unit 4 macro

Weston Bank would like to provide a loan to Aaron. Suppose the inflation rate is predicted to be 8%. In order for the bank to protect the real value of the loan repayments they will receive, it should set loan's interest rate to: That's not right - let's review the answer. 5% 6% 7% 11%

11% When the rate of inflation is greater than the cost of capital (the interest rate), this tends to penalize suppliers of financial capital, who receive repayment in dollars that are worth less because of inflation. Therefore, the Bank would benefit if the interest rate was more than the inflation rate (11% > 8%).

Movie Theater X orders monthly popcorn supplies. The "basket" of popcorn goods on the monthly order include 800 packs of bags, 16 boxes of popcorn kernels, 250 bottles of oil and 15 containers of salt. This month prices are $2.50 per pack of bags, $35 per box of kernels, $18 per bottle of oil, $11 per container of salt. What is the cost of Movie Theater X's basket of goods?

A basket of goods and services, consists of the different items individuals, businesses, or organizations typically buy. To calculate the cost of a basket of goods, first we calculate spending on each good by multiplying the price of the good with the quantity: P∗Q for every good in the basket. Then, we sum the spending for all goods. Cost of a basket =P1∗Q1+P2∗Q2+ ... In this question the total cost can be calculated as follows: 800($2.50)+16($35)+250($18)+15($11)=$7,225

Which of the following is an example of cyclical unemployment? Lawn-care workers are not working during the winter months due to lawns being dormant. A booming housing market causes a movement of workers from manufacturing into real estate jobs. Workers are sometimes unemployed for a few months before they find jobs in real estate. A company has to lay off half of its work force to cut costs in order to make it through the recession. A factory closes its doors because it is not longer able to stay competitive against foreign producers. All workers are laid off.

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? Yes that's right. Keep it up! Adjustments of wages to productivity levels are often not quick. Employers often do not take recent experience with productivity when determining wage increases. When productivity changes unexpectedly, the natural rate of unemployment is rarely impacted. Over time, wages often do not end up adjusting to reflect productivity levels.

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.

Which of the following is true about deflation? That's incorrect - mistakes are part of learning. Keep trying! Deflation occurs when the inflation rate increases at a decreasing rate. Deflation occurs when the inflation rate becomes negative. Deflation occurs when the price level falls. Deflation can be defined as a negative price level.

Deflation occurs when the inflation rate becomes negative. Deflation is a time when the buying power of money in terms of goods and services increases. Deflation can be defined as severe negative inflation.

Which of the following could be a reason why the natural rate of unemployment between the US and the EU is different? Select the correct answer below: Differences in their forms of government Differences in labor laws They use different currencies Differences in geographic size

Differences in labor laws European rates of unemployment have been higher because the conditions underlying supply and demand for labor have been different in Europe than in the US. Many European countries have a combination of generous welfare and unemployment benefits, together with nests of rules that impose additional costs on businesses when they hire. In addition, many countries have laws that discourage laying off or firingcurrent workers. These laws not only make it difficult for companies to fire or lay off workers, they also become hesitant about hiring in the first place. As such, we can attribute the differences in the natural rate of unemployment in the US and Europe to differences in the laws and regulations related to their labor markets.

True or false? In the imaginary country of Xurbia, large corporations typically hire employees for the long-term, often for life. Suppose, the proportion of older workers, relative to younger workers, in the Xurbian economy was relatively high. We would expect the natural rate of unemployment in Xurbia to be high. Not quite right - check out the answer explanation. True False

False As the questions implies, older workers in Xurbia are far more likely to experience low unemployment than younger workers because corporations in Xurbia keep workers hired for long. Moreover, older workers tend to have more experience that younger workers therefore we would expect older workers to have less of a difficult time finding employment. Additionally, the question implies that, demographically, there are more older workers than younger workers. As such, we would expect the natural rate of unemployment in Xurbia to be low.

True or false? The arrival of new goods creates problems with respect to the accuracy of measuring inflation because new goods have always been immediately included in the inflation calculations. Yes that's right. Keep it up! True False

False Government statisticians at the U.S. Bureau of Labor Statistics calculate the CPI based on the prices in a fixed basket of goods and services that represents the purchases of the average family of four. This leaves out new goods introduced in the market. By the early 2000s, the Bureau of Labor Statistics was using alternative mathematical methods for calculating the Consumer Price Index, more complicated than just adding up the cost of a fixed basket of goods, to allow for some substitution between goods. It was also updating the basket of goods behind the CPI more frequently, so that it could include new and improved goods more rapidly.

true or false? The arrival of new goods creates problems with respect to the accuracy of measuring inflation because new goods have always been immediately included in the inflation calculations. Well done! You got it right. True False

False Government statisticians at the U.S. Bureau of Labor Statistics calculate the CPI based on the prices in a fixed basket of goods and services that represents the purchases of the average family of four. This leaves out new goods introduced in the market. By the early 2000s, the Bureau of Labor Statistics was using alternative mathematical methods for calculating the Consumer Price Index, more complicated than just adding up the cost of a fixed basket of goods, to allow for some substitution between goods. It was also updating the basket of goods behind the CPI more frequently, so that it could include new and improved goods more rapidly.

