Chapter 7.2, 7.3, 7.4

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

Adjusted for changes in the price level.

Everything else remaining unchanged, demand-pull inflation could arise as a result of:

An increase in investment by firms.

Which of the following correctly describes the relationship between prices and wages?

An increase in nominal wages causes inflation, and inflation causes workers to demand even higher wages in order to keep their real income constant.

Cost-push inflation could arise as a result of:

An increase in oil prices

Relative price changes:

Are important signals for allocating an economy's resources efficiently.

Unemployment benefits are:

Cash transfers to those who lose their jobs due to cyclical fluctuations and actively seek employment.

One of the most widely reported measures of inflation is the _____

Consumer price index

A decrease in aggregate supply causes:

Cost-push inflation

Inflation:

Decreases the purchasing power of a given amount of money.

Real interest rate equals the:

Difference between the nominal interest rate and the inflation rate.

Suppose an economy had an inflation rate of 7% last year that has decreased to 6% this year. This means that the economy is:

Experiencing disinflation.

Unemployment rates may be overstated:

If a large number of people operate in the underground economy.

Suppose inflation is expected to be 2% next year and an employer and employee agree to a 3% increase in nominal wage. Which of the following will be true in this case?

If the actual rate of inflation is 2%, both the employer and the employee will be satisfied with the wage agreement.

The misery index:

Is the sum of the unemployment rate and inflation rate.

Inflation is unpopular because _____.

It makes financial planning more difficult

Which of the following is true of the consumer price index (CPI)?

It measures the cost of a market basket of consumer goods and services over time.

If inflation is much higher than originally anticipated, _____ are better off and _____ are worse off.

People who borrowed at fixed interest rates; banks that extended loans at fixed interest rates

Inflation is defined as:

Sustained increase in the average price level of goods and services in an economy.

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

Suppose the nominal interest rate is 3% and the inflation rate is 5%. In this case, _____.

The nominal interest earned for lending money will not cover the loss of spending power caused by inflation.

The nominal interest rate and the real interest rate will be the same when:

The rate of inflation is zero.

In the market for loanable funds, the equilibrium interest rate is determined by the intersection of:

The upward-sloping supply curve for loanable funds and the downward-sloping demand curve for loanable funds.

An economy is viewed as operating at full employment when:

There is no cyclical unemployment.

Which of the following is true of unemployment benefits?

They allow for a higher-quality job search and greater economic efficiency.

Which of the following is true of inflation?

Unanticipated inflation creates more problems than anticipated inflation.

Counting overqualified workers as employed tends to:

Understate the actual amount of unemployment.

The nominal interest rate:

Varies directly with the rate of expected inflation in an economy.