Ch11 & LC8 & HW12

The Fisher Effect equation can be used to determine the real interest rate. Use this equation to determine the answer to the question. If the nominal interest rate is 0.120, and the inflation rate is 0.025, what is the real interest rate?

0.095

Find the velocity of money when 𝑀=$722M, 𝑃=109P, and 𝑌R=$43YR. M is the money supply, v is the velocity of money, P is the price level, and YR is the real gross domestic product (GDP). Round your answer to 2 decimal places.

$722 million×𝑣=109×$43 million v=6.49

What is the neutrality of money with respect to the quantity theory of money?

- The money supply can affect the growth rate of prices (inflation) in the long run. - The money supply cannot affect the growth rate of real GDP in the long run. - The money supply can affect the growth rate of the real GDP in the short run.

Firms in the country of Merka, which experiences varying levels of unemployment over time, face a very competitive labor market. Classify the given events according to how each would affect Merka's unemployment rate.: Decrease in the unemployment rate

- decreased unemployment benefits - introduction of employment-at-will doctrine

Please classify the given groups of people as either employed, unemployed, or not in the labor force. Not in the labor force

- full-time students - people in active military service - full-time home-makers - people in prison - retirees who neither have a job nor are looking for a job - mental patients confined in institutions - people who actively looked for a job during the last 12 months,but not the last four weeks

Firms in the country of Merka, which experiences varying levels of unemployment over time, face a very competitive labor market. Classify the given events according to how each would affect Merka's unemployment rate.: Increase in the unemployment rate

- increase in the minimum wage - increase in unions' influence

Please classify the given groups of people as either employed, unemployed, or not in the labor force. Employed

- those who worked during the previous week - people temporarily away from their jobs due to illness - people temporarily away from their jobs due to vacation

Suppose that a baby boom occurs between the years 2025-2030, similar to the baby boom following World War II. What do you expect to happen to the labor force participation rate in the year 2090-2100, holding all else constant? The labor force participation rate will

decrease since the baby boomers will opt for more leisure.

Linda postpones her wedding even though most food prices and most service prices were dropping this year, which would help keep the cost of the wedding down.

deflation

Chelsea recently lost her job as an accountant. However, thanks to her stellar resume, she is ableto quickly find a new job after two weeks. Much to her pleasure, she receives a tax credit becauseshe was able to quickly find a new job.

early employment bonus

Classify each scenario according to whether it is an example of an active employment at-will doctrine.: Cathy quits her job as a babysitter despite having only been hired three weeks ago, because she feels watching over eight toddlers at once will cause her to lose too much sleep.

example of employment at-will

Classify each scenario according to whether it is an example of an active employment at-will doctrine.: Katherine, a waitress, gets fired from her job after spilling a hot bowl of French onion soup on a customer's shoe.

example of employment at-will

The variable γ is used to represent the:

fraction of output that is invested in new capital. In the steady state, investment equals depreciation.

The natural rate of unemployment equals

frictional unemployment plus structural unemployment.

The capital stock grows when investment is:

greater than depreciation. And output in the next period is greater.

Peter is a compulsive gamer. He decides to buy World of Warcraft, all of its expansions, Starcraft 2, a PS3, a Wii, and an Xbox 360, since prices in general have been rising at an alarming rate.

inflation

The capital stock neither grows nor shrinks when investment:

is equal to depreciation. And output in the next period is the same.

In the United States, potential innovators know that if they come up with a good idea:

it has a good chance of making them substantial profits. This creates strong incentives for innovation.

Simon is a junior chef at a three-star Michelin-renowned restaurant, Sur La Table. He loses hisjob and applies for, and is accepted into, a state fundedprogram that allows unemployed individualsto take medical technician courses at their local community colleges for free.

job retraining

The government decides to give all unemployed workers a free account on a federal job bank,allowing workers to find jobs easier than ever before and hopefully expediting re-employment.

job-search assistance

The capital stock shrinks when investment is:

less than depreciation. And output in the next period is lower.

Determine if the people in the example have benefited - i.e., are winners - or have been harmed - i.e., are losers - by unexpected inflation. Herb, who keeps his savings in an old coffee can:

loser

Determine if the people in the example have benefited - i.e., are winners - or have been harmed - i.e., are losers - by unexpected inflation. Karen, a retired school teacher, who relies on her fixed pension to cover her expenses:

loser

Determine if the people in the example have benefited - i.e., are winners - or have been harmed - i.e., are losers - by unexpected inflation. Third National, a bank that lent many people money for home purchases:

loser

The fact that business culture and institutions in the United States are good at connecting innovators with businesspeople and venture capitalists leads to:

strong incentives to innovate. This is because innovators who come up with good ideas are likely to be rewarded for doing so.

A patent is a government grant of:

temporary monopoly rights. (Patents exist to help those who bear the costs of development receive more of the benefits.)

Which of the factors would decrease the rate of frictional unemployment?

the advent of the Internet, which makes finding available jobs easier

How does a country's rigidity of employment index correspond to the amount of long-term unemployment for that nation?

the larger the index number, the greater the long-term unemployment

When the economy is doing well, a significant share of unemployment is frictional.

true

When a good has spillovers, the good will be:

underprovided by markets.

frictional unemployment

short-term unemployment caused by the ordinary difficulties of matching employee to employer.

Suppose the production function for an economy is Y = √K, and that γ = 0.25 and δ = 0.05. If the present capital stock is equal to 25, depreciation of the capital stock will be equal to:

1.25. δK = 0.05 × 25 = 1.25.

Suppose the production function for an economy is Y = √K, γ = 0.25, and δ = 0.05. If the present capital stock is equal to 16, in the next period, the capital stock will equal:

16.2. 16 + (0.25√16) − (0.05 × 16) = 16 + 1 − 0.8 = 16.2.

