Problem Set #2

Suppose an economy has an inflation rate of 3.8% and a bank makes a loan with an interest rate of 7.1% Then the real interest rate is?

3.3%

Suppose the economy's CPI in 2008 was 184 and the CPI in 2009 was 198. The inflation ate over the period from 2008-2009 was equal to ___

7.6%

What index is used to measure the average prices paud by a typical family

Consumer Price Index (CPI)

Wouldn't paying higher wages to its employees reduce Amazon's profits? Why would they have adopted such a policy?

No, the higher wage would not decrease profits if it motivates workers to work harder and be more productive

The following appeared in a newspaper article: "Inflation in the leigh valley during the first quarter of [the year] was less than half the national rate... so unlike much of the nation, the fear here is deflation- when prices sink so low the CPI drops below zero" Do you agree with the reporters definition of deflation?

No. Deflation is defined as a negative inflation rate

An article in the Wall Street Journal contained the following observation: "Every month, millions of workers leave the job market because of retirement, to care for children or aging parents, to pursue more education or out of discouragement. Millions of others jump in after graduating" The Millions of workers leaving the hob market for the reason given are

Not counted as unemployed in the BLS data because they are no longer actively looking for work

What advice for finding a job would you give someone who lost his or her job because fo machine learning?

You should tell the worker that he or she needs to learn new skills or move to another city to find a job

Suppose that the inflation rate turns out to be much lower than most people expected. In that case

a borrower will lose from the situation while a lender will gain

Suppose the fixed interest rate on a loan is 5.75% and the rate of inflation is expected to be 4.25%. The real interest rate is 1.5% Suppose now instead of 4.25% the inflation rate unexpectedly reaches 5.5% Who gains and who loses from this unexpected inflation?

a. borrowers gain from a lower real interest rate d. lenders lose from a lower real interest rate

currently, the BLS doesn't include homemakers in its employment and labor force totals. what would happen to the unemployment rate and the labor force participation rate if homemakers were included in these numbers?

a. the unemployment rate would decrease and the labor force participation rate would increase

An efficiency wage is

an above-market wage paid by a firm to maximize worker productivity

"Every month, millions of workers leave the job market because of retirement, to care for children or aging parents, to pursue more education or out of discouragement. Millions of others jump in after graduating" Even if they don't find a job right away, people entering the job market after graduating from high school or college will

be counted as part of the labor force by the BLS if they are actively looking for work

When the economy is at full employment a. the unemployment rate is greater than 0 b. all remaining unemployment is either frictional or structural c. the natural rate of unemployment prevails d. all of the above

d. all of the above

Which of the following is an example of cyclical unemployment? a. a student graduates from college and searches for a first job b. workers in the tourism industry in Maine are laid off during the winter c. due to technological change typewriter workers lose jobs and must retrain to find jobs in other industries d. during a recession, aircraft assemblers are laid off but expect to be recalled as the economy improves

d. during a recession, aircraft assemblers are laid off but expect to be recalled as the economy improves

What is the effect of the minimum wage law on the unemployment rate?

has only a small effect om the unemployment rate since only a small part of the labor force earns the minimum wage

What is the effect of efficiency wages on unemployment ?

increases the unemployment rate since firms pay a higher than market wage that increases the quantity of labor supplied

The real Interest rate

is equal to the nominal interest rate minus the inflation rate

The internet has ____ the size of menu costs

reduced

the effect of labor unions on overall unemployment is ____ since only a ____ percentage of the labor force outside the government is unionized

small;small

If someone lost his or her job because of machine learning, that person would be considered....

structurally unemployed

Menu costs are

the costs to firms of changing prices

When the economy is at full employment, unemployment is equal to

the natural rate of unemployment

If the economy is experience deflation

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

If inflation is expected to increase the nominal interest rate....

the nominal interest rate will increase

The natural rate of unemployment is

the sum of structural unemployment and frictional unemployment