Econ Chapter 20

An average of the prices of the goods and services purchased by the typical urban family of four.

Consumer Price Index (CPI).

Unemployment caused by a business cycle recession.

Cyclical unemployment.

A decline in the price level.

Deflation.

People who are available for work, but who have not looked for a job during the previous four weeks because they believe no jobs are available for them.

Discouraged workers.

The percentage increase in the price level from one year to the next.

Inflation rate.

The percentage of the working-age population in the labor force.

Labor force participation rate.

If the minimum wage is set above the market-determined clearing wage a. the quantity of labor demanded will be greater than the quantity of labor supplied. b. the unemployment rate will be higher than it would be without a minimum wage. c. the minimum wage generates a shortage of unskilled workers. d. all of the above

b. the unemployment rate will be higher than it would be without a minimum wage.

In April 2007, the working-age population of the United States was a. 78.7 million. b. 152.6 million. c. 231.3 million. d. 303.7 million.

c. 231.3 million.

Government policies can help to reduce the levels of frictional and structural unemployment, but they can also help to increase them. Which of the following policies can cause an increase in the levels of frictional or structural unemployment? a. increasing the length of time that the unemployed can receive payments from the government b. passing legislation that makes it more difficult for firms to fire workers c. increasing the minimum wage d. all of the above

d. all of the above

A wage higher than the market wage paid by a firm in order to increase worker productivity.

Efficiency wage.

Short-term unemployment arising from the process of matching workers with jobs.

Frictional unemployment.

The sum of employed and unemployed workers in the economy.

Labor force.

The costs to firms of changing prices.

Menu costs.

The normal rate of unemployment, consisting of structural unemployment plus frictional unemployment.

Natural rate of unemployment.

Which of the following is the correct formula for calculating the unemployment rate? a. Number of unemployed/ Labor force ×100 b. Labor force/Working-age population ×100- c. Both of the formulas above are used to calculate the unemployment rate. d. Neither of the formulas above are used to calculate the unemployment rate.

a. Number of unemployed/ Labor force ×100

How would employment statistics be affected if they included people in the military? a. The unemployment rate would decrease. b. The working-age population would remain the same. c. The labor force participation rate would remain the same. d. all of the above

a. The unemployment rate would decrease

If the CPI was 190 in 2004 and 185 in 2003, what pay raise would someone who earned $40,000 income in 2003 have to earn in order to keep her purchasing power constant? a. $1,052 b. $1,081 c. $2,000 d. none of the above

b. $1,081

If nominal GDP in a given year is $11,000 billion and real GDP is $10,000 billion, then the GDP price deflator in that year equals a. 1.1%. b. 110. c. 10%. d. 0.90, or 90%.

b. 110.

If the inflation rate is 4 percent and the nominal interest rate is 6 percent, then the real interest rate is a. 10 percent, which is the sum of the nominal interest rate and the inflation rate. b. 2 percent, which is the difference between the nominal interest rate and the inflation rate. c. 1.5 percent, which is the ratio of the nominal interest rate to the inflation rate. d. 6 percent, which is the same as the nominal interest rate.

b. 2 percent, which is the difference between the nominal interest rate and the inflation rate.

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called a. frictional unemployment. b. structural unemployment. c. cyclical unemployment. d. seasonal unemployment.

b. structural unemployment.

The real interest rate equals a. the inflation rate minus the nominal interest rate. b. the nominal interest rate minus the inflation rate. c. the nominal interest rate plus the inflation rate. d. the nominal interest rate divided by the CPI for a given year.

b. the nominal interest rate minus the inflation rate.

If the consumer price index was 80 in 1979 and 160 in 1999, then average prices in 1999 were a. half of what they were in 1979. b. twice as high in 1999 as in 1979. c. 80 times higher than in 1979. d. the same as they were in 1979 in real terms.

b. twice as high in 1999 as in 1979.

The extent of job creation and job destruction is a. a serious shortcoming of our economic system. b. what we would expect in a vibrant market system. c. an ideal feature of our economy, because very few jobs are ever destroyed while many new ones are created all the time. d. the main reason why the U.S. unemployment rate is persistently high.

b. what we would expect in a vibrant market system.

Suppose that you are available for work but have not looked for a job for at least the last four weeks because you believe that no jobs are available. You would then be counted as a. part of the labor force. b. unemployed. c. a discouraged worker. d. underemployed.

c. a discouraged worker.

The stated interest rate on a loan.

Nominal interest rate.