The overall population for Region A is 85 million people. The labor force contains 43 million people, 26 million people are employed, and 17 million are unemployed. What is the unemployment rate? Round your answer to two decimals.

17/43=39.53

Suppose the production function for an economy is Y = √K, and that γ = 0.25 and δ = 0.05. If the present capital stock is equal to 36, in the next period the capital stock will equal:

35.7. 36 + (0.25√36) − (0.05 × 36) = 16 + 1.5 − 1.8 = 35.7.

You are considering purchasing a car, and you are offered a loan with a nominal interest rate of 6%. Assume inflation is expected to average 2% over the life of the loan. What is the real interest rate?

4%

Suppose the production function for an economy is Y = √K, and that γ = 0.25 and δ = 0.05. If the present capital stock is equal to 36, the current level of output is:

6. Y = √36 = 6.

After a financial crisis hits the country of Arcadia, 77 million people become unemployed. If 25 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Please specify your answer to two decimal places.

7/(7+25)=21.88

Comparison of the minimum wage and the median wage can be used to estimate the extent to which unemployment results from minimum wage laws. All else equal, which scenario would result in the most unemployment?

A country where the minimum wage is set at 95% of the median wage.

Which of the following scenarios provides the best evidence that inflation has occurred?

A person whose salary has increased can purchase fewer goods and services.

What is a real price?

A real price refers to a price that has been adjusted to account for inflation.

What does the term money neutrality mean?

Changes in the money supply have no real effects on the economy in the long run.

Which answer choice is a fact about growth on the cutting edge that is emphasized in the chapter?

Government has a role in improving the production of ideas. This is because ideas may be underprovided by markets.

Which statement is NOT true about growth on the cutting edge?

Growth on the cutting edge will be primarily the result of increases in physical capital. Physical capital is subject to diminishing returns, but ideas are not.

Which statement is TRUE?

In the steady state, investment equals depreciation, and the economy doesn't grow.

Now suppose there is a mid-year revision of the GDP forecast that lowers the expected growth rate below 2.48%. Ceteris paribus, what impact will this lower growth rate have on the rate of inflation?

Inflation will be higher than originally expected.

Out of these individuals, whose money gained the most value during their time period?

Linda's money gained the most value.

If money is neutral, what does this imply about the use of monetary policy?

Monetary policy is more effective in the short term than the long term.

In a macroeconomic context, choose the best definition for the term velocity.

The rate at which money circulates through an economy.

More capital creates more output at:

a diminishing rate. The marginal product of capital diminishes as capital is added.

Select the correct definition of inflation.

a general and ongoing rise in the average level of prices in an economy

Definition of ceteris paribus

all other things being equal

What is inflation?

an increase in the overall price level

When investment is greater than depreciation, the:

capital stock grows. And output in the next period is greater.

An argument in favor of patents is that they:

create incentives for research and development. This is one of the arguments in favor of patents.

Classify each scenario according to whether it is an example of an active employment at-will doctrine.: A tenured organic chemistry professor who cannot be fired despite being a horrible teacher. Answer Bank not an example of employment at-will example of employment at-will

not an example of employment at-will

Classify each scenario according to whether it is an example of an active employment at-will doctrine.: Alex has a clause in his worker's contract stating that if he gets fired during a recession, he gets a severance package of half his salary paid for up to six months.

not an example of employment at-will

Classify each scenario according to whether it is an example of an active employment at-will doctrine.: Brian, who works for an educational software company, quits. He is not allowed to work for a competing software company for six months due to a clause in his contract.

not an example of employment at-will

Classify each scenario according to whether it is an example of an active employment at-will doctrine.: Wei-Cheng gets fired from his company for no reason other than that he is the only Asian worker.

not an example of employment at-will

A government grant of temporary monopoly rights is called a:

patent. Patents exist to help those who bear the costs of development receive more of the benefits.

Discouraged workers:

people who are unemployed for a long period of time may get discouraged and stop looking for work even though they want a job

Please classify the given groups of people as either employed, unemployed, or not in the labor force. Unemployed

people who do not have a job but actively looked in the last four weeks

Melissa decides to start her own personal library by amassing a private collection of books and magazines about world religions, cooking, comics, and economics. As she reads an issue of The Economist, she discovers that overall price levels have changed only 0.01% in the past two years, and decides it does not matter whether she starts the project now or later.

price stability

A profit-maximizing firm invests in research and development so long as the _____ is greater than the marginal cost.

private marginal benefit The firm gets only the private benefits, so social benefits are not considered.

R&D stands for: content_hint: See the textbook's description of R&D under the section, "Spillovers, and Why There Aren't Enough Good Ideas."

research and development. R&D is characterized by spillovers, so it may be underprovided by markets.

Determine if the people in the example have benefited - i.e., are winners - or have been harmed - i.e., are losers - by unexpected inflation. Joy, who borrowed $40,000 to pay for her college education:

winner

Determine if the people in the example have benefited - i.e., are winners - or have been harmed - i.e., are losers - by unexpected inflation. The United States federal government, which had almost $15 trillion in debt in 2011:

winner

Imitators get the benefit of new ideas:

without having to pay the costs of development. Patents exist to help those who bear the costs of development receive more of the benefits.

The government implements a new policy where people receiving unemployment benefits mustprovide proof that they are searching for work. Otherwise, they will lose their benefits in 11 month.

work test

Suppose real GDP is forecasted to grow by 2.48%, the velocity of money has been stable, and the Fed announces an inflation target of 3.30%. What is the largest money growth rate the Fed could implement and still achieve its inflation target?

𝑀⃗ =3.30%+2.48%−0%.M→=3.30%+2.48%−0%.