Macro Ch 9: Unemployment and Inflation

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Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment​ rate?

# of unemployed/number in labor force x 100

If the CPI was 207 in 2007 and 225 in 2011, what pay raise would someone who earned $50,000 in income in 2007 have to receive in order to keep her purchasing power constant in 2011?

$4,348 Inflation rate = [(CPI1 - CPI0) / CPI0] x 100 = [(225 - 207) / 207] x 100 = 8.696. You can then multiply $50,000 x .08696 = $4,348. Her new salary will need to be $54,348 in order to maintain the same level of purchasing power.

Total Population ​20,000 Working-Age Population ​15,000 Employment ​1,000 Unemployment 100 The unemployment rate for this simple economy equals

100/1,100 x 100

Even perfectly anticipated inflation imposes costs.​ Why?

Menu costs. Paper money loses its purchasing power by the rate of inflation. Some wages will fail to keep up with anticipated inflation. *All of the above.*

Suppose 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 discouraged worker

At full employment, __________.

cyclical unemployment is zero

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

structural unemployment

Suppose the CPI in 2008 was 215.3 and the CPI in 2009 was 214.6, what was the inflation rate between 2008 and 2009?

-0.3 percent Inflation rate = [(CPI1 - CPI0) / CPI0] x 100 = [(214.6 - 215.3) / 215.3] x 100 = -0.325 or -0.3%.

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 __________ types of goods and services purchased by the typical urban family of four.

14,000; 211

Which of these persons is officially unemployed?

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

As of April​ 2017, which of the following demographic groups has the highest unemployment​ rate?

African Americans

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

Frictional and 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.

The BLS uses the establishment survey to collect information on employment in the economy. Indicate one drawback of the establishment survey compared to the current population survey and indicate one advantage

It does not include information about​ self-employed people. Your answer is correct. It is based on company payroll and not on unverifiable answers.

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

Producer price index

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

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

Substitution bias Increase in quality bias New product bias *All of the above*

Complete the following​ table: Base Year 2014 2016 Product Quantity Price Expenditures Price Expenditures Price Expenditures Denim Jeans 1 ​$60 ​$60 ​$120 ​$120 ​$95 ​$95 Pizzas 20 12 240 18 360 16 320 Coffee Drinks 20 5 100 5 100 6 120 Total ​$ 400 ​$ 580 ​$ 535

The CPI in 2014 equals 145. ​(Enter your response rounded to two decimal​ places.) The CPI in 2016 equals 133.75. ​(Enter your response rounded to two decimal​ places.)

Which market basket specifically targets intermediate goods?

The basket used by the producer price index

Which of these groups is included in the labor force?

The unemployed

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.

Indicate whether the following statement is true or false and why. ​"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 fails to account for illegal activities. Discouraged workers are not considered unemployed. It does not account for inaccurate responses to the Current Population Survey. *All of the above.*

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

If the inflation rate is anticipated, __________.

inflation may not be a major problem

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

Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment​ rate?

number of unemployed/number in labor force x 100

When compared to the Great​ Depression, the typical length of unemployment in the modern​ (post-Great Depression-era) U.S. economy is

relatively brief.

The natural rate of unemployment is the __________.

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

If a​ 3-month Treasury bill pays​ 5.5% and the change in the consumer price index​ (CPI) is​ 4.7%, what is the real interest rate​ (the true return to​ lending)?

​0.8%

Year Nominal Average Hourly Earnings CPI 2008 ​$16.00 202 2009 ​$17.00 207 2010 ​$18.00 209 What is the real average hourly wage in​ 2009? What can be said about real average hourly earnings and nominal average hourly earnings between 2008 and​ 2010?

$8.21 Both real and nominal average hourly earnings increased.

According to​ Costco's CEO, Jim​ Sinegal: ​"Paying good wages and keeping your people working for you is good business...Imagine that you have​ 120,000 loyal ambassadors out there who are constantly saying good things about Costco. It has to be a significant advantage for​ you."

Efficiency wages

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

The true cost of borrowing and lending is best measured by

the real interest rate.

Your father earned​ $34,000 per year in 1984. To the nearest​ dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is​ 104?

​$70,288

Consider the following​ table: Year Nominal Average Hourly Earnings CPI 2008 ​$16.00 202 2009 ​$17.00 207 2010 ​$18.00 209 What is the real average hourly wage in​ 2009? What can be said about real average hourly earnings and nominal average hourly earnings between 2008 and​ 2010?

​$8.21;Both real and nominal average hourly earnings increased.

What effect do labor unions LOADING... have on the unemployment​ rate?

Since few​ non-government workers are​ unionized, there is no significant effect on the unemployment rate.

When the economy is at full​ employment,

the unemployment rate is greater than zero. The natural rate of unemployment prevails. all remaining unemployment is either frictional or structural. *All of the above.*

Which of these demographic groups typically suffers from higher unemployment rates?

African Americans

Unanticipated deflation __________.

hurts net debtors

The Bureau of Labor Statistics would categorize a person as​ _________ if they were temporarily away from their job because they were ill.

employed

The labor force equals the number of people

employed plus unemployed.

If inflation is anticipated, __________.

it costs less to society than if unanticipated

The consumer price index __________.

measures the cost of an unchanging basket of goods and services

Suppose the fixed interest rate on a loan is​ 5.75% and the rate of inflation is expected to be​ 4.25%. The real interest rate is​ 1.5%. Suppose now that instead of​ 4.25%, the inflation rate unexpectedly reaches​ 5.5%. Who gains and who loses from this unanticipated​ inflation? ​(Mark all that​ apply.)

Lenders lose from a lower real interest rate. Borrowers gain from a lower real interest rate

How does the U.S. economy create and destroy millions of jobs each​ year? ​(Mark all that​ apply.)

Some businesses are​ expanding, while others are contracting. Your answer is correct. In the market​ system, new firms are constantly entering and exiting various industries.

In April​ 2017, the​ working-age population of the United States was 254.6 million. The​ working-age population is divided into those in the labor force​ (160.2 million) and those not in the labor force​ (94.4 million). The labor force is divided into the employed​ (153.2 million) and the unemployed​ (7.1 million). Those not in the labor force are divided into those not available for work​ (88.7 million) and those available for work​ (5.7 million).​ Finally, those available for work but not in the labor force are divided into discouraged workers​ (0.5 million) and those currently not working for other reasons​ (5.2 million). Use this data to help determine which one of the following statements is​ true:

The unemployment rate is 7.1 million (unemployed)/ 160.2 million (labor force) X 100 = 4.4 % The labor force participation rate is 160.2 million (labor force) /254.6 million(working age pop) X 100=62.9 % Both are true

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

all stages of production

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

college graduates

In calculating the CPI, the __________.

market basket does not include large equipment purchased by firms

When the economy is at full​ employment,

the unemployment rate is greater than zero. the natural rate of unemployment prevails. all remaining unemployment is either frictional or structural. All of the above.


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