True or False? Unlike the unemployment rate, the natural rate of unemployment cannot change over time, Perfect. Your hard work is paying off 😀 True False

False Since the underlying economic, social, and political factors that influence the natural rate of unemployment can changeover time, the natural rate of unemployment can change over time as well. For example, some of the common reasons that economists propose for the change in natural rate of unemployment in the U.S. economy in the early 2000s : technological changes in the ways workers look for jobs (LinkedIn etc), the growth of the temporary worker industry, and age-related demographic changes in the labor market.

True or false? The Consumer Price Index (CPI) is a weighted average of the prices of all goods and services that are available in the U.S. economy. Keep trying - mistakes can help us grow. True False

False The Consumer Price Index is calculated by taking the 80,000 prices of individual products (not all products) and combining them, using weights determined by the quantities of these products that people buy, to impute the Consumer Price Index.

True or false? When government rules encourage and support powerful unions, the unemployment rate almost always decreases. Select the correct answer below: True False

False When government rules encourage and support powerful unions, it isn't a guarantee that the unemployment rate will fall. In fact, the presence of unions can affect the willingness of firms to hire. If government makes it difficult to fire or lay off workers, businesses may react by trying not to hire more workers than strictly necessary—since laying these workers off would be costly and difficult. High minimum wages may discourage businesses from hiring low-skill workers. Government rules may encourage and support powerful unions, which can then push up wages for union workers, but at a cost of discouraging businesses from hiring those workers.

True or false? Workers' productivity has little impact on the level of wages in an economy. That's incorrect - mistakes are part of learning. Keep trying! True False

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.

true or false? Workers' productivity has little impact on the level of wages in an economy. Great work! That's correct. True False

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.

All of the following statements are true, except: Correct! You nailed it. A firm can make money from inflation by paying bills and wages as late as possible so that it can pay in inflated dollars, while collecting revenues as soon as possible. If a firm is currently holding a lot of assets in cash, it would benefit from inflation An economy with high inflation rewards businesses that have found clever ways of profiting from inflation. In the short term, low or moderate levels of inflation may not pose an overwhelming difficulty for business planning.

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.

All of the following statements are true, except: Keep trying - mistakes can help us grow. If inflation varies substantially over the short or medium term, then it may make sense for businesses to stick to shorter-term strategies. In recent decades in the U.S., rising inflation rates have at times been closely followed by lower inflation rates. In recent decades in the U.S, rising inflation rates have always corresponded to increasing productivity rates. There is some evidence that if inflation can be held to moderate levels, it doesn't prevent a nation's real economy from growing at a healthy pace.

In recent decades in the U.S, rising inflation rates have always corresponded to increasing productivity rates. Over the last several decades in the United States, there have been times when rising inflation rates have been closely followed by lower productivity rates and lower inflation rates have corresponded to increasing productivity rates. As the graph shows, however, this correlation does not always exist.

Which of the following statements is true about inflation? That's not right - let's review the answer. Inflation redistributes purchasing power in the economy. Inflation ensures purchasing power remains constant. The effects of inflation are spread evenly throughout the economy. Inflation keeps the effects of interest rate on the broader economy constant.

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.

Which of the following is true about the Producer Price Index? Select the correct answer below: It measures price changes from the perspective of households. It measures wage inflation in the labor market. It is a price index that includes all output in a country's within a given time period. It can be used to determine if there is a deflation in the prices of inputs used for production.

It can be used to determine if there is a deflation in the prices of inputs used for production. By definition, the producer price index is based on prices paid for supplies and inputs by producers of goods and services - whether those prices are undergoing inflation or deflation.

Which of the following is true about the Employment Cost Index? Not quite right - check out the answer explanation. It measures price changes from the perspective of households. It is relative measure of average price changes in exports or imports. It is a price index that includes all output within a country's borders within a given time period. It can be used to measure of wage inflation in the labor market.

It can be used to measure of wage inflation in the labor market. By definition, the Employment Cost Index can be used to measure wage inflation in the labor market. Note that it does not include the cost of recruiting or hiring new workers.

Which of the following is true about the GDP deflator? Perfect. Your hard work is paying off 😀 It is based on the prices of merchandise that is exported or imported. It is a price index that is based on all the GDP components. It is a price index that is based on all the GDP components except net exports. It is a price index that is based on all goods and services produced by US nationals (including abroad).

It is a price index that is based on all the GDP components. The GDP deflator, which the Bureau of Economic Analysis measures, is a price index that includes all the GDP components (that is, consumption plus investment plus government plus exports minus imports). Unlike the CPI, its baskets are not fixed but re-calculate what that year's GDP would have been worth using the base-year's prices.

