pset2

Suppose the fixed interest rate on a loan is​ 5.75% and the rate of inflation is expected to be​ 4.25%. The real interest rate is​ 1.5%. Suppose now that instead of​ 4.25%, the inflation rate unexpectedly reaches​ 5.5%. Who gains and who loses from this unanticipated​ inflation? ​(Mark all that​ apply.) A. Borrowers gain from a lower real interest rate. B. Lenders lose from a lower real interest rate. C. Borrowers lose from a lower real interest rate. D. Lenders gain from a lower real interest rate.

A. Borrowers gain from a lower real interest rate. B. Lenders lose from a lower real interest rate.

According to Ray Fisman of BU and Michael Luca of HBS, Amazon's voluntary decision to raise its minimum hourly wage to​ $15 per hour when the federal minimum wage was​ $7.25 may be good for​ "both Amazon's employees and its bottom​ line." ​ ​Wouldn't paying higher wages to its employees reduce​ Amazon's profits? Why would they have adopted such a​ policy? A. No, the higher wage would not decrease profits if it motivates workers to work harder and be more productive. B. No, it would not reduce​ profits, since Amazon would be required to monitor its workers more​ closely, resulting in less shirking. C. Yes, it would lower​ profits, but by paying employees an efficiency​ wage, Amazon would be able to improve its customer reviews. D. Yes, paying higher wages is a good way for firms to lower​ profits, so the new wage policy must have been the result of government intervention.

A. No, the higher wage would not decrease profits if it motivates workers to work harder and be more productive.

Suppose that the inflation rate turns out to be much lower than most people expected. In that​ case, A. a borrower will lose from the situation while a lender will gain. B. a lender will lose from the situation while a borrower will gain. C. both borrower and lender will lose in this situation. D. both borrower and lender will gain from the situation.

A. a borrower will lose from the situation while a lender will gain.

An efficiency wage A. increases the unemployment rate since firms pay a​ higher-than-market wage that increases the quantity of labor supplied. B. decreases the unemployment rate since firms pay a​ lower-than-market wage that decreases the quantity of labor supplied. C. decreases the unemployment rate since it increases the labor productivity. D. has no impact whatsoever on the unemployment rate.

A. increases the unemployment rate since firms pay a​ higher-than-market wage that increases the quantity of labor supplied.

According to the​ BLS, in what category of unemployment would that person​ belong? If someone lost his or her job because the​ person's employer now uses chatbots to do that​ job, that person would be considered A. structurally unemployed. B. fully unemployed. C. cyclically unemployed. D. frictionally unemployed.

A. structurally unemployed.

Menu costs are A. the costs to firms of changing prices. B. the same as sunk costs. C. the costs of fixed inputs in the short run. D. the costs of variable inputs in the long run.

A. the costs to firms of changing prices.

If inflation is expected to​ increase, A. the nominal interest rate will increase. B. the nominal interest rate will remain the same. C. the nominal interest rate will decrease. D. the real interest rate will increase.

A. the nominal interest rate will increase. explanation: If inflation is expected to increase, lenders will demand a higher nominal interest rate to compensate for the loss of purchasing power due to rising prices. This ensures that the real interest rate, which reflects the true earning power of the loan, remains positive or stable despite inflation.

Homemakers are not included in the employment or labor force totals compiled in the BLS household survey. Homemakers are included in the​ working-age population totals. Suppose that homemakers were counted as employed and included in labor force statistics. What would happen to the unemployment rate and the labor force participation rate if homemakers were included in these​ numbers? A. The unemployment rate would increase and the labor force participation rate would decrease. B. The unemployment rate would decrease and the labor force participation rate would increase. C. Both the unemployment rate and the labor force participation rate would increase. D. Both the unemployment rate and the labor force participation rate would decrease.

B. The unemployment rate would decrease and the labor force participation rate would increase.

What index is used to measure the average prices paid by a typical​ family? An average of the prices of the goods and services purchased by a typical family is​ the: A. producer price index​ (PPI). B. consumer price index​ (CPI). C. aggregate price level index. D. inflation rate index.

