Module 4 - Macro. Unemployment, Inflation...

Consumer price index formula

(cost of basket in current year/cost of basket in base year) x 100

If the unemployment rate is 3.5% and the labor force is 250,000, what is the number of unemployed workers? 1,000 3,500 7,580 8,750

8,750 Unemployment rate = unemployed worker/labor force×100. This means, x/250,000 = .035 multiply each side by 250,000; x = 8.750

Who are those that are not included in the unemployed?

A full-time homemaker, a child, a retiree, a full-time student, or anyone else not employed is not counted in either the numerator or the denominator of the unemployment rate. People who have looked for work in the past 6 months, but NOT in the past 4 weeks, are called discouraged workers and are also excluded from the calculations.

Which of the following people are part of the labor force? A full-time homemaker A retiree spending their time traveling A full-time student A newly employed worker

A newly employed worker

___________________ is an indicator of strength or weakness in the national labor markets, by providing information on how many positions need to be filled.

Help wanted index. When the help wanted index is rising, it means there is a relatively large amount of positions needing to be filled.

John completed his master's degree and waited for 3 months to get selected by a company as an assistant project manager. This 3-month period of unemployment is called _____________________ unemployment.

Short-term unemployment is called frictional unemployment.

A declining labor force participation rate means fewer workers are supporting an increasing number of non-workers. True/False

True

During the Great Recession (2007 to 2009), the United States experienced _____________ unemployment and a _________ rate of inflation.

increasing , low rate of inflation

A market basket is a collection of goods that

is used by a typical family

The turning points of the business cycle are called

peaks and troughs

Deflation is bad for the economy because when people start anticipating falling prices, they are less willing to _________ or borrow money. In fact, falling prices worsens the position of debtors because it _____________ the real value of money.

spend, increases the real value of money.

Which of the following people would be included as a member of the labor force? A retired school teacher collecting Social Security benefits A recent high school graduate looking for a first job A homemaker contributing 15 hours per week as a volunteer worker in a hospital A full-time college student

If a student completes his or her degree, the student will be considered unemployed until he or she gets job. The labor force is the body of people who are either employed or available for employment.

A war in the Middle East that affects the U.S. stable economy could cause a ______________. This means that the economic activity has _________________. .

contraction, slowed down

Over time, there is a tendency for _________. major macroeconomic variables to move together in a predictable way productivity and unemployment to increase simultaneously inflation and unemployment to increase simultaneously major macroeconomic variables to behave unpredictably

major macroeconomic variables to move together in a predictable way

To be in the labor force you must meet these requirements:

--16 years old or older --non-institutionalized (not in the military, jail, or long-term care facility) --working or actively looking for work. (You can wish you had a job and then spend all your time watching TV and count as unemployed.)

Assume the average annual CPI values for 2012 and 2013 were 205.4 and 215.7, respectively. What was the percent increase in the CPI between these two years? around 5% around 10% around 0.90%

5% To calculate inflation for year t, you first need to know the CPIs for year t and for the preceding year. In this case, CPI will be (215.7 - 205.4) / 205.4 × 100%.

If the labor force is 250,000 and the working-age population is 350,000, what is the labor force participation rate? 60.43% 71.43% 81.5% 90.43%

71.43% 250000/350000 * 100 = 71.43

The United States is in a recession if __________. the GDP (real output) declines for two successive quarters the price level falls in two successive quarters nominal output declines for two successive quarters. unemployment rises in two successive quarters

A negative growth of the GDP for two consecutive quarters marks the start of a recession.

An unexpected reduction in inflation would tend to benefit which of the following? Debtors Creditors and debtors Creditors

Creditors. When inflation decreases, the value of the dollar increases, making the loan more profitable.

_____________________means that the number of job seekers is approximately equal to the number of job vacancies—the U.S. job market index otherwise known as the help wanted index.

Full employment

The longest contractionary period in the United States was __________.

