Test #2 Chapters 7+8
cost-push inflation.
Inflation initiated by increases in wages or other resource prices is labeled
The general level of prices over time.
Inflation is a rise in
arbitrarily redistributes real income and wealth.
Inflation is undesirable because it
True
Unanticipated inflation helps some groups in the economy.
no cyclical unemployment
"Full employment" refers to the situation when there is
No cyclical unemployment
"Full employment" refers to the situation when there is:
lender correctly anticipates inflation and increases the nominal interest rate accordingly.
A lender need not be penalized by inflation if the
increases by 5% while the price index rises by 2%.
A person's real income will increase by 3% if her nominal income
Hold quantities constant A price index takes a given market basket and compares the price levels of goods and services in that market basket between two periods. In other words, it holds the quantities constant.
A price index that is used to measure inflation will do which of the following?
Lenders are hurt, but borrowers benefit.
Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unanticipated inflation occurs in the economy, then
reduces real output.
Cost-push inflation
a decrease in resource availability.
Cost-push inflation may be caused by
it fears that inflation is possible.
Currently the Federal Reserve Bank is raising interest rates because
A worker laid off following a decline in GDP Cyclical unemployment is unemployment caused by business cycles and fluctuations in the rate of growth in spending. It is being unable to find employment due to changes in the economy. A worker laid off following a decline in GDP best fits this category
Cyclical employment
occurs when total spending in the economy is excessive.
Demand-pull inflation
Okun's Law
For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of
A new college graduate actively seeking a job Frictional unemployment is unemployment caused by the normal process of leaving jobs and searching for jobs. It is the title given to being in a transition phase of employment - to be actively seeking employment. A new college graduate actively seeking work is in this transitional phase and is considered to be frictionally unemployed
Frictional employment
potential output.
Full-employment output could also be called:
Not in the labor force.
Full-time homemakers and retirees are classified in the BLS data as:
It will decrease if employment rises more rapidly than unemployment
Given an announcement of increased numbers of unemployed individuals, what must be happening to the unemployment rate?
the unemployment rate will rise but the economy will be better off.
If more people just start looking for work
3% higher than the average price in the base year.
If the Consumer Price Index for a certain year is 103, this means that the average price of consumer items in that year was
5.4% ((130.7 - 124)/124)*100 = 5.4%
If the Consumer Price Index for one year was 124.0 and for the next year was 130.7, what was the approximate rate of inflation?
165.0
If the Consumer Price Index for one year was 150.0 and the rate of inflation from that year to the next was 10 percent, what would be the Consumer Price Index in the second year?
greater than actual GDP
If the actual rate of unemployment is above the natural rate of unemployment, then potential GDP is
the unemployment rate would rise.
If the labor force and the unemployed go up by the same amount
the unemployment rate will rise
If the labor force increases and the number of employed workers stays the same
the labor force may have increased.
If the unemployment rate increases
25 percent
In 1933, the worst year of the Great Depression, the unemployment rate in the United States was about
10 percent.
In 2009, the worst year of the Great Recession in the U.S., the unemployment rate was about
excluded from the labor force
In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are
When there is an unanticipated decrease in inflation.
In what circumstances would lenders most benefit?
structural
Kevin has lost his job in an automobile plant because the company switched to robots for its welding step in the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is:
shows the relationship between the unemployment rate and the size of the negative GDP gap.
Okun's law
cost-push inflation.
Rising per-unit production costs are most directly associated with
A skilled airline pilot looking for work after being laid off as a result of fewer airplanes being purchased Structural unemployment is unemployment that is caused by not having the right skills for the current job opportunities. The skilled pilot described is an example of a person involved with structural unemployment
Structural employment
looking for work.
To be counted as unemployed, you must be older than 15, non-institutionalized, and
reduces the real burden of the public debt to the federal government.
Unanticipated inflation
the bureau of labor statistics.
The CPI and the inflation rate are calculated each month by
the ratio of the current dollar value of a basket of goods to the constant dollar value of the same basket X 100.
The CPI is calculated as
amount by which potential GDP exceeds actual GDP.
The aggregate cost of unemployment can be measured by the
last year's price index from this year's price index and dividing the difference by last year's price index.
The annual rate of inflation can be found by subtracting
4.5 to 5 percent of the labor force
The full-employment unemployment rate for the United States economy is now generally considered to be
the Bureau of Labor Statistics.
The government agency responsible for collecting and reporting unemployment data is
the percentage change in the CPI from one year to the next. and (CPI in year 2 - CPI in year 1) / CPI in year 1 X 100. and (CPI in year 2 - CPI in the base year) / CPI in the base year X 100.
The inflation rate between any two years is calculated as (choose all that apply)
may cause the official unemployment rate to understate the true amount of unemployment.
The presence of discouraged workers
Cyclical unemployment is zero, but frictional and structural unemployment are positive.
We have reached full employment when which of the following is true?
the purchasing power of money decreases.
When inflation occurs
Cost-push inflation.
When oil and energy prices rise, the economy tends to experience
The economy produces less than it otherwise would Wages and prices normally move approximately together. It is true that those on fixed incomes will be hurt. Lenders are hurt when inflation is unanticipated. Anticipated inflation does not hurt lenders. Shoe leather and menu costs mean that resources that could be used to produce other goods and services are used to protect individuals and businesses from the effects of inflation.
Which of the following best describes the true costs of inflation?
Demand-pull inflation will continue as long as there is excess total spending in the economy
Which of the following is a correct statement?
[(unemployed)/(labor force)] X 100
Which of the following is the correct way to calculate the unemployment rate?
More resources are devoted to money management If you are on a fixed income that is not changing while inflation is occurring, then the prices of the goods and services you purchase are increasing while your income is not. If a lender anticipates the rate of inflation, then they will fold this into the nominal interest rate that they charge to borrowers which would leave them untouched by the rate of inflation. Borrowers would actually be helped if the inflation rate was unexpectedly high. The dollars they use to pay back their loans would be worth less than the ones that the initially received in their loan. One certainty is that in periods of variable inflation, more resources will be devoted to accurately forecasting the rate of inflation.
Which of the following is true in an economy with a high and rising rate of inflation?
A lawyer who just resigned from her firm, and is looking for a new position
Which of the following would be counted as unemployed?
An owner of a small business.
Who is least likely to be hurt by unanticipated inflation?
