Chapter 9
Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?
# of unemplyed/ # in labor force *100
Suppose you were borrowing money to buy a car. Consider the following situations. Situation 1: Suppose the interest rate on your car loan is 16.00 percent and the inflation rate is 15.00 percent. Calculate the real interest rate. Situation 2: Suppose the interest rate on your car loan is 6.00 percent and the inflation rate is 3.00 percent. Calculate the real interest rate. Situation 1 will be ___ Situation 2 because the ___ is lower. Now suppose you are JPMorgan Chase, and you are making car loans. Which situation above would you now prefer?
1% 16-15 3% 6-3 better than; real interest rate situation 2
Consider the following values of the consumer price index for 1996, 1997, and 1998: The inflation rate for 1997 was equal to
2.5 percent.
Suppose an economy is given by the following: Population = 260 million Labor force = 118 million The number of people employed = 110.9 million The number of people unemployed = 7.1 million Given the information above, the unemployment rate is
6.0% # of ppl unemployed/ labor force*100
Which of the following is an example of a worker experiencing frictional unemployment?
A worker quits his job at the U.S. Post Office to find more interesting work.
Which of the following causes changes in the CPI to overstate the true inflation rate?
All of the above
Even perfectly anticipated inflation imposes costs. Why?
All of the above.
When the economy is at full employment,
All of the above.
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
All of the above.
In April 2019, the working-age population of the United States was 258.7 million. The working-age population is divided into those in the labor force (162.5 million) and those not in the labor force (96.2 million). The labor force is divided into the employed (156.6 million) and the unemployed (5.8 million). Those not in the labor force are divided into those not available for work (91.3 million) and those available for work (4.9 million). Finally, those available for work but not in the labor force are divided into discouraged workers (0.5 million) and those currently not working for other reasons (4.4 million). Use this data to help determine which one of the following statements is true:
Both A and B above are true.
What can be said about real average hourly earnings and nominal average hourly earnings between 2008 and 2010?
Both real and nominal average hourly earnings increased.
According to Costco's CEO, Jim Sinegal: "Paying good wages and keeping your people working for you is good business...Imagine that you have 120,000 loyal ambassadors out there who are constantly saying good things about Costco. It has to be a significant advantage for you." Sources: Alan B. Goldberg and Bill Ritter, "Costco CEO Finds Pro-Worker Means Profitability," ABCnews.com, Aug. 2, 2006; Lori Montgomery, "Maverick CEO Joins Push to Increase Minimum Wage," Washington Post, Jan. 30, 2007. What is Costco's CEO referring to?
Efficiency wages
If income rises more slowly than the rate of inflation, purchasing power will rise.
False
Suppose John Q. Worker is currently unemployed. Each day, John Q. Worker spends the entire day searching available job openings for an appropriate position given his set of skills, abilities, and interests. If someone asks John Q. what he does for work, he tells them that he is currently "in-between jobs." Which of the following best classifies John Q.'s unemployment status?
Frictionally unemployed
How does the U.S. economy create and destroy millions of jobs each year? (Mark all that apply.)
In the market system, new firms are constantly entering and exiting various industries. Some businesses are expanding, while others are contracting.
The government of a country is considering increasing the minimum hourly wages by 10 percent. Economists argue that this is going to have a negative effect on employment in the long term. Which of the following, if true, would strengthen the argument for increasing minimum wages?
Increases in the minimum wage are observed to reduce employee turnover.
The BLS uses the establishment survey to collect information on employment in the economy. Indicate one drawback of the establishment survey compared to the current population survey and indicate one advantage.
It is based on company payroll and not on unverifiable answers. It does not include information about self-employed people.
Suppose the fixed interest rate on a loan is 5.75% and the rate of inflation is expected to be 4.25%. The real interest rate is 1.5%. Part 2 Suppose now that instead of 4.25%, the inflation rate unexpectedly reaches 5.5%. Who gains and who loses from this unanticipated inflation? (Mark all that apply.) Part 3
Lenders lose from a lower real interest rate. Borrowers gain from a lower real interest rate.
Albanda is an agrarian economy located in South Asia. Shen Chou and her friend Wang Tao are discussing the efficacy of the Consumer Price Index. Shen, who works with a nonprofit organization, says that the Consumer Price Index does not reflect the realities of consumption patterns of the average consumer. Wang, a policy planner, says that it must be accurate because it was updated only a year ago. Which of the following, if true, would strengthen Shen's argument?
Pensioners whose benefit payments are directly linked to the changes in CPI reported a decreased purchasing power compared to the previous year.
Which of the following can give an early warning of future increases in the price level?
Producer price index
What effect do labor unions have on the unemployment rate?
Since few non-government workers are unionized, there is no significant effect on the unemployment rate.
The working-age population in Concordia was estimated to be 6.5 million in a certain year. The country's labor department announced that the total number of unemployed people in the country had gone up to 460,000 during this year while, the total number of people out of the labor force decreased to 2,000,000. Oscar Lewis, a student of labor economics believes that the labor department data is flawed. Which of the following, if true, would strengthen the argument that the data understates unemployment?
Skilled workers who were forced to shift to part-time jobs because of an economic downturn are also considered employed.
