Econ 2 ch.7
David's pay last year was $100,000. His pay this year increased to $115,000. The consumer price index increased from 100 to 115 over the same time period. What has happened to David's real income from last year to this year?
David's real income is unchanged.
Which of the following describes inflation?
It is an increase in the cost of a given basket of goods
What is excluded from the official calculation of the unemployment rate?
Students who are attending to school full time and not working.
If economists design a way to eliminate the substitution bias in CPI calculations, how is the CPI likely to change as a result?
The CPI will grow at a slower rate.
The base year for the price index is
an arbitrary year from which to measure price changes.
Which of the following is an example of frictional unemployment as defined in the text?
an auto worker has received a job offer two states away, and must take off one month between jobs in order to relocate
If you are looking at a country that has a relatively high proportion of workers ________, then the theory of frictional unemployment suggests that workers in this age group are the least likely to be unemployed for a significant period of time.
aged 55+ (wrong)
Which scenario could you use as an example of frictional unemployment when explaining it to a friend?
an economics professor living and working in Cali accepts a new position at a college in new jersey. she takes two months after finishing her current work to wrap things up and move out east
A price index is NOT
an inflation rate
Inflation makes certain things less valuable in real terms, including
anything expressed in dollars.
Some critics of the unemployment rate say that it under-reports the actual unemployment problem by:
considering discouraged workers to be out of the labor force
Using your understanding of economic history and inflation, which inflation target is most advisable?
1-2%
This past year inflation in Snowdonia has increased to 150%. As an economic analyst, you are charged with identifying those sectors of the population worst affected by this inflation event. Which group of people is likely to be worst affected by inflation?
disabled veterans living of fixed govt transfer payment
Cross-country comparisons of unemployment rates are difficult for all the following reasons except:
higher govt employment in developed countries
In Fairwind Country, there are only 4 goods: tourism, popcorn, carrots, and berries. Using the data in the following table, please calculate the CPI values for 2005 and 2015, using 1985 as a base year. The average family purchased the market basket indicated by the columns "Items" and"Quantity." ItemsQuantityYear:1985Year:2005Year:2015PriceAmount SpentPriceAmount SpentPriceAmount SpentTourism2$125.0 $150.00 $200.0
2005: 128, 2015: 176
In Fairwind Country, there are only 4 consumer goods or services: tourism, popcorn, carrots, and berries. Using the data in the following table, please calculate the CPI values for 2005 and 2015, using 1985 as a base year. The average family purchased the market basket indicated by the columns "Items" and "Quantity."
2005: 128; 2015: 176
After a long period of high inflation the minister of finance pledges "never again" and sets the inflation target at 0%. Why might such a low inflation target be a poor policy?
it could result in deflation
Which group of people is harmed by the redistribution of purchasing power due to unexpected inflation?
lender
When prices do not respond quickly to bring forces of supply and forces of demand to the equilibrium point, they are called:
sticky prices
Which form of unemployment suggests workers need to seek education and training and to update their skill sets?
structural
After the success of the Apollo space program, in the mid-1970s NASA budget cuts results in a decrease in the number of jobs for aerospace engineers. This was an example of ________.
structural unemployment
Labor force
the number of employed plus the unemployed
Which of the following BEST fits the definition of inflation?
the price of most goods and services increases by 5% over a 2 year period
As an economic analyst working for a major manufacturer, you are tasked with tracking the rising costs of inputs over the past several years. Which price index will provide the most accurate and relevant inflation measure for your employer?
the producer price index
The GDP Deflator is
the ratio of nominal GDP to real GDP
natural rate of unemployment:
the unemployment rate that would exist in a growing and healthy economy from the combination of economic, social, and political factors that exist at a given time; the sum of frictional plus structural unemployment
cyclical unemployment
unemployment closely tied to the business cycle, like higher unemployment during a recession
Which of the following demographic has the highest unemployment rate according to U.S. Census Bureau data?
young african men
Which of the following is a step in calculating a price index?
Computing the cost of all goods and services in the base period (wrong)
How may low inflation actually assist labor markets adjust towards equilibrium?
it allows for the gradual downward adjustment of real wages
Which of the following is an example of structural unemployment?
telephone operators replaced by computerized systems in the 1970s
Which of the following BEST describes the effect inflation has on purchasing power in the United States over the past several decades?
$100 today has the same purchasing power as $15 in 1972
Which of the following BEST describes the effect inflation has on purchasing power in the United States over the past several decades?
$100 today has the same purchasing power as $15 in 1972.
In the United States over the past several decades inflation has affected purchasing power. Which of the following BEST describes this effect?
