Chapter 8 Review Questions

The extra time and effort expended to make transactions during times of high rates of inflation impose a. shoe-leather costs b. menu costs c. unit-of-account costs

a

Different age groups and different ethnic groups in teh economy typically experience a. the same unemployment rate b. different unemployment rates

b

During an economic expansion, the unemployment rate typically a. increases b. decreases

b

Historically the relationship between the change in unemployment and the annual growth rate of real GDP is a a. positive relationship b. negative relationship

b

Persistent high employment in Europe is thought to be primarily due to a. efficiency wages b. generous unemployment benefits c. government policies reducing the time of unemployment for most workers d. strong union activity

b

The Bureau of Labor Statistics' treatment of discouraged workers results in the unemployment rate a. overstating the true level of unemployment b. understating the true level of unemployment

b

Underemployed workers, those workers currently working part-time jobs but wishing to work full-time jobs, are a. not included in the calculation of the employment rate b. included in the calculation of the employment rate

b

When the unemployment rate is high, this usually implies that it is a. easy to find a job b. difficult to find a job

b

Which of the following statements is true? a. Even small amounts of structural unemployment are harmful to an economy b. There is always frictional unemployment since there are always new workers entering the job market c. Even small amounts of frictional unemployment are harmful to an economy. d. A, B, C are correct e. Answers A and B are correct f. Answers B and C are correct

b

Binding minimum wages generally lead to a. cyclical unemployment, since not everyone can find a job at the minimum wage rate b. frictional unemployment, since the binding minimum wage results in longer job search. c. structural unemployment, since more people want to work than can find jobs at teh minimum wage d. Answers a, b, c, are all correct

c

Disinflation in an economy, which has grown to expect inflation, is a. easy to achieve and does not affect actual output b. difficult to accomplish and invariably results in an increase in the natural rate of unemployment and lower level of aggregate output c. possible only if policymakers are willing to accept higher rates of unemployment and a lower level of aggregate output d. Answers a and c are both correct e. Answers b and c are both correct

c

In a period of unexpected deflation, a. borrowers find that it is easier for them to make their loan payments, since prices are falling b. lenders benefit, since there are more people eager to borrow money during a perido of deflation c. lenders benefit, since they are repaid dollars with greater real value than they anticipated when signing the loan contract d. Answers A, B, and C are all correct

c

Job search refers to the time that workers spend looking for employment. Job search results in a. cyclical unemployment b. structural unemployment c. frictional unemployment d. both structural and frictional unemployment

c

Mary expects the inflation rate to be 5% , and she is willing to pay a real interest rate of 3%. Joe expects the inflation rate to be 5%, and he is willing to lend money if he receives a real interest rate of 3%. If the actual inflation rate is 6% and the loan contract specifies a nominal interest rate of 8%, then a. Jow is glad he lent out funds even though his real interest rate has fallen b. Joe is sorry he lent out funds even though his real interest rate is now 9% c. Mary is glad she borrowed the funds because her real interest rate has fallen d. Mary is sorry she borrowed funds since her real interest rate is now 9%

c

Suppose the demand for labor is given by the equation W= 15-(1/200)L and the supply of labor is given by the equation W=5+(1/200)L, where W is the wage rate and L is the quantity of labor. Suppose the government imposes a minimum wage of $12 in this market. What will be the effect of this minimum wage in this market? a. The minimum wage will not be binding since it is set below the equilibrium wage. b. The minimum wage will create a situation of excess demand for labor since it is a binding minimum wage c. The minimum wage will create a situation of excess supply of labor since it is a binding minimum wage d. This minimum wage will benefit all workers in this labor market

c

Suppose the demand for labor is given by the equation W= 15-(1/200)L and the supply of labor is given by the equation W=5+(1/200)L, where W is the wage rate and L is the quantity of labor. What is the equilibrium wage and quantity of labor in this market? a. The equilibrium wage is $15 while the equilibrium quantity of labor is 200 workers. b. The equilibrium wage is $5 while the equilibrium quantity of labor is 100 workers. c. The equilibrium wage is $10 while the equilibrium quantity of labor is 1000 workers. d. The equilibrium wage is $10 while the equilibrium quantity of labor is 200 workers.

