Micro Ch 19-22
Which term refers to the value of a good or service after adjusting for changes in inflation?
real value The nominal value of any economic statistic means that we measure the statistic in terms of actual prices that exist at the time. The real value refers to the same statistic after it has been adjusted for inflation. Generally, it is the real value that is more important.
According to the table below by the Bureau of Labor Statistics (data from January 2017 (bls.gov)), all of the following are considered unemployed, except:
retirees Retirement is not considered a reason for unemployment by the Bureau of Labor Statistics. All the other examples reflect categories listed in the table.
If the price level is 145 when measured in 1987 dollars and the current nominal GDP is $43,500, then what is real GDP in 1987? If necessary, round your answer to the nearest hundredth.
30000 To calculate real GDP, use the formula: Real GDP =Nominal GDPPrice Index/100 The GDP Deflator is also known as the price level, so Real GDP in 1987 =$43,500145/100 Real GDP in 1987 =$43,5001.45=$30,000
A peak _______.
is the highest point in an economy that comes just before real GDP begins falling and recession begins A peak is the highest point in an economy that comes just before real GDP begins to fall and recession begins.
What is the term for the point in the business cycle where real GDP reaches its lowest point and begins rising?
trough A trough is the lowest point of a recession, where real GDP stops falling and begins rising.
Within an economy's business cycle, what is the lowest point of a recession called?
trough We call the highest point of the economy, before the recession begins, the peak. Conversely, the lowest point of a recession, before a recovery begins, is the trough. Thus, a recession lasts from peak to trough, and an economic upswing runs from trough to peak. We call the economy's movement from peak to trough and trough to peak the business cycle.
When productivity rise unexpectedly slows down, how is unemployment typically impacted?
unemployment rates will likely be slightly higher than average Levels of unemployment will tend to be somewhat higher on average when productivity is unexpectedly low, and conversely, will tend to be somewhat lower on average when productivity is unexpectedly high. However, over time, wages do eventually adjust to reflect productivity levels.
When productivity is unexpectedly high, how is unemployment typically impacted?
unemployment rates will likely be slightly lower than average Levels of unemployment will tend to be somewhat lower on average when productivity is unexpectedly high. Additionally, levels of unemployment will tend to be somewhat higher on average when productivity is unexpectedly low, However, over time, wages do eventually adjust to reflect productivity levels.
Domino's Pizza decides to buy a larger oven, which allows workers to produce more pizza in the same amount of time. This is an example of economies of scale increasing _______________.
worker productivity When increasing output allows for production at a lower cost, this is economies of scale. Here, the larger oven allowed for greater production in the same amount of time, hence an increase in worker productivity.
We call the economy's movement from peak to trough and trough to peak the depression cycle.
False We call the economy's movement from peak to trough and trough to peak the business cycle.
The production function is used to examine the relationship between _________.
inputs and outputs The production function is the technical relationship by which economic inputs like labor, machinery and raw materials are turned into outputs used by consumers.
Matt's wife is in the Army and has received orders to a military installation 2000 miles away. Matt resigns from his current job and he and his wife move across the country. Matt then actively searches for similar positions near the military installation where his wife is working. What type of unemployment is Matt experiencing?
frictional unemployment Frictional unemployment is unemployment that occurs as workers move between jobs. Because Matt is in between jobs, he is considered to be frictionally unemployed
Megan left her teaching job to stay home with her baby. Now a couple of years later, she is actively seeking another teaching job. Megan is _______________ unemployed?
frictionally Frictional unemployment refers to the unemployment that occurs as workers move between jobs. Megan left her teaching job and is actively seeking another position in the same field. Therefore, Megan is considered frictionally unemployed.
Deflation is a time when the buying power of money in terms of goods and services _____________.
increases Because inflation is a time when the buying power of money in terms of goods and services is reduced, deflation is a time when the buying power of money in terms of goods and services increases.
If prices are considered the messengers in a market economy because they convey information about supply and demand conditions, what can blur price messages about the economy?
inflation Prices are the messengers in a market economy, conveying information about conditions of demand and supply. Inflation blurs those price messages. Inflation means that we perceive price signals more vaguely.
Technological change is a combination of which two concepts?
innovation invention Technological change is a combination of invention—advances in knowledge—and innovation, which is putting those advances to use in a new product or service.
Which of the following statements about the business cycle are true?