$150 today has the same purchasing power as $20 in 1972.
While the U.S. unemployment rate fluctuates over time, it normally returns to a long-run average somewhere between
4% and 6%
In 2008 the price index was calculated at 165.2 with 2005 as the base year. In 2009 the price index increased to 181.6. What was the inflation from 2008-2009?
9.9%
how may low inflation actually assist labor markets adjust towards equilibrium?
it allows for the gradual downward adjustment of real wages
See the table below for international comparison of unemployment rates for four fictional countries. Based on this table, which country possesses the healthiest economy over the 1960-1980 period? International Comparison of Unemployment Rates Country 1960 1965 1970 1975 1980 Moria 5% 4.50% 4% 6.20% 7% Andalus 3% 2.50% 2.80% 3.40% 4% Euskadi 4.50% 5.20% 6% 5.60% 6% Xanadu 4% 4.50% 5% 5.50% 5.70%
it is impossible to determine with the info given
Advances in automation have caused significant disruption among all employees, both workers and management, in one small construction company. Review the biographies of three employees listed below and select the one most in danger of long term structural unemployment.
jacob installs drywall and has never received a high school diploma. he has two years of work experience in the industry
According to the U.S. Census Bureau data ________ have the lowest unemployment rate
older caucasian women
A key takeaway from analyzing trends in the U.S. unemployment rate over the past 50 years is how persistent these trends have been. For example, the long-run unemployment rate has remained constant at 4-6% despite major technological and social changes during this period. Caucasians continue to have the lowest unemployment rate of any ethnic group. Which long-term trend has persisted to the present day?
older workers (55+) have the lowest unemployment rate among all age demographics
A year ago Parker reached his retirement and left the business to pursue other interests. He is now spending lots of time playing golf and visiting his grandchildren. For purposes of employment he is considered:
out of the labor force
As more women entered the workforce in the late 20th century the long-run US unemployment rate has
remained mostly unchanged.
Over the past ten years the cost of subscription cable service has substantially increased while the cost of internet services has fallen. At the same time new TV streaming services have been introduced which allow consumers to watch premium cable channels over the internet. How will this cause the CPI to overstate the cost of living?
substitution bias - consumers are likely to switch from cable services to internet streaming services as a result of the relative price change
In compiling the CPI for the fictional country of Doggerland the fresh fruit component of CPI is calculated assuming the average consumer buys 4 apples, 5 pears, and 2 peaches each week. Over the course of the survey the price of apples has doubled while the price of pears and peaches has remained mostly unchanged. This is likely to cause WHICH shortcoming in the CPI? In which direction will this bias the CPI as a measure of the cost of living?
substitution bias, which will overstate the true cost of living
As productivity rises
the demand curve shifts out to the right.
eriods of high inflation generate winners as well as losers. Those living on fixed incomes suffer as their income fails to keep pace with cost of living increases, while those holding loans on fixed interest rates see their debt burden diminish. If the public can gain as well as lose from inflation, why is inflation generally unpopular with the public at large?
the redistribution of purchasing power from inflation in seen as arbitrary and unfair
Frictional unemployment occurs because in a world of imperfect information, it takes ________ for people to find jobs.
time
In the past 50 years the unemployment rate has reached below 5% on only a few occasions. When did some of these under 5% unemployment dips occur?
The early 1997-2000 and 1968-1970
For the definition of inflation, which of the following BEST fits?
The price of most goods and services increases by 6% over a 3 year period
When the macroeconomy is experiencing a higher than natural rate of unemployment, it must be because
wages cannot adjust downward quickly and easily
The demand for labor—that is, the quantity of labor that business is willing to hire at any given wage—has been shifting out a little each year because of rising productivity, from D0 to D1 to D2. What effect do you think this will have on wages?
wages will increase
The developing country of Azania is debating a new labor law that will finally allow women to enter the workforce in greater numbers. Until now, Azanian women have required the permission of a male guardian to seek employment, and can only work a maximum of 20 hours per week. Conservatives oppose the new law arguing that such a large expansion of the labor force will increase the unemployment rate in the long-run. What does the U.S. experience tell us about the likelihood of this coming to pass?
women entering the workforce has has little to no effect on the US unemployment rate
Among all high-income countries, which consistently has the lowest long-run unemployment rate in the past 30 years?
japan
Which group of people is harmed by the redistribution of purchasing power due to unexpected inflation?
