Macro Chapter 9

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 formula that the Bureau of Labor Statistics use to calculate the unemployment rate?

(Number of unemployed/Number in labor force) x100

If a 3-month Treasury bill pays 5.5% and the change in consumer price index (CPI) is 4.7%, what is the real interest rate (the true return to lending)?

0.8%

When the economy is at full employment... a. the unemployment rate is greater than zero b. all remaining unemployment is either frictional or structural c. the natural rate of unemployment prevails d. all of the above

D. all of the above

According to Costco's CEO, Jim Sinegal: "Paying good wages and keeping your people working for you is good business...Imagine 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." What is Costco's CEO referring to?

Efficiency Wages

Suppose John Q. Worker is currently unemployed. Each day, John spends the entire day searching available job openings for an appropriate position given his set of skills, abilities, and interests. If someone asks John was he does for work, he tells them that he is currently "In-between jobs." What classifies John's unemployment status?

Frictionally unemployed

How does the US economy create and destroy millions of jobs each year?

In the market system, new firms are constantly exiting various industries. & some businesses are expanding, while others are contracting.

Which of the following causes changes in the CPI to overstate the true inflation rate?

Increase in quality bias New product bias Substitution bias

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 does not account for inaccurate responses to the current population survey. Discouraged workers are not considered unemployed. It fails to account for illegal activities. Underemployed people are considered employed.

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 and indicate one advantage.

It does not include inofrmation about self-employed people. It is based on company payroll and not on unverifiable answers

When compared to the Great Depression, the typical length of unemployment in the modern (post-Great Depression-era) US economy is ....

Relatively brief

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.

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 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

How do unemployment insurance payments in the US and social insurance programs in other countries increase the unemployment rate?

They decrease the opportunity cost of job search

Which of the following can give an early warning of future increases in the price level? a. GDP deflator b. producer price index c. consumer price index d. all of the above

b. producer price index

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 1.5%. Suppose now that instead of that 4.25%, the inflation rate unexpectedly reaches 5.5%. Who gains and who loses from this unanticipated inflation?

Lenders lose from a lower real interest rate. Borrowers gain from a lower real interest rate.

Even perfectly anticipated inflation imposes costs. Why?

Menu costs. Some wages will fail to keep up with anticipated inflation. Paper money loses its purchasing power by the rate of inflation.

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 good and services, purchasing power falls.