WEEK 5-6 QUIZ !!! ??? !!!
After learning about inflation and some of its history, what would be the inflation target that is most advisable for an economy?
1-2%
________ is the idea that only the most efficient workers will depart in response to a wage cut.
Adverse selection of wage cuts
The natural rate of unemployment in the country of Cigan is 4.3% based off of its Department of Economic Statistics on unemployment. This year Cigan's economy began to improve dramatically and the actual unemployment rate decreased to 3.2%. What is the likely outcome for the economy of Cigan, assuming the unemployment percentages are accurate?
Cigan's growing economy will slow until real GDP is equal to potential real GDP and the unemployment rate equals 4.3%.
Which of the price indices below measures the cost of a basket of goods comprising of all the components of GDP?
Consumer Price Index (wrong)
________ is the idea that firms will get the most for their money when they pay wages higher than the equilibrium wage.
Equilibrium-wage theory
Which of the following describes inflation?
It is a permanent or semi-permanent increase in the cost of a given basket of goods and services.
In the past 50 years the unemployment rate has reached below 5% on only a few occasions. When did some of these under 5% unemployment dips occur?
The early 1997-2000 and 1968-1970.
When the federal government calculates the cost of living they use the core inflation index instead of CPI, and use it to make policy decisions. What is one of the reasons to use the core inflation index as opposed to the CPI?
The fluctuations in food and energy prices can be temporary It is difficult to calculate food and energy prices. (wrong)
All else equal, how would decreasing unemployment insurance affect the natural rate of unemployment?
The natural rate of unemployment is likely to decrease.
What is the formula used to calculate the official unemployment rate?
The number of unemployed workers divided by the sum of employed and unemployed workers.
What does the unemployment rate measure?
The percentage of the labor force who do not have a job, but are looking for one.
For the definition of inflation, which of the following BEST fits?
The price of most goods and services increases by 6% over a 3 year period.
What is the relationship between real GDP and real potential GDP when the economy is at full employment?
The real GDP is equal to real potential GDP.
During the 1970s when inflation accelerated, middle-class Americans benefited primarily because
the value of their mortgage debts decreased in real terms.
Because it takes ________ to find jobs, frictional unemployment occurs because it is a world of imperfect information.
time
Cyclical unemployment is caused by the ________ for labor ________ during an economy moving from recession to expansion.
demand; shifting to the right
In the United States over the past several decades inflation has affected purchasing power. Which of the following BEST describes this effect?
$150 today has the same purchasing power as $20 in 1972.
Which of the following is a step in calculating a price index?
Selecting the kinds and quantities of goods and services to be included in the index.
Which of the following is included in the core inflation index calculation?
clothing prices
When prices do not respond quickly to bring forces of supply and forces of demand to the equilibrium point, they are called:
sticky prices.
One of the criticisms about the unemployment rate is that it considers discouraged workers to be out of the labor force and
under-reports the actual unemployment problem.
Given the table above, what is the price index for 2013, with 2012 as the base year having a price index of 100 (round your answer to the nearest whole number). ItemsQuantity in Basket2012 Price2013 PriceCoffee8$4.00$4.50Tea4$2.00$2.25Soda6$1.25$1.50
114
In the table below there are three years of a basket of retail goods. From this information calculate the price index of 1985 if the base year in 1980? (Round your answer to the nearest whole number.) GoodAmount198019851990Tomatoes25$0.15$0.25$0.55Milk5$1.50$2.23$2.95Eggs1$1.00$1.25$1.50
152
Of the following inflation rates, which is most likely to affect consumer behavior?
17%
If out of 125 people in the labor force, the number of employed workers is 100 and the number of unemployed workers is 25, then the unemployment rate is ________.
20%
In the fictional country of Dirian the economics statistics department has been busy calculating the price index for a basket of goods from 2013 to 2017. January 2013 is the standardized price index, at 100, for a basket of consumer goods in the country. The price index increased in 2014 to 104.7, in 2015 to 109.3, in 2016 to 113.1, and in 2017 it increased to 119.2. You have been called to the country to help establish the rate of inflation for those years. What are the inflation rates in Dirian for 2014, 2015, 2016, and 2017?
2014: 4.7%; 2015: 4.4%; 2016: 3.5%; 2017: 5.4%
The following table indicates the CPI for the country of Praton over the last four years. Using the information in the table, calculate the annual inflation rates. Which time frame had the lowest annual inflation rate? YearCPI2014100201510920161222017127
2016-2017
If the number of employed persons in a country equals 24 million, the number of unemployed persons equals 8 million, and the number of persons over age 16 in the population equals 40 million, the unemployment rate equals ________.