A business cycle shows contractions and expansions of the economy. Economists use business cycles to track real GDP over a number of years. The business cycle shows movements in real GDP. Economists have sought for centuries to explain the forces at work in the business cycle. Not only are the currents that move the economy up or down intellectually fascinating, but also an understanding of them is of tremendous practical importance.
Which of the following is an example of cyclical unemployment?
A company has to lay off half of its work force to cut costs in order to make it through the recession. Cyclical unemployment refers to when unemployment is closely tied to the business cycle, like higher unemployment during a recession. Therefore, lawn-care workers not working during the winter months due to lawns being dormant is not example is cyclical unemployment.
Which of the following statements about productivity shifts and wages is true?
Adjustments of wages to productivity levels are often not quick. Adjustments of wages to productivity levels will not happen quickly or smoothly. Employers typically review wages only once or twice a year. In many modern jobs, it is difficult to measure productivity at the individual level.
What are shortcomings of using GDP to measure the standard of living?
All of the above. Standard of living includes factors such as income, economic and political stability, political and religious freedom, environmental quality, climate, and safety. GDP does not account for all kinds of work, nor does it take into account social aspects of life, or degradation of the environment.
Which of the following statements is true?
Countries with controlled economies have historically had low inflation rates. Countries with controlled economies in the 1970s, like the Soviet Union and China, historically had very low rates of measured inflation—because prices were forbidden to rise by law, except for the cases where the government deemed a price increase to be due to quality improvements. However, these countries also had perpetual shortages of goods, since forbidding prices to rise acts like a price ceiling and creates a situation where quantity demanded often exceeds quantity supplied.
All of the following statements are true, except:
Countries with controlled economies in the 1970s, like the Soviet Union and China, historically had very high rates of measured inflation during this period. Countries with controlled economies in the 1970s, like the Soviet Union and China, historically had very low rates of measured inflation—because prices were forbidden to rise by law, except for the cases where the government deemed a price increase to be due to quality improvements. However, these countries also had perpetual shortages of goods, since forbidding prices to rise acts like a price ceiling and creates a situation where quantity demanded often exceeds quantity supplied.
Depression and recession can be used interchangeably.
False
The goals of macroeconomic policy include low rates of inflation, lower unemployment, and perfect competition in markets.
False
The government spending component of GDP only accounts for federal spending.
False
Those who classify themselves as underemployed are included in the unemployment rate.
False Those who are underemployed are considered employed, and therefore not included in the unemployment rate. For example, there are some people who have only part time or temporary jobs, and they are looking for full time and permanent employment that are counted as employed, although they are not employed in the way they would like or need to be.
Workers' productivity has little impact on the level of wages in an economy.
False Workers' productivity determines the level of wages in an economy. For example, if a business paid workers more than could be justified by their productivity, the business will ultimately lose money and go bankrupt. Additionally, if a business tries to pay workers less than their productivity then, in a competitive labor market, other businesses will find it worthwhile to hire away those workers and pay them more.
Comparing unemployment rates in the United States to other high-income economies in the world is easy and equal in measurement.
False Comparing unemployment rates in the United States and other high-income economies with unemployment rates in Latin America, Africa, Eastern Europe, and Asia is very difficult. Each country has slightly different definitions of unemployment, survey for tools for measuring unemployment, and also different labor markets.
The unemployment rate for men before 1980 had tended to be higher than the unemployment rate for women
False The unemployment rate for women has historically tended to be higher than the unemployment rate for men, which perhaps reflects the historical pattern that women were seen as "secondary" earners. Since the 1980s, however, the trend has reversed.
Which of the following explains the relationship between a country's GDP and the quality of life of its citizens with respect to health?
GDP includes what a country spends on healthcare, but does not measure actual levels of health in the country. A limitation of GDP is that it does not measure levels of health, only how much is spent on healthcare. Since spending on health care alone does not determine the actual health of a society, GDP can't fully measure standard of living or quality of life.
All of the following statements are true, except:
If a firm is currently holding a lot of assets in cash, it would benefit from inflation If inflation declines more than anticipated, the purchasing power of cash increases. Therefore, in this case, the firm would benefit from increases in purchasing power. Your answer:
All of the following statements are true, except:
In recent decades in the U.S, rising inflation rates have always corresponded to increasing productivity rates.
Which of the following two countries are "fast growth" countries?
India China China and India both averaged GDP growth (after adjusting for inflation) of at least 5% per year in both the time periods from 1990 to 2000 and from 2000 to 2008. Since economic growth in these countries has exceeded the average of the world's high-income economies, these countries may converge with the high-income countries.
