Econ 201 ; Chpt. 11, 12 ,13 Homeworks for Final Exam

employment rate formula

# of employed/labor force x 100

What increases in the unemployment rate

- increases in the minimum wage and unions' influence

Which of the following statements is true regarding the neutrality of money with respect to the quantity theory of money? Check all that apply.

- the growth rate of the money supply can affect the growth rate of prices (i.e. inflation) in the long-run - the growth rate of the money supply can affect the growth rate of real GDP, but only in the short run

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.

The equation of exchange, M×V=P×QM×V=P×Q, relates to the quantity theory of money. In this equation, M represents the supply of money, V represents the velocity of money, P represents the price level, and Q is real output. Which of the statements describes an implication of this equation in the long run?

Changes in the money supply (ΔM)(ΔM) will balance out with changes in prices (ΔP)(ΔP) .

Changes to both the money supply and the velocity of money induce changes in aggregate demand. However, the long-run impacts of changes in these variables are different. How are the effects of an increase in the velocity of money and the effects of an increase in the money supply different?

Changes in the money supply can lead to permanent changes in aggregate demand, but changes in the velocity of money tend to have temporary changes in aggregate demand.

Suppose that the economy enters into a recession and that, as a result, Rusty Z. Wrench loses his job as a delivery truck mechanic and remains unemployed. When the economy recovers, Rusty's previous employer rehires him. What is the best classification for his time as an unemployed truck mechanic?

Cyclically unemployed

Sarah quit her job because she felt she could easily find a better one. Sarah would be classified as __________________.

Frictionally unemployed

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.?

Frictionally unemployed

In the long-run, as workers and firms adjust their inflation expectations in response to this increase in the money supply, the ___________ curve will shift to the _________ to return the economy to its Solow growth rate.

SRAS; left (i.e. inward)

Billy Bob lost his or her job because of automation and machine learning. He would be considered __________________.

Structurally unemployed

The president of a manufacturing firm that makes precision tools in California's Silicon Valley was quoted in an article in the Wall Street Journal as saying that "production workers...are scarce," and that "many applicants lack even the most rudimentary skills." He added that: "I would say in this valley, people looking for jobs are unemployed for a reason." Source: Jeffrey Sparshott, "Skilled Workers are Scarce in Tight Labor Market," Wall Street Journal , February 2, 2017. Are these applicants likely to be cyclically, frictionally, or structurally unemployed, and what would be the reason that most of them are unemployed? Briefly explain.

Structurally unemployed, because these applicants lack the skills required for the available jobs

Which answer best explains why prices of some popular goods have fallen over time?

Technological advances have reduced production costs.

Which of the following statements highlights the difference between the CPI (consumer price index) and GDP deflator?

The CPI measures the average prices of goods and services consumed by typical consumers, whereas the GDP deflator measures the average prices of a broader basket (all finished goods & services produced in an economy)

Which of the following is a challenge that the Bureau of Labor Statistics (BLS) faces when calculating the CPI?

The basket of goods & services the average consumer buys is constantly changing due to new and better quality goods

What are the costs and benefits to the U.S. economy of paying unemployment benefits for only a few months compared with paying benefits for a longer period, as Canada and countries in Western Europe do?

The benefit is that it increases the incentive for workers to find a job more quickly; however, workers may be forced to take jobs for which their skills are not well suited

Use the graph to help determine which of the following statements regarding the labor force participation rates of adult men and women since 1950 is FALSE.

The labor force participation rates of adult men and adult women were equal in 1990

Which statement is true?

The nominal interest rate is typically greater than the real interest rate due to inflation.

Are the costs and benefits different during an economic expansion than during an economic recession? Briefly explain.

Yes, if unemployment insurance payments are available for only a short time during a recession, workers are likely to suffer large drops in income and the economy would suffer the results of the decrease in consumption spending

Which of the following is an example of money illusion, assuming that inflation is 5%?