lenders
frictional unemployment
unemployment that occurs as workers move between jobs
Given the table above, what is the price index for 2013, with 2012 as the base year having a price index of 100 (round your answer to the nearest whole number). Items Quantity in Basket 2012 Price 2013 Price Coffee 8 $4.00 $4.50 Tea 4 $2.00 $2.25 Soda 6 $1.25 $1.50
114
Given the table above, what is the price index for 2013, with 2012 as the base year having a price index of 100 (round your answer to the nearest whole number). Items Quantity in Basket 2012 Price 2013 Price Cake 3 $12.00 $13.00 Pie 4 $8.00 $10.00 Cupcake 10 $2.00 $2.50
118
Examine a basket of retail goods with the corresponding prices below. What is the price index in year 4 if year 1 is the base year? What is the price index in year 4 if year 3 is the base year? Good Amount Year 1 Price Year 2 Price Year 3 Price Year 4 Price Tuna 30 $2.50 $2.70 $2.95 $3.20 Onions 6 $0.70 $0.80 $0.92 $1.05 Sugar 1 $12 $14.50 $16.70 $19
133 and 109.56
Which of the following inflation rates is most likely to affect consumer behavior?
15% (the highest percent)
Below is a list of annual CPI values for the fictional country of Zeuslandia. During which year did this country experience the lowest annual inflation rate? Year CPI 1985 100 1986 105 1987 110 1988 115
1987-1988
If out of 125 people in the labor force, the number of employed workers is 100 and number of unemployed workers is 25, then the unemployment rate is ________.
20%
In the country of Cardonia, the natural rate of unemployment is 3.5% according to the Ministry of Economics. Last year there was an economic slow down where the actual rate of unemployment increased to 4.5%. Assuming that the unemployment percentages are accurate for Cardonia, what is the likely outcome for the economy of Cardonia?
Cardonia's economy will start growing again until real GDP is equal to potential real GDP and the unemployment rate equals 3.5%
From the following examples, select the example illustrating frictional unemployment
Justin works at an oil rig in Texas. He sees a better opening at a company in North Dakota and applies for the job. After he accepts their offer and quit his job, he takes a month to pack up and move to North Dakota.
Under ideal conditions inflation should not have any blurring effect on price signals. If wages and prices are rising at a constant 20% then individuals should be able to adjust their expectations accordingly. For example, if the price of bread increased by 20% and the price of the input flour also rose by 20%, the sellers should know that the real price of bread has not changed. The market equilibrium quantity and price has not changed. Why does inflation in the real world result in shortages and surpluses?
Price adjustments are not synchronized or smooth.
When the economy is at full employment, what is the relationship between real GDP and real potential GDP?
Real GDP is equal to real potential GDP.
The Campus Collective company, which creates unique apps for colleges, has recently lost three large university clients that made up 40% of its total revenue. This has hit the company hard and management finds it necessary to reduce staff or wages. The economy also appears to be headed toward a recession and gaining more clients will most likely be harder to accomplish. Because it is a smaller company everyone knows each other and knows there are tough choices ahead. Management brings up the idea of an across the board wage reduction so that no one be let go, but some employees don't believe that a wage cut will be equally applied to all. The employees are also not sure if other people working their same jobs in the economy are getting reduced wages. They start to argue against wage reduction and things get a bit heated. Which of the following theories best illustrate this wage stickiness scenario?
Relative wage coordination argument
In the early 2000s and flat screen TVs were introduced into the market. By the 2010s flat screens were flatter and less expensive. The technology changed quickly over just a few decades and improved consumers TV and entertainment experience. In regards to this technological improvement, how has the CPI calculation been biased?
The CPI has overstated the cost of living because of quality improvement bias.
Why are cross-country comparisons of unemployment rates difficult?
There are non-traditional labor markets (i.e. barter, subsistence agriculture) in many developing countries.
Reginald looked for work for six months but could not find a job to his liking. He now spends his time at the beach. For purposes of employment he is considered:
Which form of unemployment suggests workers need to seek education and training and to update their skill sets?
After a prolonged period of high inflation the government of Atlantia decides to set a target of 0% inflation going forward. As the new assistant economic minister, you are tasked with critiquing this policy. Which criticism of the 0% inflation target is best supported by the economic literature?
a 0% inflation target could lead to deflation
The country of Oceania possesses a highly developed industrial economy with a labor force participation rate of 80% and an unemployment rate of 4.2%. Eastasia meanwhile is classified as a developing economy and its economic ministry reports a labor force participation rate of 60% and an unemployment rate of 6%. Why might the fraction of Eastasia's working-age population engaged in economic activity still be higher than that of Oceania?
a significant fraction of eastasia's working-age population is engaged in the informal economy including subsistence activities, barter, and short-term work
The base year for the price index is
an arbitrary year from which to measure price changes
Why does Inflation increase uncertainty in the markets?
because it is harder to stay aware of how one product cost companies to another
Some critics of the unemployment rate say that it under-reports the actual unemployment problem by:
considering discouraged workers to be out of the labor force.
