econ chapter 33/ 34 study

Okun's rule of thumb states that a:

1 percentage point rise in the unemployment rate will tend to be associated with a 2 percent fall in output from its trend and vice versa.

Which age group tends to have the highest unemployment rates?

16-19 year olds

According to the quantity theory of money, if the monetary authorities allow the money supply to grow at a rate of 6 percent in an economy that is growing by 2 percent in real terms, then inflation will be:

4 percent.

The short-run Phillips curve tells policy makers that if inflation is currently 6 percent and unemployment is 4 percent, measures to reduce the inflation rate to 4 percent will most likely lead to an unemployment rate of:

6 percent.

If the U.S. money supply increases from $7.6 trillion to $8.3 trillion. If there is zero real economic growth, and velocity stays constant, then according to the quantity theory of money, the U.S. inflation rate during this period would be:

9 percent.

Why doesn't the minimum job proposal provide output directly useful to the marketplace?

If it did, it might be replacing jobs otherwise provided by the market.

What does the quantity theory predict will happen to inflation if the money supply falls 9 percent?

Inflation will fall by 9 percent

If productivity growth is 3 percent and wage increases are 5 percent, what would you predict inflation would be?

Inflation will rise by 2 percent

If people's expectations of inflation didn't change, would the economy move from a short-run to a long-run Phillips curve?

No

According to Okun's rule of thumb, if trend growth is 2 percent and the economy is producing at an annual rate of $5 trillion, a decrease in the rate of unemployment from 7 percent to 6 percent would be expected to be associated with which of the following changes in income?

Rise by $200 billion

Which of the following has not been an effect of globalization and a large trade deficit?

Significant decline in wages and unemployment in the non-tradable sector.

A reservation wage that is higher than the equilibrium wage creates:

Structural unemployment

What will likely lower cyclical unemployment?

The economy expands.

Why didn't unemployment rise during the 2000s even though the economy faced more and more globalization?

The government ran policies that created jobs in the non-tradable sector

If a politician adheres to the individual responsibility framework, which of the following would not be mentioned in their campaign manifesto?

The unemployed deserve jobs at respectable wages

Why would students be prevented from joining the minimum jobs program?

They would overwhelm the system looking for summer work.

True or false: The duration of unemployment rose significantly more during the 2008/09 recession relative to previous recessions.

True

True/ false: Economists who accept the quantity theory of money favor a monetary rule because they believe the short-run effects of monetary policy are unpredictable and the long-run effects are on the price level, not real output.

True

True/false: Inflation redistributes income from people who do not raise their prices to people who do raise their prices.

True

What are the distributional effects of asset inflation caused by an increase in the money supply?

Wealth is distributed from more cautious to less cautious individuals.

According to the text, if individuals base their expectations on the past we could say that their expectations are:

adaptive

This policy would fail to produce the expected result if

an increase in inflation became built into expectations, it would lead to other price increases and resulted in accelerating inflation.

Unemployment caused by recession is called:

cyclical unemployment.

One way to measure asset inflation is to:

divide nominal net worth by GDP; if it increases there is asset inflation.

With respect to the unemployment problem, social responsibility framework economists generally take the position that:

each person should have a job commensurate with their training or past job experience.

According to Okun's rule of thumb, if trend growth is 3 percent and the economy is producing at an annual rate of $7 trillion, if the rate of unemployment rose from 6 percent to 8 percent, income would be expected to:

fall by $70 billion

Using Okun's rule of thumb, if trend growth is 3 percent and the unemployment rate rises by 2 percentage points, output would be expected to have: Correct!

fallen by 1 percentage point

True/ false: Asset inflation tends to hurt those who save in risky assets.

false

True/ false: In today's globalized economy, a U.S. worker's reservation wage tends to be lower than the reservation wage of many workers in developing countries.

false

True/ false: Someone who believes in the individual responsibility framework believes that the standard measure of unemployment underestimates the level of unemployment.

false

Cyclical unemployment results from:

fluctuations in the economy

The effects of asset price inflation and asset price deflation generally:

have unequal effects on the economy.

The institutionalist theory of inflation differs from that of the quantity theory by focusing on:

how firms determine wages and prices.

The Phillips curve represents a relationship between:

inflation and unemployment.

According to the quantity theory:

inflation is everywhere and always a monetary phenomenon.

The problem portrayed by the short-run Phillips curve is that:

inflation tends to increase when unemployment falls.

Asset inflation:

is the rise in asset prices that exceed the rise in the real value of assets.

One reason goods inflation is preferred by policymakers is that it

keeps the economy away from asset deflation

The target rate of unemployment can be affected by all of the following except the:

level of output.

If inflation is highly volatile

mortgage contracts will likely be more complicated

Structural unemployment is caused by:

people losing a job when their skills become obsolete due to technological innovations.

As the economy moves to the right of the long-run Phillips curve inflationary:

pressures subside.

The jobs program suggested by the author was put forward in order to:

provide a middle ground approach to solving the unemployment problem.

The fact that more women have entered the labor force has:

raised the target rate of unemployment

A jobs program that offers higher wages to those with higher education:

raises the costs of the program.

In the U. S. potential output in the long run tends to:

rise at a trend rate of 2.5 to 3.5 percent per year.

Using Okun's rule of thumb, if trend growth is 3 percent and the unemployment rate rises by 0.5 percent, output would be expected to have:

risen by 2 percentage points.

Policymakers would change from an inflation target being an upper bound to a target to aim for because

small amounts of inflation allows us to keep illusions that we are better off than we really are. of inflation.

Technological change can result in:

structural unemployment.

Before the financial crisis of 2008,

the 2.5% inflation target was seen as an upper bound

A decline in the number of immigrants into the United States would most likely reduce:

the target rate of unemployment.

Globalization accompanied by large trade deficits most likely raises:

the target rate of unemployment.

True/false: Cyclical unemployment is caused by fluctuations in economic activity.

true

true/ false: Expectations of inflation are assumed to be constant at each point on a given short-run Phillips curve.

true

If the velocity of money is about 1.8 and money stock is about $8 trillion, what is real GDP?

we cannot compute real GDP from the data; we can only compute nominal GDP