You receive a 5% raise at your part-time job and start spending extra money on entertainment every weekend.

not in the labor force

a person who is not looking for work because he or she does not want a job or has given up looking

Unemployed people

actively looking for work but aren't currently employed

If wages and other input prices are not as flexible as output prices in the AD-AS model, an increase in money growth (like what the Fed did in what many consider an overly-aggressive response to the COVID pandemic) will lead to:

an increase in inflation and in the profits of firms in the short-run.

What is inflation?

an increase in the overall price level

Employed people

are currently holding a job in the economy, either full time or part time.

Even if they don't find a job right away, people entering the job market after graduating from high school or college will

be counted as part of the labor force by the BLS if they are actively looking for work

A dramatic decline in the average price of houses will

decrease AD

If you earned $10 an hour in 2005 when the CPI was 100, and you earn $11 an hour today when the CPI is 120, then your real wage rate has _____ since 2005.

decreased

What decreases in the unemployment rate

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

The natural rate of unemployment equals

frictional unemployment plus structural unemployment.

Unemployment rates in Europe tend to be ____________ in Europe than the U.S. This is, in part, because many E.U. nations have _____________ employment doctrines that make it more difficult to fire workers.

higher; just cause

A dramatic improvement in the stock market, causing investors' wealth to rise, will

increase AD

The aggregate demand curve shows all the combinations of _____ and _____ that are consistent with a specified rate of _____.

inflation; real GDP growth; spending growth

Karen, a retired school teacher, who relies on her fixed pension to cover her expenses

loser - by unexpected inflation

The unemployment rate in the United States is usually ______ than the unemployment rates in Europe, partly because the United States has _______ requirements for the unemployed to receive government payments.

lower; more stringent

During an economic expansion, we would normally expect the employment-population ratio (the ratio of the number of employed workers to the total U.S. adult population) to increase as the unemployment rate falls because

more people are likely to be employed

An announcement by the central bank to maintain its existing monetary policy will

not change AD

The millions of workers leaving the job market for the reasons given are

not counted as unemployed in the BLS data because they are no longer actively looking for work

As a result of these problems in calculating the CPI, many economists argue that the CPI actually ____________ inflation by a little bit each year.

overstates

The minimum wage is an example of a ___________. The result is a ___________ of workers (i.e. unemployment).

price floor; surplus

Government policies that make it harder to fire workers and that offer more expansive unemployment benefits to unemployed workers tend to ____________ unemployment rates. Economists classify this policy-induced unemployment as a subcategory of _______________ unemployment.

raise; structural

Using a graph of the AD and LRAS curves, the Internet revolution of the 1990s caused:

real growth to increase and inflation to decrease

If the CPI was 100 in 2000 and 120 in 2010 and the price of a gallon of milk was $4.00 in 2000 and $4.80 in 2010, then in relative terms the real price of milk between 2000 and 2010:

remained the same.

The unemployment rate

shows the percentage of the labor force that is considered unemployed

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

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

Why do economists believe that setting a goal of zero percent unemployment is not feasible or desirable? Creating a goal of zero percent unemployment for an economy is not feasible nor is it desirable because

the economy needs some short-term unemployment in order to allow workers time to find the best job match for them

When the economy is at full employment, unemployment is equal to

the natural rate of unemployment

What is the velocity of money?

the rate at which money circulates through an economy

During the recovery from the 2007-2009 recession, the employment-population ratio did not increase as much as it might have been expected to because

the recovery was sluggish and employment did not rebound quickly, causing many workers to get discouraged and leave the labor force

What is true about this diagram ?

the unemployment rate is 3.6% and the labor force participation rate is 62.8%

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

true

Eliminating all frictional unemployment

will not be good for the economy since the presence of some frictional unemployment is entirely natural and healthy

The United States federal government, which had almost $15 trillion in debt in 2011

winner -- have been harmed

When Ségolène Royal was running unsuccessfully for president of France, she proposed that workers who lost their jobs would receive unemployment payments equal to 90 percent of their previous wages during their first year of unemployment. Source: Alessandra Galloni and David Gauthier-Villars, "France's Royal Introduces Platform Ahead of Election," Wall Street Journal , February 12, 2007, p. A.8. If this proposal were enacted, the unemployment rate in France

would have gone up since the benefits of being unemployed increased and the opportunity cost of being unemployed decreased