Which of the following is true about the International Price Index? Well done! You got it right. It includes all the GDP components. It measures wage inflation in the labor market. It is based on the prices of merchandise that is exported or imported. It is based on prices paid for supplies and inputs by producers of goods and services.

It is based on the prices of merchandise that is exported or imported. By definition, the International Price Index is based on the prices of merchandise that is exported or imported.

Why does the minimum wage cause wages to be sticky? Great work! That's correct. It is difficult for employers to find people willing to work for minimum wage. It is not cost effective for a firm to pay more than minimum wage for low-skilled workers. When wages are low, demand for more labor increases. It is illegal to reduce wages below minimum wage.

It is illegal to reduce wages below minimum wage. Due to minimum wage laws, it is illegal to reduce wages below the set minimum. The minimum wage is, essentially, a price floor and employers are not allowed to pay wages below it. It is in this sense that wages are sticky when they are near or at the price floor.

Suppose in the imaginary country of Xurbia, a remarkable new tool which improves the ability for job seekers to find out about jobs at different companies and make contact with those companies with relative ease is introduced and widely adopted by employers and job seekers. What do you expect will happen to the natural rate of unemployment in Xurbia? Great work! That's correct. It is not affected. It will decrease. It will increase. It will be reduced to zero.

It will decrease. A tool that allows job seekers to find jobs and local employers easier would reduce the costs associated with searching for a job and make it easier for employers to find the employees they desire. This would reduce friction in labor markets. Therefore, we would expect that this tool would lead to more job placements ultimately contributing to reducing the natural rate of unemployment.

What is the new quantity of labor demanded in the short-run of the contracting economy below? quantity of labor demanded

Look at the equilibrium where D0 crosses the supply curve, S, at point wage equals $30 and quantity of labor demanded is 30. When the curve shifts to D1, wages will remain sticky in the short-run while the economy adjusts. At the wage of $30 on the new demand curve less labor is demanded and the new quantity demanded is 15.

According to the graph below, if D0 were to shift to D1 due to an economic downturn, what will be the new quantity of labor demanded in the short-run?

Look at the shift in demand from D0 to D1. In the short-run wages remain sticky and quantity demanded will decrease from 25 to 15.

A boom in the economy has caused an increase in the demand for labor. The graph below displays this expansion in the labor market. What is the new wage and the new quantity of labor demanded

Looking at the graph you can see that the shift from D0 to D1 moved the equilibrium to a wage rate of $20 and the quantity of labor demanded to 20.

ll of the following statements are true, except: Perfect. Your hard work is paying off 😀 Uncertainty about future inflation makes it hard to predict the value of some financial assets in the future. Moderate or high Inflation rarely poses substantial long-term planning problems for businesses. When saving for retirement, people need to consider what their money will really buy several decades in the future. It's very hard to predict the rate of future inflation.

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? Select the correct answer below: People are unemployed because of unrealistic expectations about wages. People are unemployed but willing to work jobs that employ people with similar skills. People quit jobs that are below their skill levels. None of the above define 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.

An employer can't legally pay an employee less than $7.25 per hour, which is the federal minimum wage in 2018. Why does this lead to wage stickiness? If employers were to pay a higher wage, there would be fewer jobs available for employees. If the employer were to pay a higher wage, their long-run profits would decrease. People getting paid the minimum wage will not see a decline in their wages. Employees would be less likely to work for minimum wage, which will lead to a worker shortage.

People getting paid the minimum wage will not see a decline in their wages. It is illegal for employers to reduce wages below the minimum wage level. That is, the wage can't go below $7.25 per hour - the federal minimum wage limit in 2018 - wages are stuck at that level and can only trend upward.

Suppose the labor force is 94.4 million people, and the number of those employed is 84.1 million people. What is the unemployment rate? Round your answer to the nearest tenth.

Since the labor force is divided into employed persons and unemployed persons, the number of unemployed persons is 94.4-84.1=10.3 million. Then, the unemployment rate can be calculated as, Unemployment Rate = Unemployed People/Total Labor Force × 100 = 10.3/94.4 × 100 = 10.9%

The inflation rate is most commonly derived from which of the following macroeconomics measures Yes that's right. Keep it up! The Unemployment Rate The Consumer Price Index Real Gross Domestic Product Nominal Gross Domestic Product

The Consumer Price Index In the United States, the Consumer Price Index (CPI) is the most commonly used index that is widely used to calculate inflation.

The table below shows the index numbers for the cost of a basket of goods and services in each period. Use this information to calculate the inflation rate in Period 2. (Round to two decimals.)

The equation for calculating the inflation rate is: (Index in new period- Index in previous period)Index in previous period×100=Inflation rate Substituting the respective values given in the table, we have the following:

The table below shows the total expenditure on a basket of goods and services in six consecutive years. Use this information to calculate the inflation rate since the previous year for 2013 and 2015, and enter your answers in that order. (Round each answer to two decimal places.)