25%
There is a small fictitious island country, called Noil, floating in the south Pacific ocean. Many years ago there was an abundance of fish and the population grew rapidly. Now the adult population has reached a total of 35 thousand people. This year fishing and other jobs have been on the decline and now 1 thousand people are looking to find work. With an increasing elderly population 3 thousand are now retired. Noil does not have an army, but it does have a small coast guard of 432 citizens serving the country and patrolling the waters where needed. What is the country of Noil's unemployment rate?
3.2%
In 2005 the price index was calculated at 115.3 with 2000 as the base year. In 2006 the price index increased to 119.5. What was the inflation from 2005-2006?
3.6%
After a prolonged period of high inflation the government of Oceania decides to set a target of 0% inflation going forward. As the new assistant economic minister, you are tasked with critiquing this policy. Which criticism of the 0% inflation target is plausible yet controversial among economists?
A 0% inflation target could lead to deflation.
If the Consumer Price Index was 186.5 at the end of last year and 179.8 at the end of this year, the country experienced which of the following?
A deflation rate of 3.59 percent.
With the introduction of robotics to automotive manufacturing, there have been sweeping changes to the automotive assembly line, management and operations at plants. As an example, in a truck manufacturing plant, identify who would most likely be impacted by this technology change and suffer long term structural unemployment?
An assembly line worker with 10 years of screwing together truck panels and a high school diploma.
A contraction in the business cycle is likely to result in which form of unemployment increasing?
Cyclical
Henry has accepted a new position in the Federal government after working at ball bearing manufacturing plant. He has been put to the task to measure the economic growth as accurately as possible for the nation last year. What would Henry use in this instance to produce the most accurate growth analysis?
GDP Deflator
The Krisp Kracker company which makes unique kettle chips for restaurants, clubs, and events, has just lost a large client that made up 55% of its total revenue. Management finds it necessary to reduce staff or wages. This comes only three months after hiring 35 new people to support this big client. While there are rumors of wage reductions in the short run, the 100 employees who have been with the company for the past two years are grumbling that they are more valuable that the new hires which should be let go and the wages not reduced. The situation at Krisp Kracker illustrates which wage stickiness theory best?
Insider-outsider model
In the last few decades the electronics manufacturing sector has found it difficult to compete with electronics from foreign competitors. High labor costs is one of the main reasons economists cite for the lack of competitiveness in the electronics manufacturing industry. If there was modest inflation how could that help the electronics manufacturing industry compete?
It could allow real wages to downwardly adjust more easily.
Based on the following table comparing fictional international country unemployment rates, the country of Ulidia seems to have had fairly low unemployment rate throughout the years until 1985. Ulidia is however, a developing country. The Ministry of the Economy reports a 65% labor force participation rate and a 6% unemployment rate in 1985. Knowing it is a developing economy, why might the 6% rate be inaccurate? International Comparison of Unemployment RatesCountry1970197519801985Ulidia4%2.8%3.4%6.0%Agreriven7%6.0%5.7%4.5%Saede3%4.5%3.4%5.2%Galoiri5%7.0%5.5%2.5%
It is inaccurate because Ulidia has a large portion of the working-age population that participates in the informal economy of short-term work, bartering, or other subsistence activities.
While Japan has enjoyed a persistent low unemployment rate compared to other high-income countries, this may paint too rosy a picture of unemployment in Japan because
Japanese employers are reluctant to formally lay off workers even when there is little real work.
From the following examples, select the example illustrating frictional unemployment.
Justin works at an oil rig in Texas. He hears there are better jobs in North Dakota, so he quits his job and moves to North Dakota. It takes Justin three months to find a new job.
Which of the following is not an example of structural unemployment?
Loan officers losing jobs during the 2009 recession.
What is one of the reasons low inflation may actually assist labor markets adjust towards equilibrium?
Low inflation allows for the gradual downward adjustment of real wages.
Identify which of the following answers in real terms, are made less valuable by inflation?
Money or financial assets.
The fictional country of Yieng has had an influx of updated technology to its manufacturing plants and the medical field in the last three years. This has boosted the growth of the country's productivity by 75%, but this year the pace has significantly dropped off. Wages were at first slow to respond to the growth, but now have reached new heights. Now that productivity growth has stopped increasing, what do you expect to happen to the natural unemployment rate for this stimed growth period?
Natural rate of unemployment will increase because productivity has decreased, wages are high, and there is a gap between demand and labor supplied.
By the early 2000s, worker productivity growth spiked as more temporary workers were employed as they looked for more permanent work. How did this affect the natural unemployment rate?
Natural unemployment decreased as fewer workers were without jobs while looking for more permanent jobs.
Which of the following individuals would be included in the unemployment rate?
