Macroeconomics Exam 1

If the number of employed persons in a country equals 24 million, the number of unemployed persons equals 8 million, and the number of persons over age 16 in the population equals 40 million, the unemployment rate equals:

25 percent.

​If the nominal interest rate is 6% and the inflation rate is 3%, the real interest rate is

3%

What would happen to the real interest rate if originally the nominal interest rate was 14% and the inflation rate was 10%, then the nominal interest rate fell to 7% as the inflation rate fell to 4%? It would go from:

4% to 3%

In recent years, economists have come to believe that full employment in the U.S. economy occurs at an unemployment rate between:

4.5 and 5.5 percent.

Hometown, USA, has a labor force of 78,567 persons and employment of 74,382. The unemployment rate for the city is:

5.3 percent

If the unemployment rate is 8 percent, this means:

8 percent of the labor force is unemployed.

​If the real interest rate is 3% and the inflation rate is 6%, the nominal interest rate is

9%

​If you were a lender, which of the following unexpected changes in inflation would you prefer once you have issued a long term fixed rate loan?

A decrease from 14% inflation to 8% inflation.

​If you were a borrower, which of the following unexpected changes in inflation would you prefer once you have taken out a long term fixed rate loan?

An increase from 2% inflation to 6% inflation.

Which of the following people is most likely to be structurally unemployed?

Clem, a skilled corset maker, lost his job when his factory shut down due to a permanent reduction in the demand for corsets.

___ experience lower rates of unemployment than do ____.

College graduates; high school graduates

Why are creditors harmed by unexpected inflation?

Creditors are paid back money with less spending power than they expected when the money was loaned out.

During an inflationary period, those most likely to suffer reduced wealth are those who are holding their wealth in:

Currency

Which of the following is the problem in the measurement of unemployment rate?

Discouraged workers are not included in the unemployed adult; Part-time workers are not included in the unemployed adults; Underground economy is not reported.

Discouraged workers are considered to be unemployed.

False

Soldiers are considered to be employed.

False

The Employment Act of 1946 dictated the U.S. goal of maintaining high employment through high economic growth but did not specify any goals with regard to the price level.

False

Unanticipated inflation will benefit creditors at the expense of debtors.

False

​The CPI measures the average level of prices of all final goods and services produced in the economy.

False

​Unexpected inflation harms both debtors and individuals who live on fixed incomes.

False

What would happen to unemployment rate if the U.S government reduces her military force.

It would increase.

A mircoeconomic approach says that the reason for unemployment is that wages are too high. What are the factors which affect high wages?

Minimum wages; Labor unions; Efficiency wages

The Bureau of Labor Statistics calculates U-6 (alternative measure of unemployment rate) in the following way: (Unemployed adults + Discouraged workers + ______) / labor force

Part-time workers

experience lower rates of unemployment than do ____.

Skilled workers; unskilled workers

Economists refer to the "typical" rate of unemployment as the natural rate of unemployment.

TRUEEE

Which piece of legislation committed the government to pursuing unemployment policies that are consistent with maintaining price stability?

The Employment Act of 1946

Which of the following does not lead to the CPI underestimating increases in prices?

The housing bias

Which of the following is false?

The labor force includes those people over the age of 14 who are either employed or unemployed.

​Which of the following biases the CPI to underestimate increases in prices?

The substitution bias ​The quality bias ​The new outlet bias NONE OF THE ABOVE

Which of the following statements is incorrect?

The typical unemployment compensation in the United States is one's full salary for up to 26 weeks.

Which of the following is not true in the measurement of unemployment rate?

There are only 2 types of adults, employed adults and unemployed adults.

Each person in the population can be classified as employed, unemployed, or not in the labor force.

True

Economists believe that the Consumer Price Index tends to overstate the actual rate of inflation.

True

The construction of a price index is complicated by several factors, including changes in the quality of goods and services over time, the introduction of new products, and the disappearance of old, outmoded products.

True

Unemployment rises and falls in the same direction as output over the business cycle.

True

​A rapid, unexpected increase in the inflation rate could make real interest rates negative.

True

​Luke has lent his friend Mitch some money. However he underestimated the rate of inflation when they agreed to a repayment and interest schedule. Mitch will benefit from the inflation.

True

​The real interest rate is calculated by subtracting inflation from the nominal interest rate.

True

As of July 2018, unemployment rate among men is 3.8% while unemployment rate among women is 3.9%. What would happen to unemployment rates if an economic situation deteriorates.