The equation for calculating the inflation rate is: (Expenditure in new year - Expenditure in previous year)Expenditure in previous year×100=Inflation rate Substituting the respective values given in the table, we have the following:

All of the following statements about government policy and unemployment are true, except: That's incorrect - mistakes are part of learning. Keep trying! Average unemployment benefits are equal to about one-third of the wage that the person earned in his or her previous job. States can choose the length of time that they pay benefits to unemployed workers. An individual does not have to collect unemployment benefits to be classified as unemployed. The funding for unemployment insurance is a municipal tax collected from employers.

The funding for unemployment insurance is a municipal 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: That's not right - let's review the answer. 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 will lead to markets adjusting toward their equilibrium prices and quantities more erratically and slowly. Many individual markets will experience a greater chance of surpluses and shortages in an economy with high and variable inflation. Inflation can blur messages about the conditions of demand and supply in a market economy.

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.

Which of the following is true about the GDP Deflator? Well done! You got it right. The representative goods and services in its basket include all final goods and services produced within a country's borders within a given time period. It measures wage inflation in the labor market. It is based on data collected online from retailers. It can be used to determine inflation in the prices of inputs needed by producers of goods and services.

The representative goods and services in its basket include all final goods and services produced within a country's borders within a given time period. The GDP deflator, which the Bureau of Economic Analysis measures, is a price index that includes all the GDP components (that is, consumption plus investment plus government plus exports minus imports) - that is, all final goods and services produced within a country's borders.

The table below shows the total expenditure on a basket of goods and services; use this information to calculate the index number for the cost of a basket of goods and services in period 1, assuming Period 2 is the base year. (Round to 1 decimal place.)

To convert expenditure on the basket of goods and services to an index number, we use the base year as a starting point from which we measure changes in prices. The base year, by definition, has an index number equal to 100. In this question, Period 2 is the base year so to calculate Period 1 index number, we divide Period 1 spending by Period 2spending and multiply by 100.

All of the following are examples of someone who is involuntary unemployed, except: Trent was let go from his job as an accountant and despite the best efforts of his fellow-accountant friends, he has yet to land a job at another accounting firm. Tina was let go from her position at a computer science firm and is having trouble finding a job in the computer science industry that pays comparable to her previous salary. Tonya was let go from her job as a barista at a coffee shop and is discovering that no coffee shops in a 45-mile radius are hiring. 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.

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.

True or false? The loss of construction jobs during the 2008 housing financial crisis is an example of cyclical unemployment. Yes that's right. Keep it up! True False

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.

True or False: When consumers substitute cheaper imported goods for more expensive domestically produced goods, the rate of inflation calculated by the U.S. Bureau of Labor Statistics will overstate the consumer's true cost of living. Not quite right - check out the answer explanation. True False

True If U.S. consumer move toward buying more cheaper imports, that is, if they substitute away from domestically produced goods toward cheaper imports this could lead to the BLS overstating the inflation rate.

True or false? Calculating the inflation rate with a basket of goods and services that are allowed to shift and evolve over time to reflect the substitution bias can help reduce biases in the CPI. Yes that's right. Keep it up! True False

True If we calculate the inflation rate with a basket of goods that is fixed and unchanging, then the calculation of an inflation rate is straightforward, but the problems of substitution bias and quality/new goods bias will arise. However, when the basket of goods is allowed to shift and evolve to reflect substitution toward lower relative prices, quality improvements, and new goods, the technical details of calculating the inflation rate grow more complex.

Some economists argue that during an inflationary period, the erosion of real wages could help reduce the rate of inflation. Not quite - review the answer explanation to help get the next one. True False

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. if you lower how much ppl get paid, then they will not be able to afford eggs, so then demand for eggs will go down and so now they can lower the price of eggs bcs the supply is bigger

True or false? The inflation rate for a given year can be found by taking the percentage change in the Consumer Price Index (CPI) from the previous year to the given year in question Yes that's right. Keep it up! True False

True The inflation rate is the percentage change in the cost of purchasing the overall basket of goods captured by an indicator like the Consumer Price Index (CPI) between two time periods; generally, between between two years: the year in question and the previous year.

True or false? When the U.S. economy is growing strongly, the unemployment rate only rarely dips as low as 4%. Therefore, it is safe to assume that the natural rate of unemployment in the U.S. is at least 5%. Well done! You got it right. True False

True The natural rate of unemployment is 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. Given that when the U.S. economy is growing strongly, the unemployment rate only rarely dips below 4%, it is safe to assume that the natural rate of unemployment for the U.S. is at least 5%.

True or false? Wages are considered sticky when they do not fall in response to a decrease in demand. Select the correct answer below: True False

True Wages are sticky when earnings don't adjust quickly to changes in labor market conditions. Therefore, wages are considered sticky when they do not fall in response to a decrease in demand, or they do not rise in response to an increase in demand.