The Great Depression 1929-1939

An indicator that is helpful in sorting out the relative importance of changes in total demand for labor and total labor supply is the __________. unemployment rate help-wanted index labor force participation rate overstated unemployment rate

The labor force participation rate measures the fraction of the adult population that is employed or actively seeking work

Which of the following is a criticism of the CPI? There are too few items in the basket. The market basket is changed too often. The market basket includes too many investment goods. The market basket is not changed often enough.

The market basket is not changed often enough. People's taste and consumption habits change with the introduction of new goods or trends or changes in prices and the basket should be revised more often.

Which of the following refers to the percentage of the total labor force that is unemployed, but actively seeking employment and willing to work? Full employment Cyclical unemployment Unemployment rate Frictional unemployment

The unemployment rate. The unemployment rate is considered a lagging indicator, confirming, but not foreshadowing, long-term market trends.

During periods of recession, an economy usually experiences a relatively high unemployment rate. T or F

True

One reason why governments try to restrain ______________ is that it causes an unintended and often undesirable redistribution of income and wealth. Redistribution is more likely to occur when inflation is ________________ .

inflation, unanticipated Inflation causes a redistribution of wealth that burdens creditors.

Based on the following data from the labor department of a country, calculate the country's unemployment rate. Non-institutionalized civilian labor force = 1,646,303 Employed people = 1,481,232 Retirees = 40,202 Volunteers = 13,200 5.01% 6.01% 8.25% 10%

10% Since the employed people are known, find the unemployed from the data as follows: Unemployed workers= 1,646,303− 1,481,232= 165,071 Unemployment rate= unemployed worker/labor force × 100% This means 165,071/1,646,303 × 100% = 10%

Since WWII the highest unemployment rate during a downturn was __________. 10.0% 10.8% 25%

10.8%. Occurred in October 1982

What must the CPI be equal to for any designated base year? 0 The average expenditures for the market basket 100

100 The CPI has to be 100 because when the numerator and the denominator (expenditure during year t / expenditure during base year) are the same, the result is 1 × 100, so we have the CPI for the base year.

The working age population is usually defined as people between the ages of _________ in developed countries.

16 and 65

If the CPI increases from 125 to 150 between year 1 and year 2, then the inflation rate is _______________ .

20% Applying the formula to calculate inflation will give a result of 20%.

In a certain year, 143,060 of a country's residents were employed and 11,844 were unemployed. Under the formal definition for being unemployed, what is the unemployment rate for that year? 2.45% 4.44% 7.64% 10.55%

7.64% Unemployment rate=unemployed worker/labor force×100= 11,844 / 143,060 + 11,844 × 100% = 7.64%

An auto worker may be laid off during a recession. This is an example of ___________________ unemployment.

Cyclical unemployment occurs during periods of slow economic growth or during periods of economic contraction.

___________________unemployment occurs when workers are laid off because of a fall in demand generally or specifically for the products they produce.

Cyclical unemployment occurs when workers are laid off because of a fall in demand generally or specifically for the products they produce.

Full employment means that everyone in the population is employed. True/False

FALSE. Full employment assumes that some level of unemployment is normal (acceptable or desirable) and is only concerned about unemployment in excess of that amount.

The system of income distribution in a market economy is not dependent on employment. True/False

FALSE. The system of income distribution in a market economy is very dependent on employment. If people do not have jobs, they do not earn income.

The unemployment rate is an accurate representation of the conditions in the economy's labor market. T or F

FAlSE While the unemployment rate shows part of the labor force, there are groups that it does not include. Also, it only considers people in the labor force. A better rate includes discouraged workers and the underemployed. This rate is called U6 in the statistics the U.S. government provides. In June 2015 the unemployment rate was 5.3%, but U6 was 10.5%.

Total labor supply does not affect the unemployment rate over longer periods. T or F

False

The unemployment rate is defined as the percentage of the labor force that is actively looking for a job. True/False

False! Besides actively looking for a job, a person must ALSO not currently have a job.

A recent college graduate who suddenly becomes available in the job market, but has yet to find his first job, is an example of cyclical unemployment. True/False

False, that would be Frictional unemployment which refers to the portion of the unemployment rate that results from labor market turnovers.

