macro test 3 homeworks
given flexible prices and the existing factors of production, a measure of how much the economy grows
solow growht rate
Which of the factors would decrease the rate of frictional unemployment?
the advent of the Internet, which makes finding available jobs easier
The government implements a new policy where people receiving unemployment benefits must provide proof that they are searching for work. Otherwise, they will lose their benefits in 1 month.
work test
Changes to both the money supply and the velocity of money induce changes in aggregate demand. However, the long-run impacts of changes in these variables are different.
Changes in the money supply can lead to permanent changes in aggregate demand, but changes in the velocity of money tend to have temporary changes in aggregate demand.
What does the term money neutrality mean?
Changes in the money supply have no real effects on the economy in the long run.
nominal intrest rate formula
Real Interest Rate + Expected Inflation
The natural rate of unemployment equals
frictional unemployment plus structural unemployment.
not in the labor force
full time students, homemakers, retirees, people in military, prisoners, mental patients in institutions, people actively looking for job in the last 12 months but not 4 weeks
The overall population for Region A is 91 million people. The labor force contains 46 million people, 29 million people are employed, and 17 million are unemployed. What is the unemployment rate? Round your answer to two decimals.
36.96 number of unemployed/labor force x 100 labor force = employed + unemployed
Find the velocity of money when 𝑀=$522, 𝑃=105, and 𝑌R=$23. M is the money supply, v is the velocity of money, P is the price level, and YR is the real gross domestic product (GDP). Round your answer to 2 decimal places.
4.63
Suppose real GDP is forecasted to grow by 2.63%, the velocity of money has been stable, and the Fed announces an inflation target of 3.50%. What is the largest money growth rate the Fed could implement and still achieve its inflation target?
6.13
Determine if the people in the example have benefited - i.e., are winners - or have been harmed - i.e., are losers - by unexpected inflation.
. The United States federal government, which had almost $15 trillion in debt in 2011 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
The Fisher Effect equation can be used to determine the real interest rate. Use this equation to determine the answer to the question. If the nominal interest rate is 0.120, and the inflation rate is 0.035, what is the real interest rate?
0.085
After a financial crisis hits the country of Barbaria, 4 million people become unemployed. If 35 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Please specify your answer to two decimal places.
10.26 number of unemployed/labor force x 100 4/39 (34=5)= 10.26
You are considering purchasing a car, and you are offered a loan with a nominal interest rate of 4%. Assume inflation is expected to average 1% over the life of the loan. What is the real interest rate?
3 nominal intrest - inflation = real intrest
Comparison of the minimum wage and the median wage can be used to estimate the extent to which unemployment results from minimum wage laws. All else equal, which scenario would result in the most unemployment? A country where the minimum wage is set at 1% of the median wage.
A country where the minimum wage is set at 95% of the median wage.
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 dynamic aggregate demand (AD) curve is modeled as a downward-sloping line. Which of the statements is the best explanation for why the dynamic AD has this shape?
A proportional increase in inflation for every decrease in the growth rate is required to keep the growth in spending constant.
What is a real price?
A real price refers to a price that has been adjusted to account for inflation.
Which of the choices is the best example of creative destruction?
In the past month, there were 20,000 layoffs but 22,000 new hires.
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 the unemployment rate increase in the minimum wage increase in unions' influence Decrease in the unemployment rate decreased unemployment benefits introduction of employment‑at‑will doctrine
Now suppose there is a mid-year revision of the GDP forecast that lowers the expected growth rate below 2.63%. Ceteris paribus, what impact will this lower growth rate have on the rate of inflation?
Inflation will be higher than originally expected.
Out of these individuals, whose money gained the most value during their time period?
Linda's money gained the most value.
If money is neutral, what does this imply about the use of monetary policy?
Monetary policy is more effective in the short term than the long term.
How do European labor markets compare to the labor market in the United States as a result of these varying labor laws?
The labor market in Europe is less flexible than in the United States
What is the neutrality of money with respect to the quantity theory of money?
The money supply can affect the growth rate of prices (inflation) in the long run. The money supply cannot affect the growth rate of real GDP in the long run. The money supply can affect the growth rate of the real GDP in the short run. All of the above.
In a macroeconomic context, choose the best definition for the term velocity.
The rate at which money circulates through an economy.
There is a persistent fear that there will be a high level of deflation. Many economists warn that it may be worse for the economy than if there is high inflation. Suppose that Herb is in debt and has to pay a 5.25% nominal interest rate. He expected inflation to be 2.00%. Instead, inflation is −3.00% (deflation). What is the real interest rate that Herb expected to pay? Round your answer to two decimal places. %What is the real interest rate that Herb is actually paying? Round your answer to two decimal places.%
What is the real interest rate that Herb expected to pay? Round your answer to two decimal places. 3.25 %What is the real interest rate that Herb is actually paying? Round your answer to two decimal places. 8.25
Suppose the civilian noninstitutionalized working-age population is 35.9 million in Italy. Of these, 4.4 million are working part-time and 13.19 million are working full-time. Assume the Bureau of Labor Statistics (BLS) definitions are used for calculating unemployment data. Among those not working, the most recent job-search activity for 3.40 million happened less than two weeks ago, while 1.72million most recently looked for work between two and four weeks ago. An additional 0.86 million most recently looked for work five weeks ago, and the remaining 12.33 million who do not have jobs have not looked for work in the past six weeks. Round your answers to two decimal places. What is the size of the total labor force? How many people are unemployed? What is the labor force participation rate?% What is the unemployment rate?%
What is the size of the total labor force? 22.71 How many people are unemployed?million 5.12 What is the labor force participation rate?% 63.26 What is the unemployment rate?% 22.55
Select the correct definition of inflation.
