Chapter 9 Old Exam Questions

suppose that the CPI measures the inflation rate as 4%. Which of the following is most likely to be the actual rate of inflation in the economy

3%

Suppose that 100 people that were officially classified as unemployed quit looking for work in order to go back to school full time. This change will cause

a decrease in the unemployment rate and a decrease in the labor force participation rate

Minimum wage laws cause unemployment because legal minimum wage is set

above the equilibrium wage causing the quantity of labor demanded to be less than the quantity of labor supplied

If inflation is completely anticipated

firms lose because they incur menu costs - Menu costs refer to an economic term used to describe the cost incurred by firms in order to change their prices

Establishing a state employment agency that speeds up the process of matching unemployed workers with unfilled jobs is an attempt to lower

frictional unemployment

Imagine two time periods for a given economy. During the first time period, bad times, the economy is depressed and unemployment high. The second time period, good times, the economy is thriving and unemployment is low. In which time period is the number of jobs eliminated likely the highest

good times

The CPI is used as a cost of living index to adjust the incomes of government workers. Given what we know about the biases in the CPI incomes that are adjusting using the CPI will typically

increase by more than the actual change in the cost of living

Unexpectedly high inflation rates causes which of the following

lenders receive a lower real interest rate than they expected

Which of the following is a cost of anticipated inflation

resources will be allocated inefficiently due to the ragged nature of price increases

In general economists believe that the measured unemployment rate _______________ the actual amount of joblessness in the economy

understates

An increase in cyclical unemployment will result in

An increase in the unemployment rate

Which of the following causes the unemployment rate to overstate the true extent of joblessness

A drug dealer reports herself as unemployed

Which of the following is an example of a worker experiencing cyclical unemployment?

A freightliner employee that got laid off because of the recession of 2001

If inflation is lower than expected then lenders will __________ and borrowers will _____________

Benefit; be harmed

Which of the following describes the accuracy of the consumer price index

Changes in the CPI overstate the true rate of inflation

In class we maintained that the biggest problem with inflation in the long run is that it means that the paychecks of typical people will have less buying power, and thus people become poorer in real terms

False

Suppose that the prices of dairy products have risen less that prices in general over the last several years. To which problem in the construction of the CPI is this most relevant

Substitution bias - occurs when prices for items change relative to one another

Minimum wage laws cause unemployment because the legal minimum wage is set

above the market wage, causing the quantity of labor demanded to be less that the quantity of labor supplied

Full employment occurs when

actual unemployment is equal to the natural rate of unemployment

Which of the following is correct?

adults not in the labor force = adult population - employed workers - unemployed workers

An increase in frictional unemployment will result in

an increase in the unemployment rate

Unexpectedly low inflation causes which of the following

borrowers pay a higher real interest rate than they expected

For which type of unemployment is it possible that the number of available workers and the number of available jobs are equal?

both frictional and structural unemployment

In constructing the CPI the BLS has to deal with substitution bias which defined the bias in CPI resulting from

consumers substitution away from goods that become relatively more expensive and toward goods that become relatively cheaper

The demand for refrigerators falls when the economy enters a downturn. If a refrigerator manufacturer lays off workers during an economic downturn, this would be an example of

cyclical unemployment

Which of the following has a tendency to reduce the unemployment rate

decreasing unemployment insurance in an economy

Which of the following best describes the relationship between the price level and the inflation rate

the inflation rate is the percentage change in the price level from one period to the next.