Which of the following statements is true about inflation?
Inflation redistributes purchasing power in the economy. Inflation can cause redistributions of purchasing power that hurt some and help others. For example, people who are hurt by inflation include those who are holding considerable cash, while wages tend to creep up with inflation over time.
Why do economists care about recessions?
Many people lose work and struggle to support themselves financially. Economists care about recessions because during these periods many people lose work and struggle to support themselves financially. Even those who do not lose work may see cuts in hours or pay, which lowers their standard of living.
All of the following statements are true, except:
Moderate or high Inflation rarely poses substantial long-term planning problems for businesses. It is hard to predict what money (for example, retirement monies) will really buy several decades in the future without knowing the rate of future inflation (that is, how inflation will affect purchasing power in the future). Inflation, especially at moderate or high levels, will pose substantial planning problems for businesses.
Which of the following best defines involuntary unemployment?
People are unemployed but willing to work jobs that employ people with similar skills. Involuntary unemployment refers to situations in which the unemployed are willing to work jobs that employ people with similar skills. For example, unemployed people often have friends or acquaintances of similar skill levels who are employed, and the unemployed would be willing to work such jobs if offered to them. However, the employers of their friends and acquaintances do not seem to be hiring. In other words, these people are involuntarily unemployed.
Which of the following does not fall into the category of "hidden unemployment"?
People who are over-employed There are some people who have only part time or temporary jobs, and they are looking for full time and permanent employment that are counted as employed, although they are not employed in the way they would like or need to be. Additionally, there are individuals who are trained or skilled for one type or level of work but are working in a lower paying job or one that does not utilize their skills. All of these individuals are not counted as unemployed and fall under the umbrella of the term "hidden unemployment." Discouraged workers, those who have stopped looking for employment and, hence, are no longer counted in the unemployed also fall into this group.
The figure below shows an index of output per hour, with 2009 as the base year (when the index equals 100). Based on the graph, which of the following describes the change in productivity in the U.S. economy since 1950?
Productivity rose quickly in the 1960s and 1990s compared to the 1970s and 1980s. The average U.S. worker produced over twice as much per hour in 2014 as in the 1970s. Output per hour worked is a measure of worker productivity. In the U.S. economy, worker productivity rose more quickly in the 1960s and the mid-1990s compared with the 1970s and 1980s. However, these growth-rate differences are only a few percentage points per year. Look carefully to see them in the changing slope of the line. The average U.S. worker produced over twice as much per hour in 2014 as in the early 1970s.
Which of the following is an example of cyclical unemployment?
Ronald is laid off by his company as part of company reorganization to cut costs to meet slowing demand in the economy. Cyclical unemployment refers to unemployment which is closely tied to the business cycle, such as higher unemployment during a recession. Ronald lost his job because of slowing demand for the company's products which occurs during recessionary contraction of the economy.
Which of the following accurately explains the "New Economy" controversy?
Some economists argue that technological advances guarantee higher average productivity growth in the long run. Some economists argue that strong short term productivity growth does not indicate higher productivity in the long run. The "new economy" is the idea that today's economy is based on extraordinary advances in communication and information technology from the 1990s. Economists of different schools of thought have different views regarding the sustainability of this growth. Optimistic supporters argue that these advancements will generate higher average productivity growth for decades to come. Pessimists argue that a decade of productivity growth is not proof of long-term productivity.
All of the following statements about government policy and unemployment are true, except:
The funding for unemployment insurance is a state tax collected from employers. The funding for unemployment insurance is a federal tax collected from employers. The federal government requires tax collection on the first $7,000 in wages paid to each worker; however, states can choose to collect the tax on a higher amount if they wish, and 41 states have set a higher limit.
All of the following statements are true, except
The incentives in the economy to adjust in response to changes in prices are stronger in periods of high and variable inflation than in periods of low inflation. High and variable inflation means that the incentives in the economy to adjust in response to changes in prices are weaker. Markets will adjust toward their equilibrium prices and quantities more erratically and slowly, and many individual markets will experience a greater chance of surpluses and shortages.
John borrows $50,000 from Bank of Xurbia at a fixed interest rate of 5%. If inflation is 5% at the time the loan is made, then:
The real interest rate on the loan is zero. When interest rates are fixed, and the rate of inflation is equal to the interest rate, suppliers of financial capital, receive repayments that are exactly worth the cost to provide financial capital. That is, the real interest rate is zero.
