Econ 201 Ch 11 & 12 HW
Which of the following statements is true regarding the neutrality of money with respect to the quantity theory of money? Check all that apply.
-the growth rate of the money supply can affect the growth rate of prices (i.e. inflation) in the long-run -the growth rate of the money supply can affect the growth rate of real GDP, but only in the short run
After a financial crisis hits the country of Barbaria, 1010 million people become unemployed. If 4545 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Please specify your answer to two decimal places. unemployment rate:
18.18%
If you earned $10 an hour in 2005 when the CPI was 100, and you earn $11 an hour today when the CPI is 120, then your real wage rate has _____ since 2005.
decreased
Why do economists believe that setting a goal of zero percent unemployment is not feasible or desirable? Creating a goal of zero percent unemployment for an economy is not feasible nor is it desirable because
the economy needs some short-term unemployment in order to allow workers time to find the best job match for them
When the economy is at "full employment", unemployment is equal to
the natural rate of unemployment
What is the velocity of money?
the rate at which money circulates through an economy
The natural rate of unemployment equals
frictional unemployment plus structural unemployment.
Unemployment rates in Europe tend to be ____________ in Europe than the U.S. This is, in part, because many E.U. nations have _____________ employment doctrines that make it more difficult to fire workers.
higher; just cause
The unemployment rate in the United States is usually ______ than the unemployment rates in Europe, partly because the United States has _______ requirements for the unemployed to receive government payments.
lower; more stringent
In June 2017, there were 8 million unemployed and 152 million employed Americans in the United States labor force. Approximately 1 million workers who had left the labor force were classified as "discouraged" and an additional 8 million workers were classified as being "underemployed," meaning that they were employed only part-time but would prefer full-time employment. The adult population at the time was 255 million. Based on this information, answer the following questions. Round your answers to the nearest two decimal places. What was the unemployment rate in June 2017? Round your answer to two decimal places
5%
Suppose an economy is given by the following: Population = 292 million Labor force = 186 million The number of people employed = 175.8 million The number of people unemployed = 10.2 million Given the information above, the unemployment rate is
5.5%
Billy Bob lost his or her job because of automation and machine learning. He would be considered __________________.
Structurally unemployed
Which answer best explains why prices of some popular goods have fallen over time?
Technological advances have reduced production costs.
Which of the following is a challenge that the Bureau of Labor Statistics (BLS) faces when calculating the CPI?
Which of the following is a challenge that the Bureau of Labor Statistics (BLS) faces when calculating the CPI?
Determine if the people in the example have benefited - i.e., are winners - or have been harmed - i.e., are losers - by unexpected inflation.
a. The United States federal government, which had over $30 trillion in debt in 2023 : winner b. Karen, a retired school teacher, who relies on her fixed pension to cover her expenses: loser c. Third National, a bank that lent many people money for home purchases: loser d. Joy, who borrowed $40,000 to pay for her college education: winner e. Herb, who keeps his savings in an old coffee can: loser
What is inflation?
an increase in the overall price level
Even if they don't find a job right away, people entering the job market after graduating from high school or college will
be counted as part of the labor force by the BLS if they are actively looking for work
Suppose the money supply in Country X is $44,000$44,000 and the nominal GDP is $88,000.$88,000. Calculate the velocity of money. Round your answer to the nearest hundredth (i.e. two decimal places).
velocity of money: 2
The Consumer Price Index (CPI) and Real and Nominal GDPs for the years 1982 (base year), 2018 and 2019 are given below. Use this information to answer the following questions. Round your answers to the nearest whole number. 1. By what percent did the CPI price level change between 1982 and 2019? 2. What was the inflation rate between 2018 and 2019 using the CPI? 3. What was the GDP deflator in 2019? 4. Based on the GDP deflator, how much did prices rise between 1982 and 2019? (1982 is our "base year") 5. How much "bigger" is the real economy in 2019 than it was in 1982?
1.) 150% 2.) 2.04% 3.) 250 4.) 150% 5.) 4 times larger
If we were to include discouraged and underemployed workers in our definition of the "adjusted" unemployment rate, what would this adjusted unemployment rate be? The adjusted unemployment rate that includes discouraged and underemployed workers would be:
10.56%
Table: Consumer Price Index. Refer to the CPI values in the table for the years 2005 to 2010. What was the inflation rate in 2007? Which which year(s) did the economy experience deflation?
2.83% 2009
A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. What is this country's broader, adjusted unemployment rate (also known as its "underemployment rate")?
50 %
What is the unemployment rate in this market because of the implementation of a $10 minimum wage?
50%
What was the labor force participation rate (LFPR) in June 2017?
62.75%
Which of the following scenarios provides the best evidence that inflation has occurred?
A person whose salary has increased can purchase fewer goods and services.