c

Utopia has recently experienced a high rate of inflation and proposes changing its currency from the Utopian dollar to the Utopian mark at an exhange rate of 5.0 Utopian dollars per Utopian mark. Suppose Joe currently has a debt of 100,000 Utopian dollars. Which of the following statements is true? a. The switch to Utopian marks will make Joe better off since the Utopian mark is replacing the Utopian dollar, whose purchasing power has fallen due to the presence fo inflation in Utopia b. The swithc to Utopian marks will reduce the real value of Joe's debt c. Joe's debt will now equal 20,000 Utopian marks d. Joe's debt will now equal 500,000 Utopian marks

c

Which of the following statements is true a. Strong labor unions and an effective minimum wage reduce the level of structural unemployment in an economy. b. Strong labor unions and an effective minimum wage benefit all workers equally c. Workers acting collectively through a union may find that they have more power than if they act individually d. Answers a, b, and c are all correct e. Answers b and c are both correct

c

Which of the following statements is true a. Structural unemployment refers to the unemployment that occurs when there are more employmers demnading labor than there are employees supplying labor b. Structural unemployment refers to a situation when the market wage rate is lower than the equilibrium wage rate. c. Structural unemployment occurs when there is a surplus of labor at the current wage rate d. When there is structural unemployment, frictional unemployment equals zero

c

Which of the following statements is true a. the natural rate of unemployment equals a country's unemployment rate during a recession b. The natural rate of unemployment equals a country's unemployment rate during an expansion c. The natural rate of unemployment is the sum of frictional and structural unemployment d. The natural rate of unemployment is the sum of frictional and cyclical unemployment

c

Which of the following statements is true? I. To be considered unemployed, one must simply not have a job. II. To be considered unemployed, one must not have a job and must also not be looking for a job. III. To be considered unemployed, one must not have a job and must also be looking for a job. a. Statement I is true b. Statement II is true c. Statement III is true d. Statements I, II, and III are true

c

Which of the following statements is true? a. Most contracts that extend over a period fo time are expresssed in real terms so that borrowers and lenders can fully uderstand the consequences of their economic agreement b. The nominal interest rate is equal to the real interest rate minus the inflation rate c. When the actual inflation rate equals the anticipated inflation rate, borrowers are better off d. Anticipate inflation can inflict real cost on the economy

d

Job creation and job destruction are a. a natural occurrence in a labor market b. only a problem during an economic expansion c. a primary reason for why there is unemployment even when the economy is at full employment d. Answers A, B, and C are all correct e. Answers A, and C are correct

e

The natural rate of unemployment is a. equal to 0% in every economy, since this is the level of unemployment that every economy should naturally want to achieve b. the sum of frictional and cyclical unemployment c. equal to cyclical unemployment when the economy is producing at the full employment level of aggregate output d. Answers b and c are correct e. None of the answers is correct

e

Which of the following statements is true? I. The two principal goals of macroeconomic policy are price stability and low frictional unemployment II. The primary goals fo macroeconomic policy are price stability and low employment III. In order to achieve the tow primary goals of macroeconomic policy or price stability and low unemployment, it is necessary for policymakers to reduce the level of frictional unemployment a. Statements I, II, and III are true b. Statements I and II are true c. Statements II and III are true d. Statements I is true e. Statements II is true f. Statments III is true

e

Efficiency wages a. are wages negotiated by unions b. are always less than the minimum wage c. are wages paid by employers that exceed the equilibrium wage rate and that are offered as an incentive for better performance d. are a meant for employers to reatain employees while providing incentives for greater work effort. e. Answers b, c, and d are all correct f. Answers c and d are both correct

f

In order to be binding, a minimum wage must be a. equal to or less than the equilibrium wage rate b. greater than the equilibrium wage rate c. set so that there is a persistent surplus in the labor market d. set so that there is a persistent shortage in the labor market e. Answers a and d are both correct f. Answers b and c are both correct

f

The natural rate of unemployment a. is constant and does not change over time b. changes when there are changes in labor force characteristics c. may change due to changes in labor market institutions like unions, temporary employment agencies, and technological change d. increases with increases in the minimum wage level e. Answers a, b, c, and d are all correct f. Answers b, c, and d are correct g. Answers b and d are correct

f

Which of the following statements is true? I. An employer can encourage its workers to work hard by paying an efficiency wage II. An efficiency wage is equal to the market wage rate III. When many firms pay efficiency wages, this creates structural unemployment a. Statement I is true b. Statement II is true c. Statement III is true d. Statements I and II are true e. Statement II and III are true f. Statements I and III are true g. Statements I, II and III are true

f