Full employment means that everyone in the population is employed or even that 100% of those who are able are willing to take a job. True/False

False. One way of defining full employment is to identify some level of unemployment as normal (acceptable or desirable) and only be concerned about unemployment in excess of that amount.

Voluntary unemployment, like a labor strike, is an example of ___________________ unemployment.

Frictional unemployment is chosen by the workers. Frictional unemployment would generally be classed as voluntary unemployment because workers are choosing to remain unemployed rather than get the first job that comes along.

The labor force participation rate formula is:

Labor Force Participation Rate = (Labor Force / Working Age Population) * 100

Macroeconomic policies intending to reduce cyclical unemployment try to create jobs by increasing demand for total output. True/False

Macroeconomic policies intending to reduce cyclical unemployment try to create jobs by increasing demand for total output. For example, in March 2009 a $800 billion stimulus bill was passed to try and create jobs. Not all economists agree that these types of policies are effective.

Which types of workers might cause unemployment to be understated? Part-time workers Unreported legal workers and discouraged workers Unreported legal workers and reported illegal workers Part-time workers who are working fewer hours than they would like and discouraged workers

Part-time workers who are working fewer hours than they would like and discouraged workers. Both of these result from the inability of the BLS (Bureau of Labor Statistics) to accurately measure "intent" combined with the practical need to place each person into one, and only one, of three possible categories: employed persons, unemployed persons, or "not in the labor force."

Which of the following is one way that is primarily used to obtain the measures of the labor force and the number of people who are unemployed? Per capita income Gross national product National income Payroll data from business firms

Payroll data. The measures of the labor force and the number of people who are unemployed are primarily obtained from payroll data from business firms. The other method that is door-to-door (household) surveys.

In sequence, what are the four phases of the business cycle? Peak, recession, trough, and expansion Recession, trough, peak, and expansion Trough, peak, expansion, and recession Expansion, recession, peak, and trough

Peak, recession, trough, and expansion

Which of the following is not a limitation of the unemployment rate? Exclusion of discouraged workers Inclusion of underemployed workers Inclusion of workers who are collecting unemployment benefits by sending resumes but not wanting to work Exclusion of retired workers

Retired workers are not part of the labor force nor do they want a job

_______________ unemployment occurs when available workers do not match the jobs available in terms of skills or location.

Structural unemployment arises as a result of a mismatch of workers and jobs.

Each period of unemployment is a lost opportunity to develop skills and experience that may make a worker more valuable to an employer.

TRUE

Natural disasters, such as hurricanes, have wiped out entire industries in geographic regions, leaving the workforce structurally unemployed. True or False

TRUE Structurally unemployed people usually have skills that are not needed in the market or have a specialized background or experience that cannot be used in the current market.

Auto assembly plant workers losing their jobs to outsourcing is an example of structural unemployment. True/False

TRUE. Auto assembly plan workers losing their jobs to outsourcing is an example will contribute towards structural unemployment since their skills will no longer be required at the location of the current plant.

Which of the following individuals would not be considered unemployed? A retiree who is actively looking for part-time work to supplement her Social Security income A college student who is actively searching for a summer job before she goes back to school in the fall to complete her senior year A construction worker who has given up looking for work for over a month, after struggling for an extended period to find a job. An auto worker vacationing in Florida during a layoff period, before production of new models begins next month. He does not know if he will be called back to work and is looking for a new job

The construction worker will not be considered as unemployed since he has not looked for work for over a month.

The labor force consists of those who are working and those who are actively seeking work. T or F

True

The understated imperfections of the unemployment rate tend to be most pronounced during business-cycle contractions. T or F

True

When there is full employment, the number of job seekers is approximately equal to the number of job vacancies. T or F

True

The labor force could be measured by household surveys. True/False

True Also come from payroll data and unemployment claims at state offices. Respondents in household surveys are only considered unemployed if they have made some effort to find work in the last 4 weeks.

The presence of discouraged workers may cause the unemployment rate to be overstated. True/False

True The presence of discouraged workers may cause the unemployment rate to be understated. This is because discouraged workers are those who were seeking employment, but have given up and stopped looking, so they are not included in unemployment calculations.