The hypothetical data in the table below displays the percentage that unemployment benefits replace take-home pay for workers in different countries. Which country would you expect to have the lowest long-term unemployment rate?
Australia
The equation of exchange, M×V=P×QM×V=P×Q, relates to the quantity theory of money. In this equation, M represents the supply of money, V represents the velocity of money, P represents the price level, and Q is real output. Which of the statements describes an implication of this equation in the long run?
Changes in the money supply (ΔM)(ΔM) will balance out with changes in prices (ΔP)(ΔP) .
Suppose that the economy enters into a recession and that, as a result, Rusty Z. Wrench loses his job as a delivery truck mechanic and remains unemployed. When the economy recovers, Rusty's previous employer rehires him. What is the best classification for his time as an unemployed truck mechanic?
Cyclically unemployed
Please classify the given groups of people as either employed, unemployed, or not in the labor force.
Employed: -those who worked during the previous week -people temporarily away from their jobs due to illness -people temporarily away from their jobs due to vacation Unemployed: -people who do not have a job but have actively looked in the last four weeks Not in Labor Force: -full-time students -people in prison -people in active military service -full-time home makers -retired who neither have a job nor are looking for one -mental patients confined in institutions -people who actively looked for a job in the last 12 months but not the last 4 weeks
Sarah quit her job because she felt she could easily find a better one. Sarah would be classified as __________________.
Frictionally unemployed
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.?
Frictionally unemployed
Firms in the country of Merka, which experiences varying levels of unemployment over time, face a very competitive labor market. Classify the given events according to how each would affect Merka's unemployment rate.
Increase in Unemployment rate: -increase in minimum wage -increase in union's influence Decrease in Unemployment Rate: -decreased unemployment benefits -introduction of employment-at-will doctrine
The corresponding graph shows the GDP (gross domestic product) deflator for a hypothetical economy at several points in time. Use this graph to answer the questions.
Inflation occurred in what time period or periods? 1861-1914 1914-1939 Deflation occurred in what time period or periods? 1776-1861
The table shows employment statistics for a fictional country. Use the information to answer the questions. Round your percentages to two decimal places. Category: Number of people Employed: 5505 Unemployed: 492 Not in the labor force: 591 What is the total labor force? What is the labor force participation rate? What is the unemployment rate? Suppose 246246 of the 492492 unemployed people have been unemployed for so long that they stop looking for work. What is the new labor force? What is the new labor force participation rate? What is the new unemployment rate?
Labor Force= 5997 Participation rate= 91.03% Unemployment rate= 8.20% New Labor Force= 5751 New Participation rate= 87.30% Unemployment rate= 4.28%
The president of a manufacturing firm that makes precision tools in California's Silicon Valley was quoted in an article in the Wall Street Journal as saying that "production workers...are scarce," and that "many applicants lack even the most rudimentary skills." He added that: "I would say in this valley, people looking for jobs are unemployed for a reason." Source: Jeffrey Sparshott, "Skilled Workers are Scarce in Tight Labor Market," Wall Street Journal , February 2, 2017. Are these applicants likely to be cyclically, frictionally, or structurally unemployed, and what would be the reason that most of them are unemployed? Briefly explain.
Structurally unemployed, because these applicants lack the skills required for the available jobs
Which of the following statements highlights the difference between the CPI (consumer price index) and GDP deflator?
The CPI measures the average prices of goods and services consumed by typical consumers, whereas the GDP deflator measures the average prices of a broader basket (all finished goods & services produced in an economy)
If the CPI was 100 in 2000 and 120 in 2010 and the price of a gallon of milk was $4.00 in 2000 and $4.80 in 2010, then in relative terms the real price of milk between 2000 and 2010:
remained the same.
An article by Gary Burtless of the Brookings Institution noted, "From the perspective of workers, the U.S. unemployment insurance (UI) system is one of the least generous in the industrialized world. . . . The distinctive feature of the U.S. system is that benefits do not last very long." Source: Gary Burtless, "When the Next Recession Hits, Will Unemployment Benefits Be Generous Enough?" brookings.edu , November 28, 2018. What are the costs and benefits to the U.S. economy of paying unemployment benefits for only a few months compared with paying benefits for a longer period, as Canada and countries in Western Europe do?
The benefit is that it increases the incentive for workers to find a job more quickly; however, a cost is that workers may be forced to take jobs for which their skills are not well suited
Use the Dynamic Version of the Quantity Theory of Money (QTM) to answer the following questions. Round your answers to the nearest whole number, if necessary. a. Suppose the money supply is projected to grow by 5% next year. If the QTM holds true, what will be the expected inflation rate?
The expected inflation rate next year will be 5%
b. Suppose the money supply is again projected to grow by 5% next year. This time, however, economists predict that velocity will rise by 2% and real output will rise by 3%. What will the inflation rate be?