The prices of which of the following items are included in the GDP deflator?
consumption, investment, govt expenditures plus exports minus imports
David's pay last year was $100,000. His pay this year increased to $115,000. The consumer price index increased from 100 to 115 over the same time period. What has happened to David's real income from last year to this year?
dav's real income is unchanged
In the early 1990s the introduction of computers to Indian banks caused significant unrest among bank tellers afraid the new technology would result in structural unemployment. If technology is a common cause of structural unemployment, how can the Indian (or any) government justify allowing technological improvements which cause workers to lose their jobs?
in the long run new tech. can create demand for high skilled workers which can offer the loss of low skilled workers
Below is a graph depicting a shift in the labor market in response to a change in economic activity. Following the change shown we would expect the level of cyclical unemployment to ________.
increase
You are an economist studying the small country of Mardodus. As you look at the data, you see Mardodus has experienced an influx of updated technology to its manufacturing plants, service industry and the medical field in the last three years. This change boosted the growth of the country's productivity by 75%, yet you see that wages have been very slow to respond to this growth. As you begin to analyze the natural unemployment rate for this time frame, what do you most likely discover?
natural rate of unemployment will decrease because the productivity growth in the short term has passed up wage growth
Rapid technological change is likely to increase which problem MOST for CPI as an accurate measure of cost of living changes?
new goods bias
Reginald looked for work for six months but could not find a job to his liking. He now spends his time at the beach. For purposes of employment he is considered
out of the work force
The chart below displays the total spending for a typical consumer on a fixed (unchanging) basket of goods during a four year period. If 1995 is the base year, what is the price index and inflation rate in 1998? Year CPI 1995 $15,052 1996 $15,500 1997 $16,500 1998 $19,000 1.15, 15.2% 1.26, 26.2%
1.26, 15.2%
Below is a list of annual CPI values for the years 2000-2003. Using these values please calculate the average annual rate of inflation over this period. Year CPI 2000 200.2 2001 205.6 2002 208.2 2003 209.1
1.46%
Calculate the unemployment rate based on the following data for a country: Population: 200, Employed workers: 140, Labor Force: 160, Discouraged workers: 10.
12.5%
The number of people employed in one country is 230 million, with a total number of unemployed people at 40 million. The total population for the country is 500 million. What is the unemployment rate?
14.8% the unemployment rate is not calculated out of the entire pop
Entering January 2000, the price index for a basket of consumer goods was standardized at 100. This price index increased to 103.4 in January 2001, 106.2 in 2002, 108.5 in 2003, and 110.2 in 2004. Calculate the inflation rates in 2000, 2001, 2002, and 2003.
2000; 3.4%, 2001; 2.7%, 2002; 2.2%, 2003; 10.2%
The Department of Economic Health in the country of Cavia has calculated the price index for a basket of goods from 2014 to 2018. January 2014 is the standardized price index (at 100) for a basket of consumer goods. The price index increased in 2015 to 105.7, in 2016 to 108.6, in 2017 to 115.9, and in 2018 it increased to 120.4. What are the yearly inflation rates in Cavia for 2015, 2016, 2017, and 2018?
2015: 5.7%; 2016: 2.7%; 2017:6.7%; 2018:3.9%
In the table below there are three years of a basket of retail goods. From this information calculate the price index of 1990 if the base year in 1980? (Round your answer to the nearest whole number.) Good Amount 1980 1985 1990 Tomatoes 25 $0.15 $0.25 $0.55 Milk 5 $1.50 $2.23 $2.95 Eggs 1 $1.00 $1.25 $1.50
245
in the table below there are three years of a basket of retail goods. From this information calculate the price index of 1990 if the base year in 1980? (Round your answer to the nearest whole number.) Good Amount 1980 1985 1990 Tomatoes 25 $0.15 $0.25 $0.55 Milk 5 $1.50 $2.23 $2.95 Eggs 1 $1.00 $1.25 $1.50
245
The small coastal town of Innsmouth in Essex County, MA has a total population of five thousand, of whom four thousand are aged sixteen and above. The nearby Miskatonic University is currently studying the town's labor force after recent allegations of unusual work patterns by the town's inhabitants. The university's labor economists find that only one thousand of the town's inhabitants are currently employed, mostly at a small gold refinery running of the leanest kind of part-time. A further 100 townspeople are classified as unemployed---not working but currently searching for new employment. Based on these finding, what is Innsmouth's current labor force participation rate and percentage out of the labor force?
