Ch. 13: Unemployment and Inflation
Consumer Price Index
A measure of the average change over time in the prices a typical urban family of four pays for the good and services they purchase.
Price Level
A measure of the average prices of goods and services in the economy.
Efficiency Wage
An above-market wage that a firm pays to increase workers' productivity.
Producer price index
An average of the prices received by producers of goods and services at all stages of the production process.
African Americans
As of August 2015, which of the following demographic groups has the highest unemployment rate?
decrease
As output (GDP) is increasing, the amount of cyclical unemployment would
$8.21
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?
Employment-Population Ratio
Employment / Working-Age Population X 100 =
. Menu costs. Some wages will fail to keep up with anticipated inflation. Paper money loses its purchasing power by the rate of inflation.
Even perfectly anticipated inflation imposes costs. Why?
CPI
Expenditures in the current year / Expenditures in the base year X 100 =
Three Types of Unemployment
Frictional Unemployment, Structural Unemployment, Cyclical Unemployment
They decrease the opportunity cost of job search.
How do unemployment insurance payments in the United States and social insurance programs in other countries increase the unemployment rate?
Some businesses are expanding, while others are contracting. In the market system, new firms are constantly entering and exiting various industries.
How does the U.S. economy create and destroy millions of jobs each year? (Mark all that apply.)
0.8%
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)?
Employed
In government statistics, someone who currently has a job or who is temporarily away rom his or her job.
True. If wages are increasing slower than the average price of goods and services, purchasing power falls.
Indicate whether the following statement is true or false and why. "A wage rising slower than the rate of inflation is actually falling."
Labor Force Participation Rate
Labor Force / Working-Age population X 100 =
Unemployment Rate
Number of unemployed / Labor Force X 100 =
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.
Labor Force Participation Rate
Percentage of the working-age population in the labor force.
$3,260
Price indexes can be used to compare prices across different periods. Suppose that a year of tuition for college at public institutions averaged a cost of $1 comma 981 in 1989 and that the CPI index was 116 in 1989. If the CPI index was 212 in 2009, then the cost of tuition in 2009, as the result of inflation, would equal
Frictional Unemployment
Short term unemployment that arises from the process of matching workers with jobs.
It is decreasing for men and increasing for women.
Since 1948, which of the following best describes the trend in the labor force participation rate LOADING...?
Four Biases Cause Changes In The CPI
Substitution bias, Increase in quality bias, New product bias, Outlet Bias.
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.'s unemployment status?
3.9%
Suppose an economy has an inflation rate of 3.3% and a bank makes a loan with an interest rate of 7.2%. In this case, the real interest rate is
5.5%
Suppose an economy is given by the following: Population = 236 million Labor force = 162 million The number of people employed = 153.1 million The number of people unemployed = 8.9 million Given the information above, the unemployment rate is
More than
Suppose that the actual average cost of tuition in 2009 was $7 comma 128. Relative to the expected cost computed above, the cost of tuition increased by_____________________ the amount of inflation.
It is based on company payroll and not on unverifiable answers. It does not include information about self-employed people.
The BLS uses the establishment survey LOADING... 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.
Menu Cost
The costs to firms of changing prices
The unemployment rate of black adults is approximately twice that of white adults.
The figure on the right shows unemployment rates for demographic groups. The adult unemployment rates apply to persons aged 20 and over who are in the labor force. The teenage unemployment rates apply to persons aged 16 to 19 who are in the labor force. Note that people identified as Hispanic may be of any race. Source: U.S. Departmant of Labor, Employment Situation Summary, April 2007. Use the figure to determine which one of the following statements is true: A. The unemployment rate of black adults is approximately twice that of white adults. Your answer is correct.B. Teenagers have lower unemployment rates than adults. C. The unemployment rate of white teenagers is more than twice that of black teenagers. D. None of the above are true.
Natural rate of unemployment
The normal rate of unemployment, consisting of frictional unemployment and structural unemployment.
Nominal Interest Rate
The stated interest rate on a loan
Labor Force
The sum of employed and unemployed workers in the economy.
percentage of the labor force that is considered unemployed.
The unemployment rate show the
Cyclical Unemployment
Unemployment caused by a business cycle recession.
Structural Unemployment
Unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements of jobs.
Both real and nominal average hourly earnings increased.
What can be said about real average hourly earnings and nominal average hourly earnings between 2008 and 2010?
Since few non-government workers are unionized, there is no significant effect on the unemployment rate.