The inflation rate next year will be 4%
c. Suppose the money supply is now instead projected to grow by 10% next year. Economists predict that velocity will rise by 2% and real output will rise by 3%. What will the inflation rate be next year?
The inflation rate next year will be 9%
Use the graph to help determine which of the following statements regarding the labor force participation rates of adult men and women since 1950 is FALSE.
The labor force participation rates of adult men and adult women were equal in 1990
Which of the following is an example of money illusion, assuming that inflation is 5%?
You receive a 5% raise at your part-time job and start spending extra money on entertainment every weekend.
The unemployment rate
shows the percentage of the labor force that is considered unemployed
Use the Fisher Equation to answer the following questions. George Bailey is a loan officer at the Bailey Savings & Loans bank. He trying to decide what annual interest rate he should charge for a business loan to Mr. Potter. Assume that Mr. Bailey is confident that there is no risk that Mr. Potter will default on the loan. Mr. Bailey expects inflation next year to be 2%.
a. If Mr. Bailey's goal is to earn a 5% real return, what nominal interest rate must he charge on the loan? 7% b. Suppose that Mr. Bailey's estimate of inflation is off, and that the actual inflation rate winds up being 5% In this case, what is Mr. Bailey's real rate of return on this loan? His real rate of return on the loan would be: 2% c. Suppose the actual inflation rate turns out to be 12%. What is Mr. Bailey's real return in this case? -5% d. Suppose now there is an unexpected deflation of 3%. What is Mr. Bailey's real return in this case? 10% e. Who is hurt by unexpected inflation: Mr. Bailey or Mr. Potter? Explain: Mr. Bailey (the lender)
Use the table on the price of coffee beans and the Consumer Price Index (CPI) to answer the questions. Please round all answers to the nearest whole number. What is the inflation rate between 2010 and 2011? What is the percentage change in the price per pound of coffee between 2010 and 2011?
inflation rate: 28% percent change: 67%
In discussing the labor market during the recovery from the 2007-2009 recession, Federal Reserve Chair Janet Yellen noted that "the employment-to-population ratio has increased far less over the past several years than the unemployment rate alone would indicate, based on past experience." Source: Janet L. Yellen, "Labor Market Dynamics and Monetary Policy," Speech at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming , August 22, 2014. During an economic expansion, we would normally expect the employment-population ratio (the ratio of the number of employed workers to the total U.S. adult population) to increase as the unemployment rate falls because
more people are likely to be employed
Suppose the real interest rate is 4%4% and expected inflation is 1%.1%. What is the nominal interest rate? All else equal, if inflation decreases by 0%,0%, what will happen to the nominal interest rate? What do economists call the relationship between the nominal interest rate and the inflation rate?
nominal interest rate: 5% The nominal interest rate will decrease by 0%. Fisher equation
An article in the Wall Street Journal contained the following observation: "Every month, millions of workers leave the job market because of retirement, to care for children or aging parents, to pursue more education, or out of discouragement. Millions of others jump in after graduating." Source: Josh Zumbrun, "Labor-Market Dropouts Stay on the Sidelines," Wall Street Journal , December 28, 2014. The millions of workers leaving the job market for the reasons given are
not counted as unemployed in the BLS data because they are no longer actively looking for work
As a result of these problems in calculating the CPI, many economists argue that the CPI actually ____________ inflation by a little bit each year.
overstates
The minimum wage is an example of a ___________. The result is a ___________ of workers (i.e. unemployment).
price floor; surplus
Government policies that make it harder to fire workers and that offer more expansive unemployment benefits to unemployed workers tend to ____________ unemployment rates. Economists classify this policy-induced unemployment as a subcategory of _______________ unemployment.
raise; structural
The Canadian nominal interest rate in 2010 was 1.20%.1.20%. Inflation in 2009 was measured at 3.36%.3.36%. Calculate the real interest rate. Round your answer to two places after the decimal. Which of the statements is true?
real interest rate: -2.16% The nominal interest rate is typically greater than the real interest rate due to inflation.
A politician makes the following argument: "The economy would operate more efficiently if frictional unemployment were eliminated. Therefore, a goal of government policy should be to reduce the frictional rate of unemployment to the lowest possible level." Eliminating all frictional unemployment
will not be good for the economy since the presence of some frictional unemployment is natural and unavoidable
When Ségolène Royal was running unsuccessfully for president of France, she proposed that workers who lost their jobs would receive unemployment payments equal to 90 percent of their previous wages during their first year of unemployment. Source: Alessandra Galloni and David Gauthier-Villars, "France's Royal Introduces Platform Ahead of Election," Wall Street Journal , February 12, 2007, p. A.8. If this proposal were enacted, the unemployment rate in France
would have gone up since the benefits of being unemployed increased and the opportunity cost of being unemployed decreased