27.5% and 72.5%
The country of Snowdonia has a total adult population of 10 million, and of these 210 thousand are currently out of work and actively searching for new employment. A further 2.9 million are not working because they are retired, institutionalized, or simply choose not to work (i.e. homemakers and full-time students). Finally a total of 100 thousand citizens are currently enlisted with the Snowdonian military. Assuming the Snowdonian ministry of statistics uses the same unemployment formula as the U.S. Bureau of the Census, what is Snowdonia's current unemployment rate?
3%
The small country of Vinlandia has a total adult population of 5 million. Of these 3.5 million are currently employed while 500 thousand are out of work and currently searching for new employment opportunities. The Ministry of Statistics estimates there are 300 thousand retirees and 150 thousand who are out of work and not actively searching for new employment opportunities. To these can be added 300 thousand homemakers, 200 thousand full-time adult students, and 50 thousand active duty military personnel. If the Vinlandia Ministry of Statistics follows the labor force criteria used by the U.S. Bureau of the Census, what is the size of Vinlandia's labor force?
4 million
In the far off kingdom of Viracien there is a healthy sized population of citizens over 16 years old. The last census indicated a total adult population of 5 million people. This year a recession hit and 237 thousand people were let go from their jobs and are on the hunt to find new work. Because of the recession many took early retirement and there is now a population of 1.3 million who are not working or looking for various reasons. Because of the unrest, the military of Viracein has increased its ranks and is now grown to a total of 50 thousand citizens serving the country. If Viracein uses the same calculation to find the unemployment rate, what is the country's unemployment rate?
6.5%
In the early 1980s, a new technology was introduced to banks where customers could withdraw their money without having to enter the bank or keep baking hours. As the first ATMs began to be introduced to more and more banks, it began to have an effect on bank personnel. Thinking about the bank environment, identify who would most likely be impacted by this technology change and suffer long term structural unemployment?
A bank teller with 4 years of relevant work experience and a high school diploma.
Which scenario could you use as an example of frictional unemployment when explaining it to a friend?
An economics professor living and working in California accepts a new position at a college in New Jersey. She takes two months after finishing her current work to wrap things up and move out East
With a Consumer Price Index of 179.8 at the end of last year and 186.5 at the end of this year, the country experienced which of the following?
An inflation rate of 3.59 percent
In the last few decades the electronics manufacturing sector has found it difficult to compete with electronics from foreign competitors. High labor costs is one of the main reasons economist site as the lack of competitiveness for the electronics manufacturing industry. If there was modest inflation how could it possibly help the electronics manufacturing industry compete?
Business loans would cost less for the U.S. electronics manufacturers (wrong)
In the country of Cardonia, the natural rate of unemployment is 3.5% according to the Ministry of Economics. Last year there was an economic slow down where the actual rate of unemployment increased to 4.5%. Assuming that the unemployment percentages are accurate for Cardonia, what is the likely outcome for the economy of Cardonia?
Cardonia's economy will grow until real GDP is equal to potential real GDP and the unemployment rate equals 3.5%.
A contraction in the business cycle is likely to result in which form of unemployment increasing?
Cyclical
Which of the price indices below measures the cost of a basket of goods comprising of all the components of GDP?
GDP Deflator
When the federal government calculates the cost of living they use the core inflation index instead of CPI, and use it to make policy decisions. What is one of the reasons to use the core inflation index as opposed to the CPI?
It is difficult to calculate food and energy prices. (wrong)
Based on the following table comparing fictional international country unemployment rates, the country of Ulidia seems to have had fairly low unemployment rate throughout the years until 1985. Ulidia is however, a developing country and with the Ministry of the Economy reporting there is 65% of the labor force participation and 6% unemployment rate in 1985. Knowing it is a developing economy, why might the 6% rate be inaccurate? International Comparison of Unemployment Rates Country 1970 1975 1980 1985 Ulidia 4% 2.8% 3.4% 6.0% Agreriven 7% 6.0% 5.7% 4.5% Saede 3% 4.5% 3.4% 5.2% Galoiri 5% 7.0% 5.5% 2.5%
It is inaccurate because Ulidia has a large portion of the working-age population that participates in the informal economy of short-term work, bartering, or other subsistence activities.
Which of the following does NOT describe inflation?
It means that the price of every good and service is rising.
In 1985 inflation in Israel reached a record 500%. How did this period of high inflation affect market adjustments towards equilibrium price and quantity?
