9 - Unemployment & Inflation
unemployment rate
(number of unemployed/number in labor force) (100)
How does the US economy create and destroy millions of jobs each year?
- In the market system, new firms are constantly entering and exiting various industries. - Some businesses are expanding, while others are contracting.
Why is the unemployment rate an imperfect measure of the extent of joblessness in the economy?
- It does not account for inaccurate responses to the Current Population Survey. - It fails to account for illegal activities. - Discouraged workers are not considered unemployed. - Underemployed people are considered employed
Which of the following causes changes in the CPI to overstate the true inflation rate?
- new product bias - substitution bias - increase in quality bias
Even perfectly anticipated inflation imposes costs because of:
- some wages will fail to keep up with the anticipated inflation - menu costs - paper money loses its purchasing power by the rate of inflation
When the economy is at full employment
- the unemployment rate is greater than zero - all remaining unemployment is either frictional or structural - the natural rate of unemployment prevails
One advantage and disadvantage of the establishment survey compared to the current population survey.
A - It is based on company payroll and not on unverifiable answers D - It does not include information about self-employed people
Suppose John Q. Worker is currently unemployed. Each day, John Q. Worker spends the entire day searching available job openings for an appropriate position given his set of skills, abilities, and interests. If someone asks John Q. what he does for work, he tells them that he is currently "in-between jobs." Which of the following best classifies John Q.'s unemployment status?
Frictionally unemployed
Real interest rate =
Nominal interest rate - inflation rate
Which of the following can give an early warning of future increases in the price level?
Producer price index
What effect do labor unions have on the unemployment rate?
Since few non-government workers are unionized, there is no significant effect on the unemployment rate
Suppose that Sally J. Society recently lost her job as an underwater welder. In looking for a new job, she discovers that the only available jobs are for economists and that there are no openings for underwater welders because the trade is now obsolete. If Sally J. Society decides to return to school to earn an Economics degree, what is the best classification of her unemployment status?
Structurally unemployed
How do unemployment insurance payments in the US and other 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.
When compared to the Great Depression, the typical length of unemployment in the modern US economy is
relatively brief