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs.

Structural unemployment.

The percentage of the labor force that is unemployed.

Unemployment rate.

A wage higher than the market wage paid by a firm in order to increase worker productivity is a. the idea behind the minimum wage. b. a burden on production costs and profits. c. an efficiency wage. d. a compensating differential.

c. an efficiency wage.

A measure of the average prices of goods and services in the economy.

Price level.

An average of the prices received by producers of goods and services at all stages of the production process.

Producer Price Index (PPI).

The nominal interest rate minus the inflation rate.

Real interest rate.

At full employment a. cyclical unemployment is zero. b. frictional unemployment is zero. c. structural unemployment is zero. d. no one is unemployed.

a. cyclical unemployment is zero.

The short-term unemployment that arises from the process of matching workers with jobs is called a. frictional unemployment. b. structural unemployment. c. cyclical unemployment. d. seasonal unemployment.

a. frictional unemployment.

In the U.S. economy today, how long does the typical unemployed person stay unemployed? a. less than 5 weeks b. 5 to 14 weeks c. 15 to 26 weeks d. 27 weeks or more

a. less than 5 weeks

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. a. nominal; real b. real; nominal c. updated; deflated d. deflated; updated

a. nominal; real

With respect to statistics on the labor market, we can say that a. the labor force is the sum of the employed and unemployed. b. the unemployment rate is calculated as: (number of unemployed/number of employed) x 100. c. the number unemployed includes discouraged workers. d. the number of unemployed includes people who are not employed and not actively looking for jobs.

a. the labor force is the sum of the employed and unemployed.

The stated interest rate on a loan is a. the nominal interest rate. b. the real interest rate. c. the rate of inflation. d. the credit rate.

a. the nominal interest rate.

If the CPI in 2002 was 180 and the CPI in 2003 was 184, what was the inflation rate between 2002 and 2003? a. 4% b. 2.22% c. 2.17% d. 97.8%

b. 2.22%

What would be the impact of counting as unemployed both discouraged workers and those who work part-time but would prefer to work full-time? a. The unemployment rate would remain the same because those people are already counted as unemployed. b. The unemployment rate would increase. c. The unemployment rate would decrease. d. The annual unemployment rate would have been close to 40% in the last decade.

b. The unemployment rate would increase.

In April 2007, which of the following demographic groups had a higher rate of unemployment than the unemployment rate for the total population? a. white adults b. black adults c. Hispanic adults d. None of the above. The unemployment rates for these groups were all lower than the overall unemployment rate.

b. black adults

Two important trends in the labor force participation rates of adults aged 20 and over in the United States since 1950 are the _________ labor force participation rate of adult women and the __________ labor force participation rate of adult men. a. falling; rising b. falling; falling c. rising; falling d. rising; rising

c. rising; falling

Which of the following is a better measure of the average prices of all goods and services included in GDP? a. the consumer price index b. the producer price index c. the GDP deflator d. the inflation rate

c. the GDP deflator

Which market basket below specifically targets intermediate goods? a. the basket used by the consumer price index b. the basket used by the GDP deflator c. the basket used by the producer price index d. all of the above

c. the basket used by the producer price index

The "normal" underlying level of unemployment in the economy is a. the sum of structural unemployment and frictional unemployment. b. the full-employment rate of unemployment. c. the natural rate of unemployment. d. all of the above

d. all of the above

Changes in the CPI overstate the true inflation rate due to four "biases." If apple prices rise rapidly during the month while orange prices fall, consumers will reduce their apple purchases and increase their orange purchases. Which of the four biases is concerned with this tendency? a. the substitution bias b. the increase in quality bias c. the new product bias d. the outlet bias

a. the substitution bias

Which of the following groups is included in the labor force? a. the unemployed b. retirees, homemakers, and full-time students c. people who could have a civilian job but are on active military service, in prison, or in mental hospitals d. none of the above

a. the unemployed

When the economy is at full employment, which types of unemployment remain? a. cyclical and structural b. frictional and structural c. frictional and cyclical d. None of the above. Full employment means that there is no unemployment, so the unemployment rate would be zero.

b. frictional and structural

Increases in the minimum wage will a. increase unemployment among workers whose market wage is higher than the new minimum wage. b. increase teenage unemployment. c. increase the level of unemployment for all groups of workers. d. have a large effect on the unemployment rate in the United States.

b. increase teenage unemployment.