Mary dropped out of high school 10 years ago and struggles to find a job that pays more than minimum wage. Is Mary unemployed? Keep trying - mistakes can help us grow. Yes, she is frictionally unemployed. No, because she is out of the labor force. Yes, she is structurally unemployed. Yes, she is involuntarily 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.

Which of the following is an example of a social value-based regulation that can impose a barrier between some willing workers and other willing employers? That's incorrect - mistakes are part of learning. Keep trying! a local government not allowing liquor stores be open on Sundays bureaucratic red tape at the federal level a local government requiring that a new business obtain multiple permits a municipal government with strict local zoning laws

a local government not allowing liquor stores be open on Sundays Sometimes government regulations are enacted for their social value, like a local government not allowing liquor businesses to open on Sundays. Whatever defenses may be offered for such laws in terms of social value—like the value some Christians place on not working on Sunday, or Orthodox Jews or highly observant Muslims on Saturday—these kinds of restrictions impose a barrier between some willing workers and other willing employers, and thus contribute to a higher natural rate of unemployment.

Which of the following can lead to cyclical unemployment? increased spending on public works a reduction in interest rates a stock market crash increased unemployment benefits

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. Cyclical unemployment is when unemployment is closley tied to the business cycle For example, a company has to lay off half of its work force to cut costs in order to make it through a recession because the job availibility relates to the business cycle, aka a recession occuring

Which of the following categories enter the calculation of CPI? Perfect. Your hard work is paying off 😀 transportation (new vehicles, airline fares, gasoline, motor vehicle insurance) education and communication (college tuition, postage, telephone services, computer software and accessories) apparel (men's shirts and sweaters, women's dresses, jewelry) all of the above

all of the above The Eight Major Categories in the Consumer Price Index are: Food and beverages (breakfast cereal, milk, coffee, chicken, wine, full-service meals, and snacks) Housing (renter's cost of housing, homeowner's cost of housing, fuel oil, bedroom furniture) Apparel (men's shirts and sweaters, women's dresses, jewelry) Transportation (new vehicles, airline fares, gasoline, motor vehicle insurance) Medical care (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services) Recreation (televisions, cable television, pets and pet products, sports equipment, admissions) Education and communication (college tuition, postage, telephone services, computer software and accessories) Other goods and services (tobacco and smoking products, haircuts and other personal services, funeral expenses

Which of the following best describes how implicit contracts cause wages to be sticky? an employer will try to keep wages from falling when the economy is weak and the employee will not expect huge salary increases when the economy is strong an employer formally agrees not to reduce wages an employee formally signs a contract stating that she will not negotiate for higher wages both the employee and employer agree to let the labor market determine wages with little intervention on their part

an employer will try to keep wages from falling when the economy is weak and the employee will not expect huge salary increases when the economy is strong An implicit contract can keep wages sticky because the employer will try to keep wages from falling when the economy is weak or the business is having trouble, and the employee will not expect huge salary increases when the economy or the business is strong. The implicit contract acts like a form of insurance: the employee has some protection against wage declines in bad times, but pays for that protection with lower wages in good times.

Which of the following best illustrates a worker who is frictionally unemployed? That's incorrect - mistakes are part of learning. Keep trying! an entry level clerk leaving a company for a mid-executive position at another company a laid off textile factory worker who is unable to find any textile job listings within 100 miles of where he lives a barista who chose to leave his job in order to travel a teacher who is considering not returning to her teaching position next year

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.

Hyperinflation often occurs when economies shift from a(n) ________________ economy to a ___________________ economy. Great work! That's correct. controlled; market-oriented market-oriented; controlled inflated; deflated deflated; controlled

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.

If the federal minimum wage grows at a slower rate than inflation, the real minimum wage ______________. Correct! You nailed it. increases decreases remains the same become unmeasurable

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.

Labor laws in Europe ______________ laying off or firing current workers compared to labor laws in the U.S. Therefore, the natural rate of unemployment in Europe is likely to be higher than the natural rate of unemployment in the U.S. Keep trying - mistakes can help us grow. discourage encourage require none of the above

discourage When companies know that it will be difficult to fire or lay off workers, they also become hesitant about hiring in the first place. Therefore, laws that discourage laying off or firing current workers could create a higher natural rate of unemployment.

Which of the following best describes sticky wages? Well done! You got it right. earnings that don't adjust quickly to changes in labor market conditions earnings that are very responsive to changes in the economy when one particular group is paid more than another, despite having similar sets of skills when the government issues subsidies to help cover wages for low-performing industries

earnings that don't adjust quickly to changes in labor market conditions Sticky wages are earnings that don't adjust quickly to changes in labor market conditions.