What is efficiency wage theory?
The theory that workers' productivity depends on their pay, and so employers will often find it worthwhile to pay their employees somewhat more than market conditions might dictate. Efficiency wage theory argues that workers' productivity depends on their pay, and so employers will often find it worthwhile to pay their employees somewhat more than market conditions might dictate. One reason is that employees who receive better pay than others will be more productive because they recognize that if they were to lose their current jobs, they would suffer a decline in salary. As a result, they are motivated to work harder and to stay with the current employer.
All of the following statements about the US unemployment rate by gender, race, and ethnicity are true, except:
The unemployment rate for African-Americans is slightly lower than the rate for other racial or ethnic groups. The US unemployment rate for African-Americans is substantially higher than the rate for other racial or ethnic groups, a fact that surely reflects, to some extent, a pattern of discrimination that has constrained blacks' labor market opportunities.
Using the table below, calculate real GDP (in billions of dollars) in 2017. Round your answer to the nearest tenth.
To calculate real GDP, use the formula: Real GDP =Nominal GDPPrice Index/100 The GDP Deflator is also known as the price level, so Real GDP in 2017 =$19,485114.27/100 Real GDP in 2017 =$19,4851.1427=$17,051.7
All of the following are examples of someone who is involuntary unemployed, except:
Tom was let go from his job at The Burger Shack five weeks ago and has yet to search for another job because he wants to earn more than $15/hour. Not only is Tom not considered involuntary unemployed, he is not considered unemployed by the Bureau of Labor Statistics because he is not actively seeking work. Tina, Tonya, and Trent are considered involuntary unemployed because they are willing to work at the jobs similar to what those with their skill sets have and at wages that are similar to what those with their skill sets are receiving.
The total value of a nation's output is equal to the total value of a nation's income.
True
Capital deepening refers to an increase in the amount of capital per worker.
True Capital deepening refers to an increase in the amount of capital per worker, either human capital per worker, in the form of higher education or skills, or physical capital per worker.
Consumers' spending decisions have a significant impact on the economy.
True Consumption expenditure by households is the largest component of GDP. It accounts for about two-thirds in any given year and tells us that consumers' spending decisions are a major driver of the economy.
A contractual right is a form of property right that allows individuals to use the legal system when agreements regarding the use of property are violated.
True Contractual rights are rights based on property rights that allow individuals to enter into agreements with others regarding the use of their property providing recourse through the legal system in the event of noncompliance. An example is the employment agreement, where an employee performs duties agreed upon and expects payment. Failure to pay the employee violates the contract.
The loss of construction jobs during the 2008 housing financial crisis is an example of cyclical unemployment.
True Cyclical unemployment refers to unemployment, closely tied to the business cycle. The loss of construction jobs during the 2008 housing financial crisis is an example of cyclical unemployment because when home builders stopped building homes, many construction workers lost their jobs.
Some economists argue that during an inflationary period, the erosion of real wages could help reduce the rate of inflation.
True Inflation would contribute to a decline in real wages which in turn reduces the purchasing power of households. If households respond to a reduction in a purchasing power by reducing their expenditure, this could have an effect of slowing down the inflation rate for prices levels could decline due a decrease in demand.
On average, low and middle-income economies around the world are more likely to grow faster than high-income countries.
True This is known as convergence. Some low-income and middle-income economies around the world have shown a pattern of convergence, in which their economies grow faster than those of high-income countries. While there is no guarantee that every low-income economy will experience a high growth rate, it is true, on average, that low-income economies tend to grow at a faster rate than middle and high-income economies. (i.e. This statement is not true in all cases, but it is true in the general case.)
Which of the following best describes the U.S. inflation rate since the base year of the Consumer Price Index?
U.S. price levels have seen periods of inflation and deflation. The annual percentage changes in the CPI over time, which is the inflation rate.Irrespective of the base year, the U.S. price levels have seen periods of inflation and deflation. Therefore U.S. inflation rate has not been growing at a constant rate.
Mary dropped out of high school 10 years ago and struggles to find a job that pays more than minimum wage. Is Mary unemployed?
Yes, she is structurally unemployed. Structural unemployment is unemployment that occurs because individuals lack skills valued by employers. The structurally unemployed are individuals who have no jobs because they lack skills valued by the labor market, either because demand has shifted away from the skills they do have, or because they never learned any skills. Mary is considered structurally unemployed because she does not have skills that are demand with employers who can pay more than minimum wage.