B. consumer price index​ (CPI).

An article in the Wall Street Journal contained the following​ observation: "Every​ month, millions of workers leave the job market because of​ retirement, to care for children or aging​ parents, to pursue more​ education, or out of discouragement. Millions of others jump in after​ graduating." ​ Source: Josh​ Zumbrun, "Labor-Market Dropouts Stay on the​ Sidelines," Wall Street Journal​, December​ 28, 2014. The millions of workers leaving the job market for the reasons given are A. counted as unemployed in the BLS data because they may return to work. B. not counted as unemployed in the BLS data because they are no longer actively looking for work. C. not counted as unemployed in the BLS data because they are still of working age. D. counted as unemployed in the BLS data because of lags in the data.

B. not counted as unemployed in the BLS data because they are no longer actively looking for work.

When the economy is at full​ employment, unemployment is equal to A. zero. B. the natural rate of unemployment. C. normal rate of unemployment minus abnormal rate of unemployment D. cyclical unemployment minus seasonal unemployment

B. the natural rate of unemployment.

Which of the following is an example of cyclical​ unemployment? A. Workers at ski resorts are laid off during the summer. B. A worker moves to California and searches for a new job. C. In an economic downturn, a manufacturing plant reduces production and temporarily lays off workers. D. Autoworkers lose jobs due to globalization and must retrain to find new jobs.

C. In an economic downturn, a manufacturing plant reduces production and temporarily lays off workers.

Consider the effect of each of the following on the unemployment​ rate: The minimum wage law A. increases the unemployment rate among highly skilled workers. B. has a significant effect on the unemployment rate since a large part of the labor force earns the minimum wage. C. has only a small effect on the unemployment rate since only a small part of the labor force earns the minimum wage. D. increases cyclical unemployment in the economy.

C. has only a small effect on the unemployment rate since only a small part of the labor force earns the minimum wage.

When the economy is at full​ employment, A. the unemployment rate is greater than zero. B. the natural rate of unemployment prevails. C. all remaining unemployment is either frictional or structural. D. All of the above.

D. All of the above.

An efficiency wage is A. equal to the​ market-clearing wage, so that social welfare is maximized. B. an​ above-market wage paid by a firm to maximize the output of the firm. C. a​ below-market wage paid by a firm to maximize firm profits. D. an​ above-market wage paid by a firm to maximize worker productivity.

D. an​ above-market wage paid by a firm to maximize worker productivity.

An article in the Wall Street Journal contained the following​ observation: "Every​ month, millions of workers leave the job market because of​ retirement, to care for children or aging​ parents, to pursue more​ education, or out of discouragement. Millions of others jump in after​ graduating." ​ Source: Josh​ Zumbrun, "Labor-Market Dropouts Stay on the​ Sidelines," Wall Street Journal​, December​ 28, 2014. Even if they​ don't find a job right​ away, people entering the job market after graduating from high school or college will A. not be counted as part of the labor force by the BLS because they are not actively looking for work. B. not be counted as part of the labor force by the BLS because they are not working. C. be counted as part of the labor force by the BLS because they are capable of working. D. be counted as part of the labor force by the BLS if they are actively looking for work.

D. be counted as part of the labor force by the BLS if they are actively looking for work.

If the economy is experiencing​ deflation, A. the nominal interest rate will be equal to the real interest rate. B. high nominal interest rates inflict serious losses on both household and business borrowers. C. the nominal interest rate will be higher than the real interest rate. D. the nominal interest rate will be lower than the real interest rate.

D. the nominal interest rate will be lower than the real interest rate.

The natural rate of unemployment is A. the sum of structural unemployment and cyclical unemployment. B. the sum of seasonal unemployment and cyclical unemployment. C. the sum of cyclical unemployment and frictional unemployment. D. the sum of structural unemployment and frictional unemployment.

D. the sum of structural unemployment and frictional unemployment.