Which of the following best describes the relative wage coordination argument? 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 those already working for firms are "insiders," while new employees, at least for a time, are "outsiders" 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 even if most workers were hypothetically willing to see a decline in their own wages in bad economic times as long as everyone else also experiences such a decline, there is no obvious way for a decentralized economy to implement such a plan

even if most workers were hypothetically willing to see a decline in their own wages in bad economic times as long as everyone else also experiences such a decline, there is no obvious way for a decentralized economy to implement such a plan The relative wage coordination argument points out that even if most workers were hypothetically willing to see a decline in their own wages in bad economic times as long as everyone else also experiences such a decline, there is no obvious way for a decentralized economy to implement such a plan. Instead, workers confronted with the possibility of a wage cut will worry that other workers will not have such a wage cut, and so a wage cut means being worse off both in absolute terms and relative to others. As a result, workers fight hard against wage cuts.

Sydney was laid off from her non-profit firm due to a lack of funding. She is currently actively searching for another position in the non-profit field. Which category of unemployment does Sydney fall into? Not quite - review the answer explanation to help get the next one. structural frictional natural cyclical

frictional Frictional unemployment refers to unemployment that occurs as workers move between jobs. The level of frictional unemployment will depend on how easy it is for workers to learn about alternative jobs, which may reflect the ease of communications about job prospects in the economy.

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? Not quite right - check out the answer explanation. involuntarily structurally seasonally frictionally

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. friction = moving in sex, you move around (friction) but ur still having sex the same guy

The components with the highest weights in the Consumer Price Index are _____________. Perfect. Your hard work is paying off 😀 apparel and recreation housing, and food and beverage medical care and housing medical care and education

housing, and food and beverage Of the eight categories used to generate the Consumer Price Index, housing is the highest at 42.7%. The next highest category, food and beverage at 15.3%, is less than half the size of housing. Other goods and services, and apparel, are the lowest at 3.4% and 3.3%, respectively.

Which of the following best describes the adverse selection of wage cuts argument? an employer will try to keep wages from falling when the economy is weak or the business is having trouble, and an employee will not expect huge salary increases when the economy or the business is strong 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 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 even if most workers were hypothetically willing to see a decline in their own wages in bad economic times as long as everyone else also experiences such a decline, there is no obvious way for a decentralized economy to implement such a plan

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 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. Consequently, firms are more likely to choose which workers should depart, through layoffs and firings, rather than trimming wages across the board. It is far more typical for companies to lay off some workers, rather than to cut wages for everyone.

If the CPI leaves out new higher quality goods, it is overlooking one of the ways in which the standard of living is ____________. Perfect. Your hard work is paying off 😀 deteriorating falling not changing over time improving

improving People buy higher quality goods because they offer better value for money than existing goods. The quality/new goods bias means that the rise in the price of a fixed basket of goods over time tends to overstate the rise in a consumer's true cost of living, because it does not account for how improvements in the quality of existing goods or the invention of new goods improves the standard of living.

Deflation is a time when the buying power of money in terms of goods and services _____________. Correct! You nailed it. increases decreases is no different than during periods of inflation is unable to be be tracked

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? Perfect. Your hard work is paying off 😀 inflation surpluses shortages redistributions

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.

A purpose of the Core Inflation Index is _______________. Correct! You nailed it. to help consumers understand the overall cost of living from month to month to be a gauge from which to make important government policy changes to help companies make decisions about production and hiring to help people determine global trends in the oil market

o be a gauge from which to make important government policy changes Economists typically calculate a core inflation index by taking the CPI and excluding volatile economic variables. In this way, economists have a better sense of the underlying trends in prices that affect the cost of living. Both the CPI and the core inflation index are important, but serve different audiences. The CPI helps households understand their overall cost of living from month to month, while the core inflation index is a preferred gauge from which to make important government policy changes.

Suppose that over time, households used flash sale online retailers at an increasing rate. As a result the CPI is likely to be ________________. Great work! That's correct. underestimated because households would buy products at lower prices than those collected by the U.S. Bureau of Labor Statistics underestimated because households would buy products at higher prices than those collected by the U.S. Bureau of Labor Statistics overestimated because households would buy products at lower prices than those collected by the U.S. Bureau of Labor Statistics overestimated because households would buy products at higher prices than those collected by the U.S. Bureau of Labor Statistics

overestimated because households would buy products at lower prices than those collected by the U.S. Bureau of Labor Statistics Flash sale online retailers offer products at a discount. Therefore, if more households choose to buy these discounted products over their traditionally [higher] regularly priced equivalents, the higher priced goods will become less important in the overall basket of goods used to calculate inflation. When the BLS fails to recognize that discounted products are becoming more important in the overall household basket, the CPI will be overestimated.

Substitution behavior by households causes the inflation rate to be ______________________. That's not right - let's review the answer. understated overstated perfectly accurate exaggerated

overstated The substitution bias - the rise in the price of a fixed basket of goods over time—tends to overstate the rise in a consumer's true cost of living, because it does not take into account that the person can substitute away from goods whose relative prices have risen.

