Economics

Which of the following is true about the U.S. trade balance during the 1960s?

Exports exceeded imports

f the U.S. dollar appreciates, it becomes cheaper for Australians to visit their relatives in the United States.

False

After graduating from Harvard Law School, Anne started looking for a job. She could not find a job after looking for one week. Which of the following is true in this case?

This is an example of frictional unemployment. The time required to bring together employers and job seekers creates frictional unemployment

A more descriptive phrase for the balance-of-payments account would be _____

balance of economic transactions

Finding both parties to a trade who have something the other party wishes to trade for is called a:

double coincidence of wants.

If the CPI is 200, then the price level has _____ since the base year.

doubled

A discouraged worker is one who _____

drops out of the labor force because he cannot find a job.

If the economy is experiencing extremely high increases in the price level, it is called _____

hyperinflation

Foreign exchange is foreign money _____

needed to carry out international transactions.

The theory of _____ states that changes in the exchange rate reflect only changes in the price levels of two countries.

purchasing power parity

Which of the following is true of unilateral transfers in the U.S. balance of payments?

Unilateral transfers have been negative every year since World War II, except during the war in Iraq.

If two parties to a loan contract agree that the lender should earn an 8 percent increase in purchasing power as a result of a loan and if the inflation rate is 5 percent, the nominal interest rate is _____

13 percent. Nominal interest rate = real interest rate + inflation rate.

Which of the following periods in U.S. economic history was not characterized by inflation?

1929-1933 and 2009 Deflation occurred in the United States during the Great Depression and in 2009.

Raul borrowed $1,000 from Marta for a year and agreed to repay her $1,050 at the end of the year. If the inflation rate was 3 percent, which of the following is the real rate of interest Marta received?

2 percent The real interest rate equals the difference between the nominal interest rate and the inflation rate.

The balance of payments always balances because each of the specific accounts must, by definition, be in balance.

False A balance-of-payments account may not balance, but a deficit in one or more accounts must be offset by a net surplus in the other accounts

Discouraged workers are included in labor force figures, but not in unemployment figures.

False Discouraged workers have dropped themselves out of the labor force. Thus, they are not counted as unemployed.

Unanticipated inflation generally hurts borrowers and benefits lenders.

False If inflation is higher than expected, the losers are those who agreed to sell at a price that anticipated lower inflation and the winners are those who agreed to pay that price

Imagine that there are only two nations in the world, the United States and Mexico. If Americans buy more goods made in Mexico, other things constant, the _____

U.S. demand curve for Mexican pesos will shift rightward.

Inflation _____

erodes confidence in the value of the dollar over the long term.

A person whose skills do not match available job openings is considered frictionally unemployed.

false

The labor force consists of all adults who are currently employed.

false

During periods of inflation, all prices increase.

false Even with no inflation, some prices would increase and some would decrease, reflecting normal activity in particular markets.

Exchange rates _____

fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied.

A country runs a deficit in its current account if _____

foreign currency received from exports and transfers is less than the foreign exchange needed to pay for imports and to make unilateral transfers.

The demand for U.S. dollars by foreign nations increases as _____

foreigners increase their purchase of American goods.

Jacqueline has a Ph.D. in economics. She has turned down many job offers because she eventually hopes to teach at one of the top ten universities in her field. The type of unemployment she is experiencing is _____

frictional unemployment The time required to bring together employers and job seekers creates frictional unemployment

The debit side of the current account includes the imports of _____

goods and services

During periods of volatile inflation, there is _____ about the price of one good relative to another.

greater uncertainty

Which of the following is not a cost of unemployment?

higher annual inflation rates

Inflation rates differ across regions mostly because of differences in _____

housing prices

Relative prices describe _____

how much one good costs compared to another.

Which of the following factors makes the official unemployment rate an overstatement of the actual level of unemployment in an economy?

inclusion of those who pretend to look for work in order to qualify for welfare programs

The unemployment rate will increase whenever there is a(n) _____

increase in the number of unemployed persons relative to the size of the labor force.

