Macro Ch 9: Unemployment and Inflation
Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?
# of unemployed/number in labor force x 100
If the CPI was 207 in 2007 and 225 in 2011, what pay raise would someone who earned $50,000 in income in 2007 have to receive in order to keep her purchasing power constant in 2011?
$4,348 Inflation rate = [(CPI1 - CPI0) / CPI0] x 100 = [(225 - 207) / 207] x 100 = 8.696. You can then multiply $50,000 x .08696 = $4,348. Her new salary will need to be $54,348 in order to maintain the same level of purchasing power.
Total Population 20,000 Working-Age Population 15,000 Employment 1,000 Unemployment 100 The unemployment rate for this simple economy equals
100/1,100 x 100
Even perfectly anticipated inflation imposes costs. Why?
Menu costs. Paper money loses its purchasing power by the rate of inflation. Some wages will fail to keep up with anticipated inflation. *All of the above.*
Suppose you are available for work but have not looked for a job for at least the last four weeks because you believe that no jobs are available. You would then be counted as __________.
a discouraged worker
At full employment, __________.
cyclical unemployment is zero
Unemployment arising from a persistent mismatch between the skills and characteristics of workers and job requirements is called __________.
structural unemployment
Suppose the CPI in 2008 was 215.3 and the CPI in 2009 was 214.6, what was the inflation rate between 2008 and 2009?
-0.3 percent Inflation rate = [(CPI1 - CPI0) / CPI0] x 100 = [(214.6 - 215.3) / 215.3] x 100 = -0.325 or -0.3%.
To obtain prices of a representative group of goods and services, the Bureau of Labor Statistics (BLS) conducts a monthly survey of __________ households nationwide on their spending habits. The results of this survey are used to construct a market basket of __________ types of goods and services purchased by the typical urban family of four.
14,000; 211
Which of these persons is officially unemployed?
A non-working individual who has looked for a job in the past week
As of April 2017, which of the following demographic groups has the highest unemployment rate?
African Americans
When the economy is at full employment, which types of unemployment remain?
Frictional and structural
Of the eight categories in the CPI market basket, which three categories make up more than 75% of the basket?
Housing, transportation, and food
Which of these statements about interest rates and inflation is true?
If there is zero inflation, the nominal interest rate is equal to the real interest rate.
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 does not include information about self-employed people. Your answer is correct. It is based on company payroll and not on unverifiable answers.
Which of the following can give an early warning of future increases in the price level?
Producer price index
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
Which of the following causes changes in the CPI to overstate the true inflation rate?
Substitution bias Increase in quality bias New product bias *All of the above*
Complete the following table: Base Year 2014 2016 Product Quantity Price Expenditures Price Expenditures Price Expenditures Denim Jeans 1 $60 $60 $120 $120 $95 $95 Pizzas 20 12 240 18 360 16 320 Coffee Drinks 20 5 100 5 100 6 120 Total $ 400 $ 580 $ 535
The CPI in 2014 equals 145. (Enter your response rounded to two decimal places.) The CPI in 2016 equals 133.75. (Enter your response rounded to two decimal places.)
Which market basket specifically targets intermediate goods?
The basket used by the producer price index
Which of these groups is included in the labor force?
The unemployed
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.
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
Underemployed people are considered employed. It fails to account for illegal activities. Discouraged workers are not considered unemployed. It does not account for inaccurate responses to the Current Population Survey. *All of the above.*
The short-term unemployment that arises from workers, in the process of changing jobs, is called __________.
frictional unemployment
The "normal or natural" underlying level of unemployment in the economy is the __________.
full employment rate of unemployment
If the inflation rate is anticipated, __________.
inflation may not be a major problem
Economic variables that are calculated in current year prices are referred to as __________ variables, while variables that have been corrected to account for the effects of inflation are __________ variables.
nominal, real
Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?
number of unemployed/number in labor force x 100
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 natural rate of unemployment is the __________.
unemployment rate that results when the economy produces the potential level of real GDP
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%
Year Nominal Average Hourly Earnings CPI 2008 $16.00 202 2009 $17.00 207 2010 $18.00 209 What is the real average hourly wage in 2009? What can be said about real average hourly earnings and nominal average hourly earnings between 2008 and 2010?
$8.21 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."
Efficiency wages
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
The true cost of borrowing and lending is best measured by
the real interest rate.
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
Consider the following table: Year Nominal Average Hourly Earnings CPI 2008 $16.00 202 2009 $17.00 207 2010 $18.00 209 What is the real average hourly wage in 2009? What can be said about real average hourly earnings and nominal average hourly earnings between 2008 and 2010?
$8.21;Both real and nominal average hourly earnings increased.
What effect do labor unions LOADING... have on the unemployment rate?
Since few non-government workers are unionized, there is no significant effect on the unemployment rate.
When the economy is at full employment,
the unemployment rate is greater than zero. The natural rate of unemployment prevails. all remaining unemployment is either frictional or structural. *All of the above.*
Which of these demographic groups typically suffers from higher unemployment rates?
African Americans
Unanticipated deflation __________.
hurts net debtors
The Bureau of Labor Statistics would categorize a person as _________ if they were temporarily away from their job because they were ill.
employed
The labor force equals the number of people
employed plus unemployed.
If inflation is anticipated, __________.
it costs less to society than if unanticipated
The consumer price index __________.
measures the cost of an unchanging basket of goods and services
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%. 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.)
Lenders lose from a lower real interest rate. Borrowers gain from a lower real interest rate
How does the U.S. economy create and destroy millions of jobs each year? (Mark all that apply.)
Some businesses are expanding, while others are contracting. Your answer is correct. In the market system, new firms are constantly entering and exiting various industries.
In April 2017, the working-age population of the United States was 254.6 million. The working-age population is divided into those in the labor force (160.2 million) and those not in the labor force (94.4 million). The labor force is divided into the employed (153.2 million) and the unemployed (7.1 million). Those not in the labor force are divided into those not available for work (88.7 million) and those available for work (5.7 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 (5.2 million). Use this data to help determine which one of the following statements is true:
The unemployment rate is 7.1 million (unemployed)/ 160.2 million (labor force) X 100 = 4.4 % The labor force participation rate is 160.2 million (labor force) /254.6 million(working age pop) X 100=62.9 % Both are true
The producer price index tracks the prices firms receive for goods and services at:
all stages of production
In general, __________ have much lower unemployment rates than other individuals with other levels of education.
college graduates
In calculating the CPI, the __________.
market basket does not include large equipment purchased by firms
When the economy is at full employment,
the unemployment rate is greater than zero. the natural rate of unemployment prevails. all remaining unemployment is either frictional or structural. All of the above.