The overstated imperfections of the unemployment rate tend to be most pronounced during business-cycle expansions. True/False

True These problems result from the inability of the BLS (Bureau of Labor Statistics) to verify the truthfulness of the information provided by respondents.

Involuntary part-time workers are people who are willing and able to work full-time (35 to 40 hours per week), but are forced to work less because employers do not need their productive efforts. True/False

True While involuntary part-time workers have jobs and are officially included in the "employed" category when the official unemployment rate is calculated, their labor resources are really only partially employed.

The labor force is the sum of employed workers and unemployed workers. True/False

True The labor force consists of those who are working and those who are actively seeking work.

Unemployment makes it easier to hire people for jobs, compared to stealing them from other firms. True/False

True. If a business wants to expand, but there are no workers available to hire, the only way they can get a new employee is to "steal" the employee away from the existing employer, which can be done by offering higher pay or benefits.

What is the formula to calculate the unemployment rate?

Unemployment rate aims at finding the number of unemployed workers in the labor pool unemployed workers/labor force X 100%

Consumer Price Index (CPI) define

a measure of the overall cost of the goods and services based on the consumption of the typical urban family of four. It includes 211 types of goods and services. The cost of each year's market basket is compared to the cost of the reference base period (often referred to as the base year).

People who have looked for work in the past 6 months, but not in the past 4 weeks, are called _______________

discouraged workers

The real wage equals the nominal wage (wage you are paid by your employer) ______________ the CPI, all multiplied by 100.

divided by the CPI, all multiplied by 100. The real wage is the nominal wage adjusted for inflation.

During the expansionary phase of the business cycle, it is likely that real income will __________. increase, the price level will decrease, and the unemployment rate will decrease increase, the price level will increase, and the unemployment rate will increase increase, the price level will increase, and the unemployment rate will decrease decrease, the price level will increase, and the unemployment rate will increase

increase, the price level will increase, and the unemployment rate will decrease

Most of the problems caused by inflation are caused by the fact that __________. anticipated inflation induces people to protect themselves against inflation inflation causes the purchasing power of the dollar to increase there are no ways available for people to protect themselves against inflation inflation is often unanticipated, and therefore comes as a surprise to individuals in the economy

inflation is often unanticipated, and therefore comes as a surprise to individuals in the economy It is hard to forecast inflation, as it can be caused by unexpected events.

Unanticipated positive inflation will create __________. gains for creditors and losses for debtors gains for both creditors and debtors losses for creditors and gains for debtors losses for both creditors and debtors

losses for creditors and gains for debtors. When inflation is unanticipated, interest rates are not adjusted for inflation and loans have lower interest rates. 5% interest rate on a $100 loan when inflation goes up to 10% decreases the value of the repayment. Bank essentially earns $95 instead.

If unemployment declines but at the same time labor force participation declines by the same or more, the decrease is not due to an improvement in the economy, but to ___________________. If the unemployment rate increases at the same time as the labor force participation rate declines, the economy is in poor shape.

people dropping out of the labor force

The consumer price index measures the average of the __________. hourly wage rates of part-time workers prices of all goods produced in a country and goods imported from other countries raw material prices paid by producing firms prices paid by a typical urban family of four for a fixed market basket of consumer goods and services

prices paid by a typical urban family of four for a fixed market basket of consumer goods and services

Deflation is the situation in which __________. the rate at which prices increase falls the real rate of interest is negative some prices are increasing and some are decreasing the average of all prices is declining

the average of all prices is declining

As women entered the labor force, male participation declined partially due to the increased safety net for married men. True/False

true

Two types of workers that cause unemployment to be overstated are __________. underemployed workers and illegal workers unreported legal workers and discouraged workers underemployed workers and discouraged workers unreported legal workers and reported illegal workers

unreported legal workers and reported illegal workers These problems result from the inability of the BLS (Bureau of Labor Statistics) to verify the truthfulness of the information provided by respondents.