((Chapter 7)) Unemployment and Inflation, Macro Homework, Econ Ch.9
most common measure of inflation
% change of the consumer price index
find real variable or (earnings)
(100/year trying to find) x earned salary for that year
costs of anticipated inflation
-changes in distribution of income -"menu costs" of inflation (changing prices) -lenders and borrowers expect high inflation in the future then nominal interest rates will rise -raise taxes -inefficient allocation of resources -increases average level of prices
problems causing measured unemployment to understate actual joblessness
-discouraged workers: not counted in LF -part-time workers: underemployed
jobs destroyed
-firms go out of business -contraction of existing firms
economy in good shape
-jobs eliminated number is high -jobs created number is also high
economy is at full employment
-natural rate of unemployment prevails -unemployment rate is great than zero -all remaining unemployment is either frictional or structural
job created
-new firms -expansions of existing
problems causing measured unemployment to overstate actual joblessness
-people who falsely claim to be "actively looking" for work -people employed in illegal industries often report themselves as unemployed
problems measuring cost of living changes (CPI)
-substitution bias -increases in quality bias -new product bias -outlet bias
The normal underlying level of unemployment in the economy is
All of the above
Frictionally unemployed =
Between jobs and searching for new jobs
The price index which is used to measure changes in the cost of living is the
Consumer Price Index (CPI)
Ten years from now
Frank will have a higher real incomes although he has a lower nominal income.....
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
It fails to account for illegal activities, it does not account for inaccurate responses to the Current Population Survey. Discouraged workers are not considered unemployed. Underemployed people are considered employed.
Between December 2001 and January 2002, the total number of people employed and the unemployment rate both fell. How is this possible?
It is possible if labor force participation rates also fall.
Percentage of working-age population
Labor Force/Working-age population X 100
Labor Force Participation Rate
Labor force / Working-Age Population x 100 The percentage of the working-age population in the labor force.
Which one of the following choices shows how data nominal wages for 2007 to 2013 and data on the consumer price index for the same years can be used to calculate the real wage for these years?
Nominal Wages / Price Index x 100 = Real Wages
Unemployment Rate Formula
Number of Unemployed / Labor Force x 100
Unemployment Rate =
Number of Unemployed/Labor Force X 100
Real income is defined as the following
Real Income=Nominal Income/CPI(current year X 100
How does the US economy create and destroy millions of jobs each year
Some businesses are expanding, while others are contracting. In the market system, new firms are constantly entering and exiting various industries.
Natural rate of unemployment is
Structural unemployment+Frictional unemployment
Experts in hand-drawn animation who remain unemployed due to the film industry's switch to computer-generated animations are considered to be..
Structurally unemployed
If inflation is unexpectedly high, borrowers will benefit and lenders will be harmed
TRUE
Which of the following steps has not been taken by the BLS to reduce the size of the bias in the CPT
The BLS has expanded the number of stores from which it collects the price information to reduce the coverage bias
Relative to the household survey, which of the following is a strength of the establishment survey?
The establishment survey is determined by actual payrolls, rather than by the unverified answers of the household survey
Which one of the following depicts an accurate description of the household survey and the establishment survey?
The household survey interviews households and measures the unemployment rate whereas the establishment survey interviews businesses and measures the employment rate
Computation of the CPI does not include
The quantities of the products households purchase in the current year
Which of the following is not one of the conditions someone needs to meet to be counted as unemployed
They had worked only one hour per week during the previous four weeks
Which of the following is NOT one of the conditions someone needs to meet to be counted as unemployed?
They had worked only one hour per week during the previous four weeks.
real interest rate provides
a better measure of the true cost of borrowing and the true return from lending than does the nominal interest rate
Suppose that the inflation rate turns out to be much lower than most people expected..
a borrower will lose from the situation while a lender will gain
deflation
a decline in the price level -negative inflation rate
consumer price index
a measure of the average change over time in the prices a typical urban family of four pays for the goods and services they purchase
unemployment will not be zero
bc of frictional and structural unemployment
inflation is higher than expected
borrower benefits and lender is harmed
inflation is lower than expected
borrower is harmed and lender benefits
outlet bias
consumers often shop at stores with cheaper prices than the stores visited in data collection
menu costs
costs to firms of changing prices
Which of the following is not considered one of the potential biases in calculation the consumer price index
coverage bias
Workers who lose their jobs because of a recession are experiencing
cyclical unemployment
When an unemployed person drops out of the labor force, it
does not affect the employment-population ratio
When an unemployed person drops out of the labor force, it
does not affect the employment-population ratio.
find salary with equivalent purchasing power as x year
earned salary (new year/ old year)
employment-population ratio
employment/ working-age population X 100 -measures the percentage of the working-age population that is employed
unemployment rate falls during
expansions
Since nominal incomes increase with inflation,
expected inflation does not affect the purchasing power of the average consumer
All of the following are problems caused by deflation except
firms make higher profits as consumers buy more goods and services
When the economy is at full employment, which types of unemployment remain?