Unemployment rate among men will increase faster than unemployment rate among women.

Which of the following individuals would be considered unemployed?

a lawyer temporarily working as an assistant in a law firm a computer technician who has not worked for 10 months and gave up looking 4 months ago a full time student who feel that he is taking too many classes to work NONE OF THE ABOVE

Frictional unemployment occurs when:

a worker decides to quit to seek a different job.

​Inflation:

an cause a redistribution of income from creditors to borrowers. may discourage investment and economic growth. ​can decrease the value of a nation's currency relative to other nations. All of the above

The term full employment implies an unemployment rate of:

approximately 5%

When unemployment rises above the natural rate it reflects the existence of ____ unemployment.

cyclical

If the economy is operating at the natural rate of unemployment, which of the following is essentially eliminated?

cyclical unemployment

If the economy is operating with full employment, which of the following is essentially eliminated?

cyclical unemployment

The type of unemployment that occurs because of a recession is called:

cyclical unemployment.

Unemployment caused by a contraction in the economy is called:

cyclical unemployment.

Labor ________ shows that firms want to hire less labor as wages rise while labor _________ shows that the households want to provide more labor as wages rise.

demand; supply

An individual who voluntarily leaves one job and spends a period of time seeking another is considered:

frictionally unemployed.

A discouraged worker is someone who:

gives up looking for work, and is no longer counted as unemployed.

Which of the following refers to extremely high rates of inflation for sustained periods of time?

hyperinflation

Which of the following groups are typically harmed by unexpected inflation?

lenders; pensioners on fixed incomes

Which of the following groups will have the highest unemployment rate?

less than high school diploma

A healthy economy would be characterized by a relatively ____ unemployment rate and a relatively ____ labor force participation rate.

low; high

A discouraged worker is:

one who opts to quit searching for work after unsuccessfully seeking employment.

Persons who do not hold a job and are not actively seeking work are considered:

out of the labor force.

The unemployment rate may overestimate the true extent of unemployment if:

people falsely claim that they are actively seeking work in order to receive unemployment benefits.

The nominal interest rate equals:

real interest rate plus the inflation rate

​An unanticipated increase in inflation will:

redistribute income from lenders to borrowers.

Offering employees an efficiency wage may:

reduce turnover; attract the most productive workers; lead to a reduction in training costs. result in any of the above.

Which of the following goal is the macroeconomic goal?

reducing unemployment

​Say that initially the nominal interest rate is 6% and prices are stable, but the inflation rate the following year rises to 3%. If the real rate of interest is to remain unchanged, the nominal interest rate in the second year must:

rise by 3 percentage points

Unemployment that results from technological changes that renders some people's skills obsolete is called:

structural unemployment

The first formal acknowledgement of the primary macroeconomic goals of price stability, high employment, and promoting economic growth in the United States came with passage of the:

the Employment Act of 1946.

​The costs imposed on a firm from changing listed prices is termed:

the menu cost of inflation.

The real interest rate equals:

the nominal interest rate minus the inflation rate

The total labor force equals:

the number of officially employed plus unemployed persons.

Deflation exists whenever:

the overall price level falls.

The unemployment rate is defined as:

the percentage of the labor force that is unemployed.

If firms offer an efficiency wage:

the quantity of labor supplied will exceed the quantity of labor demanded.

If inflation had long been 4% and was therefore expected to continue, then it unexpectedly increased to 7% inflation:

the real interest rate on loans issued just before the change occurred would decrease by three percentage points.

The difference between the nominal interest rate and the rate of inflation is:

the real interest rate.

Billy loses his job as a road construction worker and cannot find another position with equivalent pay and benefits. As a result, he is still checking the want ads and reporting to the unemployment office on a weekly basis. He is considered to be:

unemployed.

​If the nominal rate of interest is 10.5 percent, and the inflation rate is 4.3 percent, what is the real rate of interest?

​6.2 percent

​Given a fixed nominal interest rate on a loan, unanticipated deflation:

​increases the burden of paying off the loan.

​Inflation exists whenever:

​the overall price level is rising.

​If inflation had long been 7% and was therefore expected to continue, then it unexpectedly increased to 4% inflation:

​the real interest rate on loans issued just before the change occurred would increase by three percentage points

​If the nominal interest rate is 3% and the inflation rate is 6%, the real interest rate is

-3%