What effect do labor unions have on the unemployment rate?
Consumer Price Index
What index is used to measure the average prices paid by a typical family? An average of the prices of the goods and services purchased by a typical family is the:
will increase some but the impacts will be much larger for some groups of workers.
What is the relationship between the unemployment rate and enacting or increasing a minimum wage? When a minimum wage is enacted or increased across a country, the unemployment rate
Relatively brief
When compared to the Great Depression, the typical length of unemployment in the modern (post-Great Depression-era) U.S. economy is
all remaining unemployment is either frictional or structural. the natural rate of unemployment prevails. the unemployment rate is greater than zero.
When the economy is at full employment,
Number of unemployed / Number in the labor force X 100
Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?
Inflation causes the real wage to fall which means that firms have to pay more for workers.
Which of the following is not a cost created by high inflation?
Prices generally increase at the same rate across most periods of time.
Which of the following statements about prices and inflation is not correct?
the economy needs some short-term unemployment in order to allow for better matching of jobs with workers that possess the proper skill sets.
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
It fails to account for illegal activities. Underemployed people are considered employed. It does not account for inaccurate responses to the Current Population Survey. Discouraged workers are not considered unemployed.
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
$70,288
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?
Deflation
a decline in the price level
The Labor Force Participation Rate
is the percentage of the working-age population in the labor force.
Cyclical Unemployment
is unemployment caused by a recession.
The real interest rate
s equal to the nominal interest rate minus the inflation rate.
Real interest rate
the nominal interest rate minus inflation rate.
61.1%
Suppose an economy is given by: Population = 238 million Working-age population = 162 million Labor force = 99 million The number of people employed = 90 million The number of people unemployed = 9 million The labor force participation rate for this economy is
Inflation Rate
The percentage increase in the price level from one year to the next.
Efficiency Wages
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." Sources: Alan B. Goldberg and Bill Ritter, "Costco CEO Finds Pro-Worker Means Profitability," ABCnews.com, Aug. 2, 2006; Lori Montgomery, "Maverick CEO Joins Push to Increase Minimum Wage," Washington Post, Jan. 30, 2007. What is Costco's CEO referring to?
Unemployed
In government statistics, someone who is not currently at work but who is available for work and who has actively looked for work during the previous months.
Structurally unemployed
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?
3.7
Suppose the economy's consumer price index (CPI) in 2008 was 189 and the CPI in 2009 was 196. The inflation rate over the period from 2008-2009 was equal to
Unemployment Rate
The percentage of the labor force that is unemployed.
Cyclically Unemployed
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?
Lenders lose from a lower real interest rate. Borrowers gain from a lower real interest rate.
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.)
Producer price index
Which of the following can give an early warning of future increases in the price level?
New product bias Substitution bias Increase in quality bias
Which of the following causes changes in the CPI to overstate the true inflation rate?
housing, transportation, and food
The BLS surveys 30,000 households on their spending habits. The results are used to construct a market basket of goods and services purchased by the typical urban family of four. The chart on the right shows these goods and services grouped into eight broad categories for December 2014. The percentages represent the expenditure shares of the categories within the market basket. Which of the following categories make up about three-quarters of the market basket? The CPI Market Basket, December 2014 font size decreased by 2 Housing font size decreased by 2 42.2 % font size decreased by 2 Food and beverages font size decreased by 2 15.3 % font size decreased by 2 Other goods and services font size decreased by 2 3.4 % font size decreased by 2 Education and font size decreased by 2 communication font size decreased by 2 7.1 % font size decreased by 2 Recreation font size decreased by 2 5.8 % font size decreased by 2 Medical font size decreased by 2 care font size decreased by 2 7.7 % font size decreased by 2 Transportation font size decreased by 2 15.3 % font size decreased by 2 Apparel font size decreased by 2 3.3 % The image is a pie diagram that shows expenditure shares of different goods and services purchased by the typical urban family of four during December 2006. The goods and services purchased are grouped into 8 broad categories, namely, Food and beverages, Housing, Apparel, Transportation, Medical care, Recreation, Education and Communication, and other goods and services. The pie diagram shows that the expenditure shares of Food and beverages, Housing, Apparel, Transportation, Medical care, Recreation, Education and Communication, and Other goods and services are 15, 42.7, 3.7, 17.2, 6.3, 5.6, 6, 3.5 percent respectively. Source: Bureau of Labor Statistics
