Econ Ch 7 study plan
Sixty years ago, more than _____ percent of adult men participated in the labor force. Today, the percentage of males participating in the labor force is about _____ percent.
86 70
Total Pop: 300 Adult, noninst., nonmilitary: 270 unemployed: 5 If the labor force participation rate is 75%, calculate the size of the labor force
Adult, noninstitutionalized, non military/labor force participation rate. 270/0.75=202.5 million
A price index is computed as
(cost of market basket)/ (cost of market basket in base year) × 100.
The nominal value of anything is its price expressed in ________, and the real value of anything is its value expressed in ________.
today's dollars; purchasing power
The ___ interest rate is the market rate of interest observed in contracts expressed in today's dollars, whereas the _____ interest rate equals the _____ interest rate minus the ____ rate of inflation.
nominal real nominal anticipated
The 120 million difference between the adult population and the combined total of people who are employed and unemployed can be classified as
not in the civilian labor force
Holders of cash lose during periods of inflation because the _____ of their cash depreciates at the rate of inflation.
purchasing power
People anticipate the inflation rate to be 8%. Banks are making loans at a 12% interest rate. Therefore,
the real rate of interest is 4% and the nominal rate is 12%.
Business fluctuations refer to
the ups and downs in overall business activity measured by changes in national income, employment and the price level.
During the past 60 years, many men have lost gainful employment because
they have stopped seeking work
The lowest point of a contraction is called the ____. The highest point of an expansion is called the _____.
trough peak
Leading indicators are events that have been found to occur before changes in business activities.
true
Calculate unemployment rate
unemployed adults / labor force labor force = employed adults + unemployed adults
calculate inflation
(Price Index of Target Year - Price index of Base Year) / Price index of base year x 100 for percent
Anticipated Rate of Inflation
(Price index of next year - price index of current year) / price index of current year x 100 for percent
cost of market basket
(price index in Target Year X Cost of Market Basket in Base year) / 100
If you invest $1,000 in a savings account that pays 2 percent annually, your $1,000 investment will have gained the most purchasing power in one year if the inflation rate is
1 percent
Base year
100
If last year a pineapple cost $2, and this year it costs $4, there has been a ________ percent rise in the price of the pineapple over a one-year period.
100
Jim's favorite breakfast is two eggs, 1/5 lb. of bacon, 1/7 lb. of white toast, 1/6 can (16 ounce can) of frozen concentrate orange juice, and 1 lb. of grapefruit. The following table contains 1991 and 2001 prices for these five items. Using 1991 as the base year, compute the price index for Jim's breakfast for 2001.
107.5
Bill lends Joann $1,000 for a year at a nominal interest rate of 5%. If both Bill and Joann expect the inflation rate to be 3% next year, then the real rate of interest is
2%
In percentage terms, the largest positive change in business activity in the United States since 1880 occurred during the 1990s.
False
Whenever inflation rates are overestimated for the life of a loan, creditors lose and debtors gain.
False
In the base year, the price index will always have a value of zero.
False (it's 100)
The ________ is a price index measuring the changes in prices of all new goods and services produced in the economy.
GDP deflator
the _____ measures what is happening to the average price level of all new, domestically produced final goods and services in our economy.
GDP deflator
All of the following are key price indexes except the
KLB
The values of NGDP for the years 1981 and 1982 are $3.1284 and $3.255 trillion, respectively. The values for RGDP for 1981 and 1982 are $5.2917 and $5.1893 trillion, respectively. According to the graph of NGDP and RGDP and the values of the two time series variables for 1981 and 1982, it is correct to state that
NGDP has always been increasing, but RGDP has been both increasing and decreasing. Between 1981 and 1982, NGDP increased by $.1266 trillion, corresponding to a rate of growth of 4.05%. RGDP decreased by $.1024 trillion, corresponding to a negative rate of growth of 1.94%.
Real interest rate
Nominal Interest Rate - Anticipated Interest Rate of Inflation
Which of these price indices shows the greatest price volatility?
PPI
Which price index resulted in the highest and most volatile measure of inflation?
PPI
The ____ Index uses annually updated weights from consumer spending surveys to measure average prices faced by consumers.
Personal Consumption expenditure
Note that the chain-weighted GDP is a measure of GDP that the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce calculates by continuously updating the weights of the various components of GDP to reflect changes in the relative prices and shares of the various components of GDP. According to the graph,
RGDP has increased and decreased.
According to the graph,
RGDP was most volatile during the 1930s and 1940s.
Which of the following is correct?