Markets adjusted to equilibrium more erratically and slowly.
Which of the following is NOT a shortcoming of using the CPI to measure changes in the cost of living.
Monetary policy
During the 1990s worker productivity growth spiked as computers and the internet were introduced to many businesses for the first time. How did this affect the natural unemployment rate?
Natural unemployment decreased as productivity growth outstripped wage growth
Substitution Bias:
One one good or service becomes more expensive relative to others, consumers tend to substitute away from the more expensive item towards the cheaper item; this means that the weights used to calculate the CPI are no longer accurate, causing the CPI to overstate the cost of living
Out of the labor force
Out of paid workforce and/or not actively looking for a job
The unemployment rate measures:
The percentage of the labor force who do not have a job, but are looking for one.
Which of the following BEST fits the definition of inflation?
The price of most goods and services increases by 5% over a 2 year period.
As the economic adviser to the President you are tasked with devising a set of policy recommendations to reduce the level of frictional unemployment and improving efficiency in the labor market. Which of the following policy options is a good candidate for your list of recommendations?
a federal study to help job searchers locate to new job opportunities
Based on what you know about how the price index is constructed, which of the following price increases will lead to the largest increase in the price index?
a housing shortage causes rent prices to increase by 10% in a single year
The idea that only the most efficient workers will depart in response to a wage cut is called ________.
adverse selection of wage cuts
The President is concerned that a recent financial crisis will increase the natural rate of unemployment. After three full quarters of negative economic growth the unemployment rate now stands at 10%, and she fears it will persist at this level indefinitely. As the President's economic advisor, which possible reply to the President's concerns most agrees with natural unemployment rate theory?
all else being equal, the cyclical unemployment brought about by the recession will not affect the natural unemployment rate
Accounting for quality improvements is one of the major challenges to using the CPI as a measure of the cost of living. Quality changes in which of the following goods is likely to give economists the most trouble?
automobiles
As an economic analyst in the developing country of Lakto you are tasked with compiling a measure of inflation over the last several decades. Due to limited resources you can only choose the price of one good to serve as the estimate of inflation over this period. Which of the consumer goods listed below will serve as the BEST estimator?
bread
As a government economist you are tasked with estimating the impact of consumer electronics on the CPI. Which of the following is not an example of how consumer electronics cause the CPI to overstate the true cost of living?
consumer electronics represent a relatively small share of consumer expenditure compared to rent, healthcare, and edu
Jane is an unemployed construction worker desperate to find employment so she can cover her mortgage and basic living expenses. She is willing to work for any wage, yet is unable to find any paid work given the poor state of the economy. She continues her search despite the lack of opportunities. Which of the following economic terms best describes Jane's current predicament?
cyclical unemployment
Joseph is an unemployed yard landscaping worker who is trying to find employment as he last had work seven months ago. He is now at a point where he will take any wage even if low to get money to pay the bills. He talks to businesses and landscaping companies on a daily basis but continues to be unable to find work. How would you describe his experience with the correct economic term?
cyclical unemployment
Joseph is an unemployed yard landscaping worker who is trying to find employment as he last had work seven months ago. He is now at a point where he will take any wage even if low to get money to pay the bills. He talks to businesses and landscaping companies on a daily basis but none are hiring due to an ongoing recession. How would you describe his experience with the correct economic term?
cyclical unemployment
The consequences of unemployment are likely more serious in developing countries because...
developing countries are more likely to lack unemployment assistance programs
Economists have calculated that the natural rate of unemployment for the small Kingdom of Illyria is 4%. During an unprecedented economic boom the actual rate of unemployment has decreased to a mere 3%. Assuming the economists' calculations are accurate, which of the following is a likely outcome for the Illyrian economy?
economic growth will slow in future quarters until real GDP is equal to potential real GDP and the unemployment rate equals 4%
The idea that firms will get the most for their money when they pay wages higher than the equilibrium wage is called:
efficiency-wage theory
In the supply-demand diagram used to represent phenomenon such as cyclical unemployment, the demand (downward-sloping) curve represents ________.
firm demand for labor
Tom graduated from college in June but was still looking for work in August. This is an example of ________.
frictional unemployment
There are certain types of unemployment that exist at all times and determine the natural rate of unemployment. Which of the following types fit this description?
frictional unemployment and structural unemployment
Which types of unemployment exist at all times and determine the natural rate of unemployment?
frictional unemployment and structural unemployment
Which of the following is a commonly cited explanation for the relatively high level of natural unemployment in European countries compared to the United States?