a general and ongoing rise in the average level of prices in an economy
to see short run effects we look at the intersection between
ad and SRAS
What is inflation?
an increase in the overall price level
Which country would you expect to have the lowest long-term unemployment rate?
australia
variations in the growth rate from the long-run rate of economic growth
business fluctuations
An increase in income tax rates on individuals earning more than $450,000 per year will
decrease AD higher income taxes, people will be spending less
A recession occurring in a trading partner's economy will
decrease AD recession causes less spending
A dramatic decline in the average price of houses will
decrease AD because people spending less on houses
Increased concern that a recession is looming will
decrease AD, recession, less money being spent
A reduction in government spending will
decrease ad less spending less AD
Suppose that a baby boom occurs between the years 2025-2030, similar to the baby boom following World War II. What do you expect to happen to the labor force participation rate in the year 2090-2100, holding all else constant? The labor force participation rate will
decrease since the baby boomers will opt for more leisure.
Linda postpones her wedding even though most food prices and most service prices were dropping this year, which would help keep the cost of the wedding down.
deflation
The Solow growth curve has this shape because growth
does not depend on the rate of inflation.
Chelsea recently lost her job as an accountant. However, thanks to her stellar resume, she is able to quickly find a new job after two weeks. Much to her pleasure, she receives a tax credit because she was able to quickly find a job.
early employment bponus
Cathy quits her job as a babysitter despite having only beenhired three weeks ago, because she feels watching over eight toddlersat once will cause her to lose too much sleep.
employment at will
Katherine, a waitress, gets fired from her job after spilling a hot bowlof French onion soup on a customer's shoe.
employment at will
A dramatic improvement in the stock market, causing investors' wealth to rise, will
increase AD getting more money spending more
Because the economy is experiencing deflation of −3.00% instead of inflation of 2.00%, Herb's real interest rate, compared to what he expected to pay, has
increased so herb feels poorer
Peter is a compulsive gamer. He decides to buy World of Warcraft, all of its expansions, Starcraft 2, a PS3, a Wii, and an Xbox 360, since prices in general have been rising at an alarming rate.
inflation
growth in money supply + growth in velocity =
inflation + real economic growth
Simon is a junior chef at a three-star Michelin-Renowned restaurant, Sur La Table. He loses his job and applies for, and is accepted into, a state funded program that allows unemployed individuals to take medical technician courses at their local community colleges for free.
job retraining
The government decides to give all employed workers a free account on a federal job bank, allowing workers to find jobs easier than ever before and hopefully expediting re-employment.
job search assistance
labor force participation rate formula
labor force/working age population x 100
to see long run effects of increase in AD curve look at
look at AD and LRAS
firms cost associated with changing prices
menu cost
An announcement by the central bank to maintain its existing monetary policy will
no change nothing is happening to spending
Real intrest rate formula
nominal interest rate - inflation rate
Inflation Rate Formula
nominal interest rate - real interest rate
when workers respond, not to the purchasing power of their wage, but to the face value of their wage or salary
nominal wage confusion
Alex has a clause in his worker's contract stating that if he gets firedduring a recession, he gets a severance package of half his salary paidfor up to six months.
not an example of EAW
Brian, who works for an educational software company, quits. He isnot allowed to work for a competing software company for six monthsdue to a clause in his contract.
not an example of EAW
Wei-Cheng gets fired from his company for no reason other than thathe is the only Asian worker.
not an example of EAW
organic chem teacher can't be fired despite being horrible teacher
not an example of employment at will
people who are unemployed
people who do not have a job but actively looked in the last 4 weeks
Melissa decides to start her own personal library by amassing a private collection of books and magazines about world religions, cooking, comics, and economics. As she reads an issue of The Economist, she discovers that overall price levels have changed only 0.01% in the past two years, and decides it does not matter whether she starts the project now or later.
price stability
an event that changes the existing productivity and therefore changes the extent to which economic growth occurs
real shock
Which of the choices is most directly related to cyclical unemployment?
recessions
The typewriter industry goes bankrupt and lays off all its workers. In sharp contrast, the burgeoning electronic word processing industry hires 10,000 workers that same year. This type of unemployment resulting from the shift in industries would best be catagorized under
structural unemployment.
the lower the rigidity
the easier it is to find a job
people who are employed
those who worked during the previous week people temporarily away from their jobs due to illness away for vacation labor
A higher business tax will _shift the LRAS to the
to the left business taxes (taxes on units produced) so this affects LRAS negatively
When the economy is doing well, a significant share of unemployment is frictional.
true