frictional and structural
The short-term unemployment that arises from the process of matching workers with jobs is called
frictional unemployment
The three types of unemployment are
frictional, structural, and cyclical unemployment
The employment-population ratio provides the "best summary" of the state of the job market rather than the unemployment rate because it measures the fraction of the population that
has jobs
minimum wage laws
has only a small effect on the unemployment rate since only a small part of the labor force earns the minimum wage
-increase in cyclical unemployment -increase in frictional unemployment
increase in the unemployment rate
An efficiency wage
increases the unemployment rate since firms pay a higher-than-market wage that increases the quantity of labor supplied
efficiency wage
increases the unemployment rate since firms pay a higher-than-market wage that increases the quantity of labor supplied
establishment survey
interviews businesses and measures the employment rate -economists prefer this survey because it is determine by actual payroll records rather than unverified ansers
household survey
interviews households and measures the unemployment rate
all depends on the inflation rate
it is immpossible to know whether a particular nominal interest rate is "high" or "low" because
price level
measure of the average prices of goods and services in the economy
real interest rate can be
negative
new product bias
new products are not included immediately , prices of new products quickly drop
DO you agree with the reporters definition of deflation
no, deflation is defined as a negative inflation rate
real interest rate
nominal interest rate adjusted for inflation, nominal interest rate minus the inflation rate
economy is experiencing deflation
nominal interest rate will be lower than the real interest rate
The difference between a nominal variable and a real variable is that
nominal is calculated in the current year prices and real is measured in dollars in the base year
find how many workers are in the labor force
number of unemployed workers/ unemployment rate
find workers (employed) in labor force
number of unemployed workers/ unemployment rate
increase in quality bias
over time quality of most goods increases
Cyclically unemployed
part-time/seasonal
All of the following are problems in measuring the unemployment rate except that
people on active military service are included as unemployed
discouraged workers
people who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them
not in the labor force
people who dont have jobs and are not actively looking for a job or have looked at some point during the previous 12 months but have not looked during the previous 4 weeks
Inflation can affect the distribution of income because
people with incomes rising faster than the rate of inflation enjoy an increasing purchasing power, while people with incomes rising more slowly than the rate of inflation are hurt by a decreasing purchasing power.
inflation affects distribution income
people with incomes rising faster than the rate of inflation enjoy an increasing purchasing power, while people with incomes rising more slowly than the rate of inflation are hurt by decreasing purchasing power
The employment-population ratio measures the
percentage of the working age population that is employed
The employment-population ratio measures the
percentage of the working age population that is employed.
relationship between the price level and the inflation rate
positive rates of inflation imply the price level is rising
if CPI rises
purchasing power also rises
unemployment rate rises during
recessions
The Internet has _____ the size of menu costs.
reduced
unemployment rate
shows the percentage of the labor force that is considered unemployed
costs of unanticipated inflation
some people win and some loose money -can never determine an accurate inflation rate
nominal interest rate
stated interest rate on a loan
The type of unemployment most likely to result in hardship for the people who are unemployed is
structural because this type of unemployment requires retraining to acquire new jobs skills
Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called
structural unemployment
normal underlying level of unemployment
sum of frictional and structural unemployment
GDP deflator
the broadest measure we have of the price level bc it includes the price of every final good -measure of inflation is the % change of the ____
interest rate
the cost of borrowing funds, expressed as a percentage of the amount borrowed
Menu costs are
the costs to firms of changing prices
small, small
the effect of labor unions on overall is ___ since only a ___ percentage of the labor force outside the government is unionized
Many economists prefer
the establishment survey because it is determined by actual payroll records rather than unverified answers
The difference between the nominal interest rate and the real interest rate is
the nominal interest rate is stated interest rate whereas the real interest rate is the nominal interest rate minus the inflation rate.
If the economy is experiencing deflation,
the nominal interest rate will be lower than the real interest rate
If inflation is expected to increase
the nominal interest rate will increase
inflation rate
the percentage increase in the price level from one year to the next
labor force participation rate
the percentage of the working-age population in the labor force
natural rate of unemployment
the sum of structural unemployment and frictional unemployment, when the economy is at full employment -more stable overtime -"normal rate" of unemployment -"full employment" -level of unemployment we have when cyclical unemployment=0
CPI measures
too much inflation
frictional, structural, cyclical
types of unemployment
The type of inflation that is a greater problem to society is
unanticipated inflation, since it causes greater redistribution of income between thos making payments and those awaiting payments in the future
When there are part-time workers, the official BLS measure of the unemployment rate ___ the true degree of unemployment
understates
When an unemployed person drops out of the labor force, the unemployment rate
understates the true degree of joblessness in the economy
When an unemployed person drops out of the labor force, the unemployment rate
understates the true degree of joblessness in the economy.
cyclical unemployment
unemployment caused by the business cycle -rises and falls over the business cycle
structural unemployment
unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements of jobs -can cause long term unemployment as workers look for ways to gain new job skills
substitution bias
we buy less of a good when its price increases
it is possible if the labor force participation rate also falls
what happens when both total number of people employed decrease and the unemployment rate also decline
The extent of job creation and job destruction is
what we would expect in a vibrant market system
Nominal incomes generally increase with inflation because
when inflation is anticipated, average nominal incomes also increase by the same percentage as the rate of inflation
frictional unemployment
when they are between jobs and searching for new jobs, short-term unemployment that arises from the process of matching workers with jobs -a person who is in between jobs but actively engaged in a job search -more stable overtime -can occur even if the number of available jobs is equal to the number of available workers