If the price index leaves out new goods, it overlooks one of the ways in which the cost of living is improving and ______________ the true cost of living. That's incorrect - mistakes are part of learning. Keep trying! overstates undermines exaggerates understates

overstates The quality/new goods bias means that the rise in the price of a fixed basket of goods over time tends to overstate the rise in a consumer's true cost of living, because it does not account for how improvements in the quality of existing goods or the invention of new goods improves the standard of living.

When the Bureau of Labor Statistics uses economic studies in computers to adjust for changes in speed, memory, screen size, and other product characteristics, and then calculate the change in price after accounting for these product changes, this is a way for it to solve the problem of _______________ Not quite - review the answer explanation to help get the next one. complementary bias price bias quality/new goods bias inflation bias

quality/new goods bias For certain products, the BLS was carrying out studies to try to measure the quality improvement. For example, with computers, an economic study can try to adjust for changes in speed, memory, screen size, and other product characteristics, and then calculate the change in price after accounting for these product changes. However, these adjustments are inevitably imperfect, and exactly how to make these adjustments is often a source of controversy among professional economists.

Tina specializes in newspaper print layout. Unfortunately, her newspaper transformed into a digital-copy only and she was laid off because her print-laying skills were no longer needed. Is Tina's scenario is an example of ____________________ unemployment. Yes that's right. Keep it up! voluntary frictional cyclical structural

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. The demand has shifted away from Tina's particular skill set so she is considered structurally unemployed.

Suppose that in 2008 the price of chicken relative to fish goes up. As a result, households start to move away from purchasing chicken and move toward purchasing more fish. This is an example of ________________. Well done! You got it right. the result of better advertising by fish farmers households responding to quality changes shifting preferences substitution behavior

substitution behavior When households specifically respond to price changes by buying more of the product that has a relatively lower price, this is an example of substitution behavior.

Relative to Europe, the U.S. enacts better policies to make it easier for businesses in the U.S. to begin or to expand. As a result, the natural rate of unemployment in ______________is likely to be lower than the natural rate of unemployment in ________________. Perfect. Your hard work is paying off 😀 Europe; the U.S. the U.S; Europe both the U.S. and Europe; the rest of the world the world in general; the U.S.

the U.S; Europe Government policies that make it easier for businesses to begin or to expand are likely to encourage the demand for labor. As a result, the number of jobs available for job seekers would increase. Consequently, the natural rate of unemployment would be lower than that of an economy whose policies are not as robust in encouraging the start and expansion of businesses.

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 insider-outsider model the relative wage coordination argument efficiency wage theory

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.

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? Not quite right - check out the answer explanation. the car loan must be repaid at a real interest rate of 7% the car loan must be repaid at a real interest rate of 9% the car loan must be repaid at a real interest rate of zero the car loan must be repaid at a real interest rate of 2%

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? Select all that apply: the employee the employer the government the taxpayers

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.

Consider a family who borrows $250,000 to purchase a new home at a fixed interest rate of 8.5%. If inflation increases from 4% to 5.5%, how will this impact the real interest rate the family will be paying? Great work! That's correct. the home loan must be repaid at a real interest rate of 4% the home loan must be repaid at a real interest rate of 5.5% the home loan must be repaid at a real interest rate of zero the home loan must be repaid at a real interest rate of 3%

the home loan must be repaid at a real interest rate of 3% The home loan's fixed interest rate of 8.5% will subtract the new inflation rate of 5.5% and the loan must be repaid at a real interest rate of 3% (8.5%−5.5%=3%). Ordinary people can sometimes benefit from the unintended redistributions of inflation. Consider someone who borrows $250,000 to buy a new house at a fixed interest rate of 8.5%. If inflation is 5.5% at the time the loan is made, then the family must repay the loan at a real interest rate of 3%. 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.

Which of the following best defines the natural rate of unemployment? Select the correct answer below: the level of unemployment when the economy is considered to be healthy unemployment that occurs as workers move between jobs unemployment that occurs because individuals lack skills valued by employers the explanation why unemployment rises during a recession and falls during an economic expansion

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? Please select two correct answers. the unemployed worker will be eager to find work the natural rate of unemployment will decrease the natural rate of unemployment will increase the unemployed worker will be less eager to seek a new job

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 _________________. Select the correct answer below: the rate of inflation the nominal interest rate the real interest rate nominal wages

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? That's not right - let's review the answer. the rate of interest after allowing for inflation the rate of inflation minus the nominal interest rate the nominal interest rate plus minimum wage the rate of inflation minus the minimum wage

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.