Any increase in the demand for foreign exchange, other things constant, will _____

increase the number of dollars required to purchase one unit of foreign exchange.

A decrease in the interest rate, other things constant, will _____

increase the quantity of loanable funds demanded.

Since the end of World War II, the U.S. price level has _____

increased tenfold.

If the economy is experiencing a sustained increase in the price level, it is called:

inflation

A revaluation _____

is a decrease in the pegged exchange rate.

An increase in a person's nominal wage necessarily _____

is not important until it is adjusted for inflation.

Money serves as a store of value when:

it is a means of holding wealth.

The trade balance of the country of Utopia would be in deficit only if _____

its merchandise imports exceed its merchandise exports.

If the nominal interest rate is 5 percent and there is no inflation, _____

the real interest rate is 5 percent

If the price level increases by 2 percent each year, the inflation rate is increasing.

true

Uncertainty about inflation _____

undermines money's importance as a link between the present and the future.

Which of the following people would be counted among the unemployed?

a new college graduate not qualified for any of the jobs available in his small town

Which of the following people is least likely to be hurt by inflation?

a salesperson who works on commission Inflation hits hardest those whose incomes are fixed in nominal terms.

When your grandfather keeps a bundle of $100 dollar bills behind a brick in the basement, this is an example of dollars serving as:

a store of value.

The value of a country's exports is listed in its balance-of-payments account as a(n) _____

credit

Which type of unemployment is likely to increase the most during an economy's recession?

cyclical unemployment

If the official unemployment rate increases from February to March because of sluggish sales in the automobile industry, then the increase can be blamed on _____

cyclical unemployment Cyclical unemployment occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work.

When an economy is operating at full employment, _____

cyclical unemployment does not exist.

Since World War II, the consumer price index (CPI) has increased by an average of _____

3.5 percent per year

Refer to Table 7.1, which shows data for males and females over 16 years old in the island of Palma. What is the adult female population?

42 million The adult female population includes those who are either working or looking for work, as well as those who are not in labor force.

Unemployed workers who meet certain qualifications can receive unemployment benefits for up to _____

6 months.

Suppose inflation is expected to be 5 percent next year, and you and your employer agree to a 6 percent increase in your nominal, or monetary, wage. If inflation turns out to be 5%, what is your nominal wage increase?

6 percent Real wages are defined as nominal wages adjusted for the price level.

Consider an economy with an adult population of 100, 50 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The labor force participation rate is _____.

60 percent

If the CPI in the United States was 150 in 2003 and 160 in 2004, the inflation rate over the year was_____

7 percent.

Which of the following is true about U.S. history prior to the 1950s?

Major wars resulted in high inflation rates that were usually followed by deflation.

If the dollar per pound exchange rate falls from $1.50 per pound to $1.25 per pound, ______

U.S. imports of British goods will increase.

If foreigners increase their ownership of U.S. assets, this would help to offset _____

a deficit in the U.S. current account.

Table 18.a Current Account ($) Merchandise exports 500 Merchandise imports 200 Merchandise trade balance ​ Service exports 400 Service imports 600 Goods and services balance ​ Net investment income from abroad 50 Net unilateral transfers -90 Current account balance ​ Refer to Table 18.1, which shows a balance-of-payments account. What is the goods and services balance?

$100

If the British pound appreciates, U.S. television stations need fewer dollars to buy episodes of a British sitcom from the British Broadcasting Company.

False

Suppose there is a 3 percent increase in the nominal wages of workers in an economy. The annual rate of inflation in the

Real wages would fall by about 3 percent

If the U.S. dollar depreciates relative to the Swiss franc, then _____

Swiss goods become more expensive in the United States.

The benefits paid by the largest pension program in the United States are _____

The benefits paid by the largest pension program in the United States are _____

During one month, the U.S. economy added 290,000 jobs and the unemployment rate still increased from 9.7 percent to 9.9 percent. Which of the following best explains this situation?