generous unemployment benefits
Which of the following individuals would be excluded from the unemployment rate?
george who is staying home to tend to his children while his partner works
Which is the largest expenditure category in the US CPI?
housing
Which of the following is included in the core inflation index calculation?
housing prices
A colleague at the Ministry of Macroeconomics insists that cyclical unemployment is impossible as labor markets naturally move towards equilibrium. This is illustrated in the graph below where an economic contraction causes equilibrium to shift from E0 to E2. You reply that equilibrium is unlikely to move towards E2 and will instead stay fixed at E1,resulting in a labor surplus equal to the distance between Q0 and Q1. Which hypothesis best supports your argument of sticky downward wages?
if employers cut wages it will cause them to lose their most productive workers first, so they are most likely to use layoffs to address poor econ conditions
With accelerated inflation In the 1980s middle-class Americans benefited primarily because
in real terms, their home mortgage debts decreased in value
If the Consumer Price Index was 120 at the end of last year and 125 at the end of this year, Americans experienced which of the following?
inflation
You work as an economic analyst at a small manufacturing firm producing umbrellas. Your CEO is overjoyed that revenues doubled over the past month as prices increased 200%. She interprets the higher prices and strong sales as a signal there is a shortage in umbrellas, and orders production increased. How would you assess her interpretation of events?
inflation is a possible explanation for the price and revenue increase so analyzing input prices is advisable before increasing production
In the base year in a small island macroeconomy, nominal GDP was $400m. In a later year when the general level of all prices was twice as high, nominal GDP reached $1000m. Between the base year and the later year:
inflation occurred
Recently the steel industry has struggled to compete with foreign imports. Economists cite high labor costs as a main impediment to the competitiveness of the domestic steel industry. How might modest inflation help the domestic steel industry compete?
it allows real wages to adjust downwards more easily
Based on the following table comparing fictional international country unemployment rates, which country from the 1970s to 1985 had the best and healthiest economy?
it can't be determined just by the info in the table
In the last few decades the car manufacturing sector has found it difficult to compete with foreign car imports. High labor costs is one of the main reasons economist site as the lack of competitiveness for the car manufacturing industry. If there was modest inflation, how could it possibly help the car manufacturing industry in the United States compete with foreign car manufacturers?
it could allow real wages to downwardly adjust more easily
in the last few decades the car manufacturing sector has found it difficult to compete with foreign car imports. High labor costs is one of the main reasons economist site as the lack of competitiveness for the car manufacturing industry. If there was modest inflation, how could it possibly help the car manufacturing industry in the United States compete with foreign car manufacturers?
it could allow real wages to downwardly adjust more easily
Which of the following does NOT describe inflation?
it means that the price of every good and service is rising
In 1985 inflation in Israel reached a record 500%. How did this period of high inflation affect market adjustments towards equilibrium price and quantity?
markets adjusted ti equilibrium more erratically and slowly
Until six months ago Jane worked as an agricultural engineer until her employer filed for bankruptcy. For the first four months she actively searched for new employment opportunities, yet the past couple months she has become discouraged in her job search. She is no longer actively looking for work and spends her time on hobbies such as pottery and painting. According to the U.S. Bureau of the Census criteria, Jane would now be considered ________ .
out of the labor force
Over the past year inflation in Tropico has increased to over 40%. As an economist, you are tasked with identifying those most vulnerable to the ravages of high inflation so that the government knows whom to help first. Which of the following types of people is most likely to be harmed by high inflation?
pensioners living on a fixed income
Under ideal conditions inflation should not have any blurring effect on price signals. If wages and prices are rising at a constant 20% then individuals should be able to adjust their expectations accordingly. For example, if the price of bread increased by 20% and the price of the input flour also rose by 20%, the sellers should know that the real price of bread has not changed. The market equilibrium quantity and price has not changed. Why does inflation in the real world result in shortages and surpluses?
price adjustments re not synchronized or smooth
Which of the following is the name used to describe the price index that consists of raw materials and intermediate goods?
producer price index
When the economy is at full employment, what is the relationship between real GDP and real potential GDP?
real GDP is equal to real potential GDP
The Campus Collective company, which creates unique apps for colleges, has recently lost three large university clients that made up 40% of its total revenue. This has hit the company hard and management finds it necessary to reduce staff or wages. The economy also appears to be headed toward a recession and gaining more clients will most likely be harder to accomplish. Because it is a smaller company everyone knows each other and knows there are tough choices ahead. Management brings up the idea of an across the board wage reduction so that no one be let go, but some employees don't believe that a wage cut will be equally applied to all. The employees are also not sure if other people working their same jobs in the economy are getting reduced wages. They start to argue against wage reduction and things get a bit heated. Which of the following theories best illustrate this wage stickiness scenario?