If you are available for work and have looked for a job at some point during the previous twelve months, but have not actively looked during the previous four weeks, you are considered a. in the labor force, but structurally unemployed. b. not in the labor force. c. in the labor force, but frictionally unemployed. d. none of the above

b. not in the labor force.

To obtain prices of a representative group of goods and services, the Bureau of Labor Statistics (BLS) conducts a monthly survey of __________ households nationwide on their spending habits. The results of this survey are used to construct a market basket of _________ goods and services purchased by the typical urban family of four. a. 1,000; 80,000 b. 10,000; 525 c. 30,000; 211 d. 5,000; 75

c. 30,000; 211

The Current Population Survey, conducted by the U.S. Bureau of the Census and often referred to as the household survey, is a sample of ___________ households, and asks about the employment status of everyone in the household ______________ and older. a. 1,000; 18 years of age b. 5,000; 21 years of age c. 60,000; 16 years of age d. 80,000; 19 years of age

c. 60,000; 16 years of age

Relative to the household survey, which of the following is a strength of the establishment survey? a. It provides better information on the number of persons self-employed than the household survey. b. It provides information on unemployment, which the household survey does not provide. c. It is determined by actual payrolls, rather than by the unverified answers of the household survey. d. all of the above

c. It is determined by actual payrolls, rather than by the unverified answers of the household survey.

Which of the following is the prevailing view of economists about the unemployment insurance program in the United States? a. Unemployment insurance is a bad idea because the unemployed spend more time searching for jobs after they receive these payments. b. Unemployment insurance is a bad idea because it promotes laziness among the unemployed. c. Unemployment insurance is a good idea because it helps the unemployed maintain their income and spending, which helps reduce the severity of recessions. d. Most economists are against unemployment insurance but they don't explain why.

c. Unemployment insurance is a good idea because it helps the unemployed maintain their income and spending, which helps reduce the severity of recessions.

The "misery index" gives a rough measure of the state of the economy by a. establishing the success or failure of government spending on social programs. b. determining why the economy is unable to generate a higher level of real GDP per person. c. adding together the inflation and unemployment rates. d. monitoring changes in the number of people on the welfare rolls.

c. adding together the inflation and unemployment rates.

In April 2007, which of the following groups was smallest? a. the unemployed b. people who were not in the labor force and not available for work c. discouraged workers and those who were not working for other reasons d. the number of people in the labor force

c. discouraged workers and those who were not working for other reasons

The ability of some men to survive without apparently ever holding a job a. has remained virtually the same since the 1960s. b. has all but disappeared in recent years. c. has been rising in recent years. d. is nearly impossible in today's society.

c. has been rising in recent years.

Of the eight categories in the CPI market basket, which three categories make up more than 75 percent of the basket? a. medical care, recreation, and education b. food and beverages, apparel, and other goods and services c. housing, transportation, and food d. None of the above. Each category in the basket comprises the same percentage of the basket as the others.

c. housing, transportation, and food

The unemployment rate in the United States is usually ________ than the unemployment rates in most other high-income countries, partly because the United States has _________ requirements for the unemployed to receive government payments. a. higher; less stringent b. higher; more stringent c. lower; less stringent d. lower; more stringent

d. lower; more stringent

In calculating the CPI a. the largest group of items in the market basket is Food and Beverages. b. the BLS varies the quantity of a good in the market basket in response to changes in current sales of the good. c. the market basket of goods and services is updated monthly. d. the market basket does not include large equipment purchased by business firms.

d. the market basket does not include large equipment purchased by business firms.

The inflation rate is a. the percentage change in nominal GDP from one year to the next. b. the percentage change in real GDP from one year to the next. c. the percentage difference between nominal GDP and real GDP in any given year. d. the percentage change in the GDP deflator from one year to the next.

d. the percentage change in the GDP deflator from one year to the next

Computation of the CPI assumes that households buy the same market basket of products each month. For this reason, one of the following is irrelevant in calculating the CPI. Which one? a. the prices of the products purchased in the base year b. the prices of the products purchased in the current year c. the quantities of the products purchased in the base year d. the quantities of the products purchased in the current year

d. the quantities of the products purchased in the current year

From 1950 until 2007, the behavior of the annual unemployment rate in the United States demonstrated that a. the unemployment rate rises during both recessions and expansions. b. the unemployment rate falls during both recessions and expansions. c. the unemployment rate falls during recessions and rises during expansions. d. the unemployment rate rises during recessions and falls during expansions.

d. the unemployment rate rises during recessions and falls during expansions.