____________ workers tend to have higher unemployment rates than _____________ workers.
Younger; middle-aged Younger workers tend to have higher unemployment, while middle-aged workers tend to have lower unemployment, probably because the middle-aged workers feel the responsibility of needing to have a job more heavily.
The GDP deflator is ______________.
a price index measuring the average prices of all goods and services The GDP deflator is a price index measuring the average prices of all goods and services included in the economy.
Which of the following can lead to cyclical unemployment?
a stock market crash A stock market crash often jump starts an economic downturn that results in cyclical unemployment. On the other hand, a reduction in interest rates often leads to job growth because companies are able to expand and hire more workers. Similarly, increased spending on public works creates jobs. Increased unemployment benefits can also increase jobs because the unemployed are able to spend money on necessities and keep an address, which is needed for most jobs.
Education for girls is a good investment in low-income countries because __________________.
all of the above Girls in low-income countries often play the social role of mothers and homemakers. When they receive more education, they are more likely to have fewer, healthier, better-educated children. They are less likely to die in childbirth and likely to receive more schooling. Investing in education for girls is an investment in economic growth and has benefits beyond the current generation.
Which of the following explains why convergence between high-income countries and the rest of the world may not be likely?
all of the above High-income countries have been building up their advantage in standard of living over decades—more than a century in some cases. Even in an optimistic scenario, it will take decades for the low-income countries of the world to catch up significantly. With the combination of technology and capital deepening, the rise in GDP per capita in high-income countries does not need to fade away because of diminishing returns. The gains from technology can offset the diminishing returns involved with capital deepening. In theory, perhaps, low-income countries have many opportunities to copy and adapt technology, but if they lack the appropriate supportive economic infrastructure and institutions, the theoretical possibility that backwardness might have certain advantages is of little practical relevance. With the combination of technology and capital deepening, the rise in GDP per capita in high-income countries does not need to fade away because of diminishing returns. The gains from technology can offset the diminishing returns involved with capital deepening.
Which of the following explains the importance of education in economic growth?
all of the above Human capital, physical capital, and technology all work together. Strengthening education means workers with a higher level of education and skills are able to come up with new technological innovations. These innovations result in investment in physical capital. New machines require additional training, which increases investments in human capital. Education impacts all three factors.
Low-income economies grow faster than high-income economies because _______.
all of the above Low-income countries like China and India tend to have lower levels of human capital and physical capital, so an investment in capital deepening should have a larger marginal effect in these countries than in high-income countries, where levels of human and physical capital are already relatively high. Low-income economies find improving technology easier, as it is easier to apply technology that is already invented than it is to invent new technology. Low-income economies are also more likely to observe the successes of high-income economies and imitate them.
Of the following scenarios, which does not reflect the goals of macroeconomic policy?
all of the above scenarios do not reflect the goals of macroeconomic policy The three goals of macroeconomic policy are economic growth of 3% or more, unemployment rates of 5% or lower, and inflation rates of 1−2%.
Which of the following best illustrates a worker who is frictionally unemployed?
an entry level clerk leaving a company for a mid-executive position at another company Frictional unemployment is unemployment that occurs as workers move between jobs. Therefore, a recent college graduate looking for a job in her degree field is an example of frictional unemployment because she is looking for her first post-college job.
Capital deepening is __________.
an increase by society in the average level of physical and/or human capital per person Capital deepening is defined as an increase in the average level of physical and/or human capital per person. Physical capital is increased by improvements in such factors of production as technology, equipment, factories, and transportation. Human capital is improved by such factors as more education, training, and other means of building skills and capacities for critical thinking and problem solving that lead to innovation and invention.
Which of the following best describes a discouraged worker?
an individual who has stopped looking for employment Discouraged workers are those who have stopped looking for employment due to the lack of suitable positions available.
Hyperinflation often occurs when economies shift from a(n) ________________ economy to a ___________________ economy.
controlled; market-oriented Hyperinflation is an outburst of high inflation that often occurs (although not exclusively) when economies shift from a controlled economy to a market-oriented economy. In the early 2000s, the problem of inflation appears to have diminished for most countries, at least in comparison to the worst times of recent decades. Your answer:
If the federal minimum wage grows at a slower rate than inflation, the real minimum wage ______________.
decreases When inflation happens, the buying power of fixed amount of money diminishes. As inflation rises, a fixed amount of cash, or other financial asset, becomes worth less. Therefore, if the inflation rate grows faster than increases in the minimum wage rate, the real value of the minimum wage rate decreases.