relative wage coordination argument
What is excluded from the official calculation of the unemployment rate?
students who are attending to school full time and not working
If technological growth and innovation is halted over a protracted period, which CPI bias problem is likely to persist?
substitution bias
The country of Zanzibar has experienced a halt in its technological growth and innovation over a protracted period. Which CPI bias problem is likely to persist in this scenario?
substitution bias
The mid-1990s saw a rise in the use of mobile phones in the general population. The technology continued to improve in the early 2000s and in the mid-2000s smartphones revolutionized the way people communicated. The technology has changed very rapidly and improved the lives of consumers. With these rapid changes, what would you suspect has happened to the CPI calculation?
the CPI has overstated the cost of living because quality improvement bias
If economists design a way to eliminate the substitution bias in CPI calculations, how is the CPI likely to change as a result?
the CPI will grow at a slower rate
While Japan has enjoyed a persistent low unemployment rate compared to other high-income countries, this may paint too rosy a picture of unemployment in Japan because
the Japanese labor force has been shrinking for 20+ years. (wrong)
Which of the following is a commonly cited reason for a decrease in the unemployment rate between the 1980s and today?
the baby boomer pop reaching middle age
Inflation makes certain things less valuable in real terms, including:
the dollar
In the past 50 years the unemployment rate has only reached 10% on two occasions. When did these two unemployment spikes occur?
the early 1980s and 2007-2009
Two analysts at the Bureau of Labor statistics are having an argument about the accurate measure of inflation over the past year. The first economist recalculated this year's GDP in the past year's prices and then took the ratio of nominal and real GDP. Using this method they calculated an inflation rate of 2.5%. The second economist used a survey of household goods to estimate an inflation rate of 2.3%. You are asked to adjudicate their dispute. Which is correct?
the first economist using the GDP deflator
If a nation's labor force receives a significant influx of young workers:
the natural rate of unemployment is likely to increase
In recent years worker productivity growth in the small country of Xanadu has nearly doubled as new technologies have revolutionized many manufacturing and service sectors. As an economist analyzing the phenomenon you are surprised to find that wage growth has remained stagnant despite these productivity gains. Based on these findings, what do you expect to find when you review the natural unemployment rate during this period?
the natural unemployment rate will decrease due to productivity growth outpacing wage growth
To find unemployment, you need to calculate
the number of unemployed workers divided by the labor force
to find unemployment, you need to calculate
the number of unemployed workers divided by the labor force
You attend a meeting of the local steelworkers union chapter to find the employees up in arms. They had agreed to a 5% wage cut due to the recession but rumor has it that the white-collar employees in the corporate office will receive no pay cuts and an even larger Holiday bonus this year. Management denies the rumors, yet already some angry employees are calling for a work slowdown to protest. This event illustrates which theory supporting the downward stickiness of wages?
the relative wage coordination argument
This past year inflation in the fictional country of Zeelandia reached an astonishing 150%. A fellow economist at the Ministry of Economics claims this will have little effect on price signaling, as producers can simply take the 150% inflation as a given and interpret any deviations as a true price signal. For example, if the cost of oranges increases by 155% while inflation is 150% then demand has increased and producers should produce more oranges. Do you agree with your colleague's assessment? Why or why not?
this is a poor assessment as shirt term inflation and price change are not so predictable
One of the criticisms about the unemployment rate is that it considers discouraged workers to be out of the labor force and
under-reports the actual unemployment problem.
structural unemployment:
unemployment that occurs because individuals lack skills valued by employers
The President for Life of the small country of Yucatania is celebrating the 40th anniversary of their 'election' to office. In order to highlight how living standards have improved during their time in power they commission a series of propaganda posters showing how wages have increased by 1000% over the past 40 years. As an economist, what would you want to say to the President about this statistic (hopefully from a safe exile)?
wage growth is a poor indicator of living standards without taking into account increase in consumer prices over the same period
You have older parents who have been saving for retirement for decades. They are now getting close to retirement age and are looking at their options. One would like to leave everything in the pension fund and draw out a fixed, unchangeable amount over their retirement time. Your other parent wants to take out a chunk of retirement funds and purchase a business and use the profit from it to generate funds on which to live. You have noticed that inflation over the last year is on a rapid rise. What would you advise your parents to do based on what you know of inflation and its redistribution of purchasing power?
you would advise them to buy a business with their retirement funds and keep their money working for them to keep up with inflation