The number of unemployed workers also increased, but by an even greater percentage.

Which of the following is true of the labor force participation rates in the United States since the 1950s?

The rate for men has fallen; the rate for women has increased.

If an American citizen is planning to visit wildlife reserves in Kenya, he will hope that the U.S. dollar appreciates against Kenyan shillings.

True

In 2014, the United States' balance-of-trade deficit with China was about 10 times as large as the balance-of-trade deficit with Canada.

True

The real interest rate can be negative.

True If inflation is higher than the nominal interest rate, then the real interest rate would be negative.

Since 1983, the United States has typically run a financial account surplus.

True Since 1983, foreigners have continued to buy more U.S. assets than residents have purchased foreign assets.

Which of the following would increase the U.S. demand for foreign currency?

an increase in the U.S. demand for foreign goods

If the exchange rate changes from 75 cents per euro to $1 per euro, the euro has _____

appreciated, since its value has increased.

Unemployment benefits _____

are cash transfers to those who lose their jobs and actively seek employment.

Which of the following groups experiences high unemployment rates?

blue-collar workers Professional and technical workers experience lower unemployment rates than blue-collar workers.

If the inflation rate in an economy is 5 percent and the income earned by workers increases by 5 percent, then _____

nominal income increases by 5 percent and real income is unchanged.

The main disadvantage of using money as a store of value is that:

other assets pay relatively higher rates of interest than money.

Which of the following will happen if country A's currency declines in value against other major currencies?

ountry A's trade deficit will decrease.

The unemployment rate measures the _____

percentage of people in the labor force who are unemployed.

An increase in unemployment insurance is likely to _____

reduce a person's incentive to look for work. Although unemployment insurance provides a safety net, it may reduce the urgency of finding work.

Any decrease in the demand for foreign exchange, other things constant, will _____

reduce the number of dollars required to purchase one unit of foreign exchange.

Cost-push inflation _____

results in a movement along the aggregate demand curve.

Recently, banking has become easier, with automated teller machines replacing bank tellers. The loss of tellers' jobs is an example of _____

structural unemployment

Which of the following types of unemployment is the hardest to reduce?

structural unemployment

In 2004, Noah lost his job as a shipbuilder. His shipyard never reopened, and his very specialized skills as a shipbuilder were no longer in demand. Noah's unemployment is best classified as _____

structural.

Which of the following decades was characterized by the highest inflation rate in the United States?

the 1970s

The U.S. dollar will appreciate if _____

the U.S. demand for foreign exchange decreases.

The fact that exchange rates are nearly identical in different markets around the world is due to _____

the actions of arbitrageurs

The consumer price index measures _____

the cost of a fixed market basket of consumer goods and services produced in the U.S. economy.

The higher the expected inflation, _____

the higher the nominal rate of interest that lenders require and that borrowers are willing to pay. The higher the expected inflation, the higher the nominal rate of interest that lenders require to cover the expected inflation. Further, the higher the expected inflation, the higher the nominal rate of interest that borrowers are willing to pay because the nominal interest rate will be compensated for by the expected reduction in the amount of real goods that will have to be paid back to discharge the loan.

A worker would be hurt least by inflation when the _____

worker is protected by a cost-of-living adjustment clause in an employment contract. An employer who signs labor contracts agreeing to pay workers cost-of-living wage increases have to increase wages based on changes in inflation.

Suppose the nominal wages of workers in an economy increase by 7 percent while the price level rises by 5 percent. Real wages _____

would increase by about 2 percent

Table 18.1 Current Account ($) Merchandise exports +1000 Merchandise imports +3000 Merchandise trade balance ​ Service exports +1500 Service imports +1000 Goods and services balance ​ Net investment income from abroad 100 Net unilateral transfers −1,000 Current account balance ​ Refer to Table 18.1, which shows a Balance of Payments account. What is the goods and services balance?

−$1,500 The balance on goods and services is the export value of goods and services minus the import value of goods and services, in this case, −$1,500