Suppose that Sally J. Society recently lost her job as an underwater welder. In looking for a new job, she discovers that the only available jobs are for economists and that there are no openings for underwater welders because the trade is now obsolete. If Sally J. Society decides to return to school to earn an Economics degree, what is the best classification of her unemployment status?
Structurally unemployed
The central bank of the country Iberia recently announced a reduction in the interest rate by 150 basis points. Following this announcement, Matthew Boulder, who is interested in buying a house, expects the real interest rates also to fall. However, he notices that the real interest rate in the economy has actually increased. Which of the following is most likely to explain this outcome?
The Iberian economy is going through a period of deflation.
is the percentage of the working-age population in the labor force. Population = 292 million Working-age population = 168 million Labor force = 111 million The number of people employed = 103 million The number of people unemployed = 8 million
The labor force participation rate for this economy is 66.166.1%. Labor force/Working-age population
The natural rate of unemployment is When the economy is at full employment, unemployment is equal to
The natural rate of unemployment is the natural rate of unemployment.
John Smith, a factory worker at an automobile plant in the city Detrigan, makes $25 per hour. His dad, Larry Smith who retired from a plant in the same city ten years back, was earning an average of $10 per hour at the time of retirement. Looking at the CPI, John concludes that a factory worker's purchasing power is lower now compared to ten years ago. Larry, however, does not agree that purchasing power has fallen. According to him, this conclusion cannot be drawn from such limited data. Which of the following, if true, would weaken Larry's claim that the purchasing power of an average factory worker has not fallen?
The total number of hours worked by an average factory worker has fallen over the years.
The economy of Cassiopeia revolves around tourism. Statistics reveal that the unemployment rates for the months of January through March are significantly higher than the other months of the year. Which of the following, if true, can explain this?
The unemployment data is not seasonally adjusted.
How do unemployment insurance payments in the United States and social insurance programs in other countries increase the unemployment rate?
They decrease the opportunity cost of job search.
Indicate whether the following statement is true or false and why. "A wage rising slower than the rate of inflation is actually falling."
True. If wages are increasing slower than the average price of goods and services, purchasing power falls.
What advice for finding a job would you give someone who lost his or her job because of machine learning? According to the BLS, in what category of unemployment would that person belong? If someone lost his or her job because of machine learning, that person would be considered
You should tell the worker that he or she needs to learn new skills or move to another city to find a job. structurally unemployed.
Suppose that you are available to go to work but have not looked for a job for at least the last four weeks because you believe that there aren't any jobs available. You would be counted as Which of the following is the correct formula for calculating the unemployment rate?
a discouraged worker. # of unemployed/ labor force * 100
Consider the effect of each of the following on the unemployment rate: a. The minimum wage law b. The effect of labor unions on overall unemployment is ___ since only a ___ percentage of the labor force outside the government is unionized. c. An efficiency wage
a. has only a small effect on the unemployment rate since only a small part of the labor force earns the minimum wage. b. small, small c. increases the unemployment rate since firms pay a higher-than-market wage that increases the quantity of labor supplied.
The short-term unemployment that arises from the process of matching workers with jobs is called
frictional unemployment.
Increases in the minimum wage will The unemployment rate in the United States is usually ________ than the unemployment rates in most other high-income countries, partly because the United States has _________ requirements for the unemployed to receive government payments.
increase unemployment among teenagers. lower; more stringent
Suppose that Apple and the investors buying the firm's bonds both expect a 2 percent inflation rate for the year. Further, suppose the nominal interest rate on bonds is 6 percent and the expected real interest rate is 4 percent. Now suppose that a year after the investors purchase the bonds, the inflation rate turns out to be 3 percent, rather than the 2 percent that had been expected. In this situation, investors ___ and borrowers ___
lose; win
When compared to the Great Depression, the typical length of unemployment in the modern (post-Great Depression-era) U.S. economy is
relatively brief.
The unemployment rate
shows the percentage of the labor force that is considered unemployed.
Computation of the CPI assumes that households buy the same market basket of products each month. For this reason, which one of the following factors is not relevant in calculating the CPI?
the quantities of the products households purchase in the current year
If the CPI was 207 in 2009 and 225 in 2013, what wage would someone who earned a $50,000 income in 2009 have to earn in 2013 in order to keep her purchasing power constant?
$54,348
Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104?
$70,288
What is the real average hourly wage in 2009?
$8.21
The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010. The real average hourly earnings for 1965 in 1982-1984 dollars equal
$8.28.
If the inflation rate is 6 percent and the nominal interest rate is 4 percent, then the real interest rate is The real interest rate equals
-2 percent, which is the nominal interest rate minus the inflation rate. the nominal interest rate minus the inflation rate.
If a 3-month Treasury bill pays 5.5% and the change in the consumer price index (CPI) is 4.7%, what is the real interest rate (the true return to lending)?
0.8%
If the nominal interest rate is 6% and the inflation rate is 2%, then the real interest rate is
4%.
The three types of unemployment are The type of unemployment most likely to result in hardship for the people who are unemployed is
frictional, structural, and cyclical unemploment. structural because this type of unemployment requires retraining to acquire new job skills.
Of the eight categories in the CPI market basket, which three categories make up more than 75 percent of the basket?
housing, transportation, and food
An increase in unemployment insurance payments would, in effect, ________ the amount of time spent searching for a job, which would increase ________ unemployment.
increase; frictional