Real rate of interest = (Nominal rate of interest minus−Anticipated rate of inflation)
The table on the right shows four major price indices of the US economy: the Consumer Price Index (CPI), the Producer Price Index (PPI), the Personal Consumption Expenditure Index (PCE) and the GDP deflator. All four indices are used to measure inflation. Based on the data from the four indices in the table, which price index suggests the highest rate of inflation between the years 1996 and 1997?
The CPI indicating the highest inflation rate (2.34%) .
The table on the right shows four major price indices of the US economy: the Consumer Price Index (CPI), the Producer Price Index (PPI), the Personal Consumption Expenditure Index (PCE) and the GDP deflator. All four indices are used to measure inflation. Based on the data from the four indices in the table, which price index suggests the highest rate of inflation between the years 2000 and 2002? What was the corresponding interest rate suggested by this index?
The CPI indicating the highest inflation rate (4.46%).
The table on the right shows four major price indices of the US economy: the Consumer Price Index (CPI), the Producer Price Index (PPI), the Personal Consumption Expenditure Index (PCE) and the GDP deflator. All four indices are used to measure inflation. Based on the data from the four indices in the table, which price index suggests the highest rate of inflation between the years 2000 and 2004, and between 1999 and 2000. What were the corresponding rates suggested by these indices?
The PPI indicates the highest inflation rate at 10.50% for 2000- 2004; the PPI indicates the highest inflation rate of 5.78% for 1999-2000.
The table on the right shows four major price indices of the US economy: the Consumer Price Index (CPI), the Producer Price Index (PPI), the Personal Consumption Expenditure Index (PCE) and the GDP deflator. All four indices are used to measure inflation. Based on the data from the four indices in the table, which price index suggests the highest rate of inflation between the years 2000 and 2004, and between 1998 and 1999. What were the corresponding rates suggested by these indices?
The PPI indicating the highest inflation rate of 10.5% for 2000-2004; the CPI indicating the highest inflation rate of 2.19% for 1998-1999.
Suppose that in 2015, a typical U.S. student attending a state-supported college bought 10 textbooks at a price of $100 per book and enrolled in 28 credit hours of coursework at a price of $360 per credit hour. In 2016, the typical student continued to purchase 10 textbooks and enroll in 28 credit hours, but the price of a textbook rose to $110 per book, and the tuition price increased to $410 per credit hour. The base year for computing a "student price index" using this information is 2015. The value of the student price index in 2015 is
The base value for any year is 100
Which of the following statements is true concerning the historical picture of business activity in the United States?
The frequency and size of fluctuations around the trend has decreased since World War II.
One possible explanation for business fluctuations relates to ___, such as wars, dramatic increases in the prices of raw materials, and earthquakes, floods, and droughts.
external shocks
Once we pick a market basket of goods, we can construct a price index that compares the cost of that market basket today with the cost of the same market basket in a ______ year.
base
The ups and downs in economywide business activity are called ___, which consist of expansions and contractions in overall business activity.
business fluctuations
The _______ Index is the most often used price index in the United States.
consumer price
During the past 60 years, the percentage of the U.S. population that is male and employed has
fallen by about 20 percentage points
Suppose that in 2019 there is a sudden unanticipated burst of inflation. Consider the situations faced by the following individuals and determine who gains and who loses due to this inflation. A homeowner whose wages keep pace with inflation in 2019 and makes fixed monthly mortgage payments to a savings bank. As a result of this, the homeowner ____ and the savings bank ____.
gains loses
When inflation is ____ than anticipated, creditors lose and debtors gain. Whenever the rate of inflation is _____ than anticipated, creditors gain and debtors lose.
greater less
Consider an economy with only two groups of people: Wage earners and Goods sellers. If the price level increases by 20% while the nominal wages remains the same,
income will be redistributed from wage earners to goods sellers.
Typically during a recession
incomes fall and unemployment rises.
Recession
is a downturn in business activity for some length of time.
Determine the number of employed adults
labor force - employed adults
Based on the figures, the labor force participation rate is ____%
labor force/adult population
A banker who made a fixed rate auto loan ____, but the auto buyer who will repay the loan at a fixed rate of interest during 2019 ____.
loses gains
A retired individual who earns a pension with fixed monthly payments from her past employer during 2019 _____, but the employer who pays the fixed monthly payment to her _______.
loses gains
An apartment landlord who has guaranteed to his tenants that their monthly rent payments during 20192019 will be the same as they were during 2018 _____. The tenants who make fixed monthly rent payments _____.
loses gains