Sharon who has been looking for work this last month.
What does the US unemployment rate range normally return to as the long-run average?
Somewhere between 4% and 6%.
Which of the following is a commonly cited explanation for persistently high unemployment rates in Europe compared to the United States?
Stricter hiring and firing rules for employers.
In the early 2000s and flat screen TVs were introduced into the market. By the 2010s flat screens were flatter and less expensive. The technology changed quickly over just a few decades and improved consumers TV and entertainment experience. In regards to this technological improvement, how has the CPI calculation been biased?
The CPI has overstated the cost of living because of quality improvement bias.
If the economy was running with ideal conditions, inflation wouldn't be blurring the price signals. If prices and wages rise at a consistent 15% then people could shift their expectations. As an example, if the price of eggs increased by 15% and the price of the input chicken feed also rose by 15%, the sellers should know that the real price of eggs has not changed. The market equilibrium price and quantity has not changed. In the real world why does inflation actually result in shortages and surpluses?
The changes to prices are not smooth or synchronized.
What best explains the fluctuations in the unemployment rates over the past 50 years?
The cycles of economic recessions and expansions.
Why are cross-country comparisons of unemployment rates difficult?
There are non-traditional labor markets (i.e. barter, subsistence agriculture) in many developing countries.
A price index is
a measure of the average quantity of real goods and services produced. a weighted average price of some type of good or service (e.g. consumer prices). (-----) an inflation rate.
If you are looking at a country that has a relatively high proportion of workers ________, then the theory of frictional unemployment suggests that workers in this age group are the least likely to be unemployed for a significant period of time.
aged 25-54
Beth has been unemployed for two months from her accounting job. She has interviewed with a number of other firms, but has not received a job offer. Her debts are increasing and at this point she needs to find a job just to cover her expenses at least. She now begins to look for positions in places that pay lower wages that what she would like. What is Beth's experience called in economic terms?
cyclical unemployment
Calculations of the official unemployment rate exclude
discouraged workers, who are no longer looking for work.
In the labor market diagram, the supply (upward-sloping) curve represents ________.
firm supplying labor jobs
There are certain types of unemployment that exist at all times and determine the natural rate of unemployment. Which of the following types fit this description?
frictional unemployment and structural unemployment
A welder who quits his job and moves from Pittsburgh to Madison to try to get a better welding job is said to be ________.
frictionally unemployed.
The percentage change in the price level from one time period to the next, will be the ________.
inflation rate
Inflation increases uncertainty in the markets because:
it is more difficult to stay aware of how one product compares in cost to another.
If an economist is considering swiftly increasing technological changes in an economy, which of the following is MOST likely to contribute to the CPI problem of accurately measuring the cost of living changes?
new goods bias
Compared to developed countries, developing countries...
often lack reliable or regular unemployment statistics.
According to the U.S. Census Bureau data ________ have the lowest unemployment rate.
older caucasian women
Which is the smallest expenditure category in the U.S. CPI?
other goods and services
The Producer Price Index is based on prices paid for supplies and inputs by ________.
producers of goods and services
In measuring the changes in the cost of living there are shortcomings when using the CPI. Which of the following are CPI measurement shortcomings?
quality improvements
In a small country, the macroeconomy in its base year was a nominal GDP of $600m. In a later year, the general level of all prices was two and a half times as high, and nominal GDP reached $1500m. Between the base year and the later year:
real GDP grew by more than 100%. real GDP was unchanged. (wrong)
Women in Switzerland finally got the vote in 1971. As more and more women entered the workforce, Switzerland looked to the U.S. to see what kinds of changes this meant for the employment market and the unemployment rate. From these U.S. statistics, Switzerland learned that over time in the US as women entered the workforce in the late 20th century the long-run US unemployment rate
remained mostly unchanged.
Last year the country of Barboo had its prices increase by 200%. You work for the Barboo government as an economist and have been given the task to identify the sectors of Barboo's population that are most adversely affected by this inflation. Which of the following group is probably the worst affected by inflation?
retirees living on fixed pensions
If you were to look at the CPI calculations based from 1984-1986, what of the following goods would likely be left out of that CPI calculation?
smart phones
If the print media is taken over by the electronic media, thereby causing employees in the print media industry to be permanently laid off, ________ unemployment would increase.
structural
Which form of unemployment suggests workers need to seek education and training to update their skill sets?
structural
The redistribution of purchasing power due to unexpected inflation benefits which group of people?
students with fixed-rate educational loans
Over a number of years, the country of Zanzibar has experienced a halt in its technological growth and innovation, though prices have continued to rise. Which CPI bias problem is likely to persist in this scenario?
substitution bias