Chapter 9 Economics

Suppose the CPI in 2008 was 215.3 and the CPI in 2009 was 214.6, what was the inflation rate between 2008 and 2009?

-0.3 percent

Which of these persons is officially unemployed?

A non-working individual who has looked for a job in the past week

Which of these demographic groups typically suffers from higher unemployment rates?

African Americans

Of the eight categories in the CPI market basket, which three categories make up more than 75% of the basket?

Housing, transportation, and food

Which of the following is not one of the conditions someone needs to meet to be counted as​ unemployed?

They had worked only one hour per week during the previous four weeks.

The advice to "retrain" would be most appropriate for which of the following types of unemployment?

structural unemployment

If the economy is experiencing​ deflation,

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

When deflation occurs

the real interest rate is greater than the nominal interest rate.

To obtain prices of a representative group of goods and services, the Bureau of Labor Statistics (BLS) conducts a monthly survey of __________ households nationwide on their spending habits. The results of this survey are used to construct a market basket of __________ types of goods and services purchased by the typical urban family of four.

14,000; 211

Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid?

8 percent

Which of these statements about interest rates and inflation is true?

If there is zero inflation, the nominal interest rate is equal to the real interest rate.

What impact would including members of the military in employment, labor force, and working-age population statistics have on the unemployment rate and the labor force participation rate?

Including members of the military would reduce the unemployment rate and increase the labor force participation rate.

Suppose you are available for work but have not looked for a job for at least the last four weeks because you believe that no jobs are available. You would then be counted as __________.

a discouraged worker

Which of the following describes a situation in which the person is hurt by inflation?

a person paid a fixed income during an inflationary period

Suppose that in 2018, all prices in the economy double and that all wages and salaries also double. In 2018 you

are no better off or worse off than you were in 2017 as the purchasing power of your salary has remained the same.

When actual inflation is less than expected inflation

borrowers lose and lenders gain.

At full employment, __________.

cyclical unemployment is zero

Unanticipated deflation __________.

hurts net debtors

If the inflation rate is anticipated, __________.

inflation may not be a major problem

An advantage of the establishment survey over the household survey of the labor market is that the establishment survey

is based on actual payrolls, rather than on unverified answers.

If inflation is anticipated, __________.

it costs less to society than if unanticipated

In calculating the CPI, the __________.

market basket does not include large equipment purchased by firms

The consumer price index __________.

measures the cost of an unchanging basket of goods and services

The type of unemployment most likely to result in hardship for the people who are unemployed is

structural because this type of unemployment requires retraining to acquire new job skills.

If inflation is expected to​ increase

the nominal interest rate will increase.

The natural rate of unemployment is the __________.

unemployment rate that results when the economy produces the potential level of real GDP

Nominal incomes generally increase with inflation because

when inflation is​ anticipated, average nominal incomes also increase by the same percentage as the rate of inflation.

The three types of unemployment are

​frictional, structural, and cyclical unemployment.

If the CPI was 207 in 2007 and 225 in 2011, what pay raise would someone who earned $50,000 in income in 2007 have to receive in order to keep her purchasing power constant in 2011?

$4,348

The​ "normal" underlying level of unemployment in the economy is

-the natural rate of unemployment. -the sum of structural unemployment and frictional unemployment. -the​ full-employment rate of unemployment.

Cyclical unemployment is unemployment caused by a recession.

As output​ (GDP) is​ increasing, the amount of cyclical unemployment would decrease

The price index which is used to measure changes in the cost of living is the

Consumer Price Index​ (CPI).

When the economy is at full employment, which types of unemployment remain?

Frictional and structural

An unemployment insurance program has which of the following effects?

It increases the amount of time spent searching for a job.

In the fall of​ 2017, Apple introduced two new models of its iPhone. The new models had faster processors and better cameras than the previous model and sold for higher prices. How did the introduction of the new models of the iPhone affect the​ CPI?

The CPI does not change.

Which market basket specifically targets intermediate goods?

The basket used by the producer price index

What is the difference between the consumer price index and the producer price​ index?

The consumer price index is an average of the prices of the goods and services purchased by the typical urban family of​ four, whereas the producer price index is an average of the prices received by producers of goods and services at all stages of the production process.

Which of these groups is included in the labor force?

The unemployed

The producer price index tracks the prices firms receive for goods and services at:

all stages of production

In general, __________ have much lower unemployment rates than other individuals with other levels of education.

college graduates

Workers laid off as a result of a recession suffer

cyclical unemployment.

Since nominal incomes increase with​ inflation,

expected inflation does not affect the purchasing power of the average consumer.

Efficiency wages cause unemployment because

firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied.

When the economy is at full​ employment, which types of unemployment​ remain?

frictional and structural

The short-term unemployment that arises from workers, in the process of changing jobs, is called __________.

frictional unemployment

The "normal or natural" underlying level of unemployment in the economy is the __________.

full employment rate of unemployment

The real interest rate equals the nominal interest rate ________ the inflation rate.

minus

The stated interest rate on a loan is the

nominal interest rate.

Economic variables that are calculated in current year prices are referred to as __________ variables, while variables that have been corrected to account for the effects of inflation are __________ variables.

nominal, real

Most economists believe that the biases in the consumer price index cause the CPI to overstate the true inflation rate by about

one-half to one percentage point.

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and job requirements is called __________.

structural unemployment

The BLS collects price statistics from traditional​ full-price retail​ stores, which do not reflect the prices some consumers pay by shopping at discount stores or on the Internet. This is a description of which​ bias?

the outlet bias

The labor force participation rate is defined as

the percentage of the working-age population in the labor force.

Changes in the CPI overstate the true inflation rate due to four​ "biases." If apple prices rise rapidly during the month while orange prices​ fall, consumers will reduce their apple purchases and increase their orange purchases. Which of the four biases is concerned with this consumer​ behavior?

the substitution bias

The type of inflation that is a greater problem to society is

unanticipated​ inflation, since it causes greater redistribution of income between those making payments and those awaiting payments in the future.