The 400 employees of Busy Bee Computing firm are aware of their company's reduction in profits. The employees are concerned about their wages being cut. The majority of the employees are worried that they will be one of the few that will experience wage cuts while their peers will not see a change in wages. Which of the following best describes why this scenario could lead to wage stickiness? Select the correct answer below: the Efficiency wage theory which 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 the insider-outsider model of the labor force, which argues that a firm will not cut wages for its insiders (those who already work for the company) because it depends on them to keep the organization running smoothly, to be familiar with routine procedures, and to train new employees the adverse selection of wage cuts argument which points out that if an employer reduces wages for all its workers, then the best workers, those with the best employment alternatives at other firms, are the most likely to leave the relative wage coordination argument which argues that workers will be alienated by wage cuts whenever they cannot observe that the wage cuts are across the whole organization

the relative wage coordination argument which argues that workers will be alienated by wage cuts whenever they cannot observe that the wage cuts are across the whole organization The relative wage coordination argument points out that even if most workers were hypothetically willing to see a decline in their own wages in bad economic times as long as everyone else also experiences such a decline, there is no obvious way for a decentralized economy to implement such a plan. Instead, workers confronted with the possibility of a wage cut will worry that other workers will not have such a wage cut, and so a wage cut means being worse off both in absolute terms and relative to others. As a result, workers fight hard against wage cuts.

Which of the following best describes the insider-outsider model of the labor force? That's incorrect - mistakes are part of learning. Keep trying! the idea that workers' productivity depends on their pay - the "insiders" earn more and the "outsiders" earn less if an employer reacts to poor business conditions by reducing wages for all workers, then the best workers, known as "insiders", are the most likely to leave and the employees known as "outsiders" are more willing to stay those already working for firms are "insiders", while new employees, at least for a time, are "outsiders" an employer trying to keep wages from falling for the "insiders" when the economy is weak or the business is having trouble

those already working for firms are "insiders", while new employees, at least for a time, are "outsiders" The insider-outsider model of the labor force argues that those already working for firms are "insiders," while new employees, at least for a time, are "outsiders." A firm depends on its insiders to keep the organization running smoothly, to be familiar with routine procedures, and to train new employees. However, cutting wages will alienate the insiders and damage the firm's productivity and prospects.

Which of the following best describes the employed? those currently working for pay those out of work and actively looking for a job those out of paid work and not actively looking for a job all of the above

those currently working for pay

How many people became unemployed in the short-run due to the economic recession represented by the shift in labor demand from D0 to D1 in the graph below?

unemployed = 15 Quantity of labor demanded decreases from 20 to 5 as the demand curve shifts from D0 to D1. 20−5=15 people became unemployed. Wages remain sticky in the short-run at $25 (this is the equilibrium price on D0) and so less labor is demanded at this high price. when asking unemployed from D0 to D1,

All of the following can impact the demand for new workers in the labor market, except: Not quite right - check out the answer explanation. government red-tape social institutions the presence of unions unemployment benefits

unemployment benefits On the demand side of the labor market, government rules, social institutions, and the presence of unions can affect the willingness of firms to hire. On the supply side of the labor market, public policies to assist the unemployed can affect how eager people are to find work, like unemployment benefits.

When productivity rise unexpectedly slows down, how is unemployment typically impacted? Not quite - review the answer explanation to help get the next one. unemployment rates will likely be slightly higher than average unemployment rates will likely be slightly lower than average unemployment rates are rarely impacted by productivity levels all of the above, depending on the situation

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? Select the correct answer below: all of the below, depending on the situation unemployment rates will likely be slightly higher than average unemployment rates are rarely impacted by productivity levels unemployment rates will likely be slightly lower than average

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. they need more workers because productivity is goofd and the businesses need to hire more workers to keep up w the good

When productivity is unexpectedly high, how is unemployment typically impacted? Correct! You nailed it. all of the below, depending on the situation unemployment rates will likely be slightly higher than average unemployment rates are rarely impacted by productivity levels unemployment rates will likely be slightly lower than average

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.

Look at the graph below. Labor demand falls from D0 to D1 due to an economic recession. What is the resulting wage in the short-run due to this shift in demand? HINT: Consider whether this is a situation in which the wages are sticky or flexible.

wage = 30 Because wages are sticky in the short-run the wage will remain at $30 but the quantity demanded at $30 will decrease demand to D1 at Q=15. guys who cum in short time, their cum is sticky long cum=liquidy

The logging industry has had a very productive thirty years and as a result, the demand for labor has been increasing a little each year and equilibrium wages rose each year. If the logging industry's productivity were to slow down, what is likely to happen to equilibrium wages? Not quite right - check out the answer explanation. wages would decrease almost immediately as a reaction to the demand for labor decreasing wages would continue to rise despite the demand for labor not rising, causing the natural rate of unemployment to rise wages would fluctuate greatly in the aftermath decreasing in productivity there would be no long-term affect on wages

wages would continue to rise despite the demand for labor not rising, causing the natural rate of unemployment to rise In this scenario, the quantity of labor that business is willing to hire at any given wage—has been shifting out a little each year because of rising productivity. As a result, equilibrium wages have been rising each year. However, when productivity unexpectedly slows down, the pattern of wage increases does not adjust right away. Wages keep rising each year despite the demand for labor is no longer shifting up. A gap opens where the quantity of labor supplied the quantity demanded and the natural rate of unemployment rises. the reason for this is because they fire ppl in order to keep the wages rising, which produces natural rate of unemployment tpo rise