An aggregate production function can be thought of as a(n) _______________ production function.
macroeconomic In macroeconomics, we call the connection from inputs to outputs for the entire economy an aggregate production function or a macroeconomic production function. A microeconomic production function, on the other hand, describes a firm's, or perhaps an industry's, inputs and outputs.
Which measure of national productivity would include the loss in value to an automobile after an additional year of use?
net national product (NNP) Net national product (NNP) is calculated by taking GNP and then subtracting the value of how much physical capital is worn out, or reduced in value because of aging, over the course of a year. Thus, net national product is the measure of national productivity that would include the loss in value to an automobile after an additional year of use.
__________ factors in the value of how much physical capital is worn out, or reduced in value due to aging, over the course of a year.
net national product (NNP) We calculate net national product (NNP) by taking gross national product (GNP) and then subtracting the value of how much physical capital is worn out, or reduced in value because of aging, over the course of a year.
Which of the following terms refers to the commonly referenced value of a good or service that is not adjusted for inflation?
nominal value By definition, nominal value is the value of a good or service that is not adjusted for inflation. The nominal value of any economic statistic means that we measure the statistic in terms of actual prices that exist at the time.
Discouraged workers are included in ___________________.
none of the above A person who is out of work, would like to work, has looked for work in the past year, and is available for work, but who has given up looking, is considered a discouraged worker. Discouraged workers are not counted as unemployed, but a tally is kept each month of the number of discouraged workers. They are not part of the labor force since they are not considered employed or unemployed.
Double counting is a potential mistake to be avoided in measuring GDP in which __________.
output is counted more than once as it travels through the stages of production Double counting is defined as a potential mistake to be avoided in measuring GDP in which output is counted more than once as it travels through the stages of production. Double counting results in significant overstatement of a nation's GDP since goods are counted more than once in the total figure.
In economic terms, new roads are considered _______.
physical capital Physical capital is all the property and equipment used by firms in production. It also includes infrastructure such as roads and bridges.
Which of the following deals with parties not being allowed to infringe without paying compensation?
property rights By definition, property rights are the legal rights of ownership on which others are not allowed to infringe without paying compensation.
Which of the following does not reflect a goal of macroeconomic policy?
rapidly increase the overall level of prices The three goals of macroeconomic policy are economic growth, lower unemployment rates, and lower inflation rates. An increase in the overall level of prices would indicate that inflation is increasing, which is not a goal of macroeconomic policy
During the Great Depression, the U.S. economy experienced _________________.
severe deflation Historically in the U.S., there have been two periods of severe negative inflation—called deflation—in the early decades of the twentieth century: one following the deep 1920-21 recession and the other during the 1930s Great Depression.
All of the following are potential examples of hidden unemployment, except:
someone who has a full-time job but wants to look for a job with more upward mobility Hidden unemployment covers people who are mislabeled as employed, unemployed, or out of the labor force. Someone who has a graduate degree but is working retail is considered underemployed and falls under this umbrella. Someone with part-time work who is looking for full-time work could be incorrectly labeled as employed, although they are not employed in the way they would like or need to be. Someone who has quit looking for work because she is discouraged could be mislabeled as out of the labor force.
In the 1970s, the U.S. space program downsized and aerospace engineers struggled to find employment that utilized their skills. What type of unemployment is this an example of?
structural The structurally unemployed are individuals who have no jobs because they lack skills valued by the labor market, either because demand has shifted away from the skills they do have, or because they never learned any skills. An example of structural unemployment is the unemployment among aerospace engineers after the U.S. space program downsized in the 1970s.
Carl has worked on a factory line for years. Recently, his job on the line has been increasingly replaced by robotics in his industry. As a result, Carl is laid off. Carl is struggling to find a job in his particular field because the majority of positions have been eliminated due to robotics technology. What type of unemployment is Carl experiencing?
structural unemployment Structural unemployment is unemployment that occurs because individuals lack skills valued by employers. Because Carl's skill set is no longer needed in his industry, he is considered structurally unemployed.
