Chapter 9 Unemployment and Inflation

Suppose the CPI in 2008 was 215.3 and the CPI in 2009 was 214.6, what was the inflation rate between 2008 and 2009?

-0.3 Inflation rate = [(CPI1 - CPI0) / CPI0] x 100 = [(214.6 - 215.3) / 215.3] x 100 = -0.325 or -0.3%.

If the CPI was 207 in 2007 and 225 in 2011, what pay raise would someone who earned $50,000 in income in 2007 have to receive in order to keep her purchasing power constant in 2011?

4348 Inflation rate = [(CPI1 - CPI0) / CPI0] x 100 = [(225 - 207) / 207] x 100 = 8.696. You can then multiply $50,000 x .08696 = $4,348. Her new salary will need to be $54,348 in order to maintain the same level of purchasing power.

Which of these statements about interest rates and inflation is true?

If there is zero inflation, the nominal interest rate is equal to the real interest rate.

Which market basket specifically targets intermediate goods?

The basket used by the producer price index

The producer price index tracks the prices firms receive for goods and services at:

all stages of production

At full employment, __________.

cyclical unemployment is zero

If the inflation rate is anticipated, __________.

inflation may not be a major problem

If inflation is anticipated, __________.

it costs less to society than if unanticipated

Economic variables that are calculated in current year prices are referred to as __________ variables, while variables that have been corrected to account for the effects of inflation are __________ variables.

nominal and real

The natural rate of unemployment is the __________.

unemployment rate that results when the economy produces the potential level of real GDP

To obtain prices of a representative group of goods and services, the Bureau of Labor Statistics (BLS) conducts a monthly survey of __________ households nationwide on their spending habits. The results of this survey are used to construct a market basket of __________ types of goods and services purchased by the typical urban family of four.

14,000; 211

When the economy is at full employment, which types of unemployment remain?

Frictional and structural

The short-term unemployment that arises from workers, in the process of changing jobs, is called __________.

frictional unemployment

The "normal or natural" underlying level of unemployment in the economy is the __________.

full employment rate of unemployment

Of the eight categories in the CPI market basket, which three categories make up more than 75% of the basket?

housing, transportation and food

Unanticipated deflation __________.

hurts net debtors

In calculating the CPI, the __________.

market basket does not include large equipment purchased by firms

The consumer price index __________.

measures the cost of an unchanging basket of goods and services

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and job requirements is called __________.

structural unemployment

Which of these groups is included in the labor force?

the unemployed