The Panda Toy Company is losing money and reacts by reducing wages for all 250 employees. As a result, the employees with the best employment alternatives at other toy companies end up leaving. Which of the following best describes why this scenario can lead to wage stickiness?
the adverse selection of wage cuts argument The adverse selection of wage cuts argument points out that if an employer reacts to poor business conditions by reducing wages for all workers, then the best workers, those with the best employment alternatives at other firms, are the most likely to leave. The least attractive workers, with fewer employment alternatives, are more likely to stay.
Which of the following tracks the pattern of recessions and expansions over time?
the business cycle The term business cycle refers to the recurrent ups and downs in real GDP over several years. We call the highest point of the economy, before the recession begins, the peak. Conversely, the lowest point of a recession, before a recovery begins, is the trough. Thus, a recession lasts from peak to trough, and an economic upswing runs from trough to peak. We call the economy's movement from peak to trough and trough to peak the business cycle.
Consider an individual who borrowed $$25,000 to purchase a used car at a fixed interest rate of 9%. If inflation is 9%, what is the real interest rate the individual will be paying?
the car loan must be repaid at a real interest rate of zero Ordinary people can sometimes benefit from the unintended redistributions of inflation. Consider someone who borrows $25,000 to buy a car at a fixed interest rate of 9%. If inflation is 9%, then the real interest rate on the loan is zero. In this case, the borrower's benefit from inflation is the lender's loss. A borrower paying a fixed interest rate, who benefits from inflation, is just the flip side of an investor receiving a fixed interest rate, who suffers from inflation. (9%−9%=0%) The lesson is that when interest rates are fixed, rises in the rate of inflation tend to penalize suppliers of financial capital, who receive repayment in dollars that are worth less because of inflation, while demanders of financial capital end up better off, because they can repay their loans in dollars that are worth less than originally expected.
In defined contribution plans, who contributes to the employee's retirement account?
the employee the employer In defined contribution plans, the employer and the employee both contribute a fixed amount to the employee's retirement account on a regular basis.
Which of the following best defines the concept of human capital?
the level of knowledge, education, and skills a worker possesses Human capital refers to the skills and knowledge that make workers productive. The human capital of modern workers is far higher today because the education and skills of workers have risen dramatically. By 2010, more than 87% of Americans had a high school degree and over 29% had a four-year college degree as well. In 2014, 40% of working-age Americans had a four-year college degree.
Which of the following best defines the natural rate of unemployment?
the level of unemployment when the economy is considered to be healthy The natural rate of unemployment is the unemployment rate that an economy usually experiences when the economy is healthy. Therefore, it would be the unemployment rate that would exist in a growing and healthy economy from the combination of economic, social, and political factors that exist at a given time.
How would an increase in unemployment insurance duration affect the natural rate of unemployment?
the natural rate of unemployment will increase the unemployed worker will be less eager to seek a new job Public policy can also have a powerful effect on the natural rate of unemployment. On the supply side of the labor market, public policies to assist the unemployed can affect how eager people are to find work. For example, if a worker who loses a job is guaranteed a generous package of unemployment insurance, welfare benefits, food stamps, and government medical benefits, then the opportunity cost of unemployment is lower and that worker will be less eager to seek a new job. What seems to matter most is not just the amount of these benefits, but how long they last. A society that provides generous help for the unemployed that cuts off after, say, six months, may provide less of an incentive for unemployment than a society that provides less generous help that lasts for several years. Conversely, government assistance for job search or retraining can in some cases encourage people back to work sooner.
In order to maintain purchasing power for those wage earners, the federal minimum wage rate should keep up with _________________.
the rate of inflation When inflation happens, the buying power of fixed amount of money diminishes. If the federal minimum wage rate keeps up with inflation, the real minimum wage remains constant.
Which of the following best describes the real interest rate?
the rate of interest after allowing for inflation The real interest rate isolates the effect of inflation. The real interest rate is the nominal interest rate minus the inflation rate and considered to be the rate of interest after allowing for inflation.
Which of the following is the correct definition of real value?
the value of a good or service after adjusting for changes in inflation The definition of real value is the value of a good or service after adjusting for changes in inflation. Generally, the real value is a more important statistic than the nominal value since it tells us more about how to interpret the amount.
If a person has money in a bank account that pays 4% interest, but inflation rises to 5%, then the real rate of return for the money invested in that bank account is ___________.
−1% The real interest rate isolates the effect of inflation, therefore the real interest rate is the nominal interest rate minus the inflation rate. So if a person has money in a bank account that pays 4% interest, but inflation rises to 5%, then the real rate of return for the money invested in that bank account is −1%.
