64)
The natural rate of unemployment is the amount of unemployment
64)
A)
that exists when the economy goes into recession.
B)
equal to frictional plus structural unemployment.
C)
that exists when the economy is in an expansion.
D)
associated with a business cycle recession.
65)
Those workers who lost jobs at Alcatel–Lucent because of the decline in demand for
telecommunication products experienced
65)
A)
seasonal unemployment.
B)
cyclical unemployment.
C)
structural unemployment.
D)
frictional unemployment.
66)
If the federal government implements programs so that the unemployed are more quickly matched
with jobs, then
66)
A)
the natural rate of unemployment will increase.
B)
the natural rate of unemployment will not change.
C)
the natural rate of unemployment will decrease.
D)
the natural rate of unemployment could either increase or decrease.
67)
Suppose you lend $1,000 at an interest rate of 10 percent over the next year. If the expected real
interest rate at the beginning of the loan contract is 4 percent, then what rate of inflation over the
upcoming year would be most beneficial to you the lender? An inflation rate
67)
A)
equal to 4 percent.
B)
equal to 0 percent.
C)
greater than 6 percent.
D)
equal to 6 percent.
68)
After the job losses at the Alcatel–Lucent corporation, laid–off optical engineers had difficultly in
finding jobs. These former employees faced difficulties because the market for their very technical
skills was declining. These workers were
68)
A)
structurally unemployed.
B)
seasonally unemployed.
C)
frictionally unemployed.
D)
cyclically unemployed.
69)
The increased generosity of unemployment insurance programs in Canada as compared to the U.S.
should
69)
A)
increase the duration of unemployment in Canada as compared to the U.S.
B)
decrease the duration of unemployment in Canada as compared to the U.S.
C)
raise the duration of unemployment in the U.S.
D)
have no impact on the duration of unemployment in Canada.
70)
The substitution bias in the consumer price index refers to the idea that consumers ________ the
quantity of products they buy in response to price changes; the CPI does not reflect this and
________ the cost of the market basket.
70)
A)
change; understates
B)
do not change; overstates
C)
change; overstates
D)
do not change; understates
71)
Suppose the labor force stays constant and the working population stays constant, but a greater
number of persons who were unemployed become employed. The labor force participation rate
will
71)
A)
not change in way that can be predicted.
B)
remain constant.
C)
increase.
D)
decrease.
72)
According to the textbook, economists consider full employment to occur when
72)
A)
the unemployment rate consists of only frictional and structural unemployment.
B)
the sum of frictional unemployment and structural unemployment equals zero.
C)
frictional unemployment equals zero.
D)
everyone who wants a job has a job.
73)
Which of the following would be the best measure of the cost of living?
73)
A)
the GDP deflator
B)
real GDP
C)
real GDP per person
D)
the consumer price index
74)
The U.S. and Japan have ________ social insurance programs and ________ unemployment rates as
compared to Canada and Western Europe.
74)
A)
more generous; greater
B)
more generous; lower
C)
less generous; greater
D)
less generous; lower
75)
A student who just graduated from college but has not found a job would most likely be
75)
A)
cyclically unemployed.
B)
core unemployed.
C)
structurally unemployed.
D)
frictionally unemployed.
76)
The real interest rate equals the nominal interest rate ________ the inflation rate.
76)
A)
plus
B)
times
C)
divided by
D)
minus
77)
When actual inflation is less than expected inflation
77)
A)
borrowers and lenders both lose.
B)
borrowers gain and lenders lose.
C)
borrowers and lenders both gain.
D)
borrowers lose and lenders gain.
Table 12–10
Principle
Real Interest
Rate Inflation Rate
Nominal
Inflation Rate
$1,000 5% 7% 12%
78)
Refer to Table 12–10. Given the table above, what is the nominal after–tax interest payment if the
tax rate is 10%?
78)
A)
$50
B)
$108
C)
$38
D)
$120
79)
When deflation occurs,
79)
A)
the nominal interest rate is equal to the real interest rate and inflation is positive.
B)
the real interest rate is greater than the nominal interest rate.
C)
the nominal interest rate is greater than the real interest rate.
D)
the nominal interest rate is equal to the real interest rate and inflation is negative.
80)
The consumer price index is the
80)
A)
average of the prices of the goods and services purchased by a typical urban family of four.
B)
cost of a market basket of goods and services typically consumed in the base year.
C)
cost of a market basket of final goods and services typically consumed in the current period.
D)
average of the prices of new final goods and services produced in the economy over a period
of time.
81)
Cyclical unemployment is the result of
81)
A)
the search process of matching workers with jobs.
B)
the ups and downs in inflation.
C)
a business cycle recession.
D)
a persistent mismatch between the skills and characteristics of workers and the requirements
of the jobs.
82)
Someone who is available for work but has not actively looked for work in the previous four weeks
would be classified as
82)
A)
unemployed.
B)
not in the labor force.
C)
employed.
D)
not in the working–age population.
Explanation:
83)
An Inside Look summarizes the state of the U.S. labor market in January 2007. Which of the
following statements is not consistent with the overall conclusions of this section?
83)
A)
The article from the Labor Department referred to information from both the household
survey and the establishment survey.
B)
The number of jobs created increased, but the unemployment rate increased as well.
C)
Job creation was distributed evenly across all sectors of the economy.
D)
The Labor Department revises establishment survey estimates as new data becomes available.
Explanation:
84)
Most economists believe that the biases in the consumer price index cause the CPI to overstate the
true inflation rate by about
84)
A)
one to two percentage points.
B)
one–quarter percentage point.
C)
one–half to one percentage point.
D)
one and one–half percentage points.
Explanation:
Explanation:
85)
An advantage of the establishment survey over the household survey of the labor market is that the
establishment survey
85)
A)
includes persons employed at newly opened firms.
B)
is based on actual payrolls, rather than on unverified answers.
C)
provides an estimate of the number of persons unemployed.
D)
includes the number of self–employed persons.
86)
The economy has gone into recession. You have majored in computer science and have difficulty in
finding a job. Should you go back to school and get a second major?
86)
A)
No, the recession will most likely be short–lived and you can get a job after it is over.
B)
Yes, the recession will ensure that you will never find a job as a programmer.
C)
Yes, the recession will lower income in your field permanently.
D)
No, the recession will have no impact on your ability to get a job or your future income.
Table 12–1
Total Population 20,000
Working–Age
Population 15,000
Employment 1,000
Unemployment 100
Consider the data above for a simple economy.
87)
Refer to Table 12–1. The unemployment rate for this simple economy equals
87)
A)
(100/15,000) x 100.
B)
(100/20,000) x 100.
C)
(100/1,000) x 100.
D)
(100/1,100) x 100.
88)
Which of the following would be a consequence of substitution bias in the CPI?
88)
A)
Businesses would over–compensate employees for inflation when giving the cost of living
raises.
B)
Social Security payments would not adequately compensate retired workers for inflation.
C)
Judges would award child support payments that would not adequately keep up with the
true cost of inflation.
D)
The inflation rate based on the CPI would under–estimate the true level of inflation.
89)
If the price level rose in consecutive years from 100 to 120 to 140, then the annual inflation rate over
those years would
89)
A)
decrease.
B)
equal 20%.
C)
increase.
D)
remain the same.
A
90)
Which of the following policies would reduce structural unemployment?
90)
A)
implementing an unemployment insurance policy
B)
an increase in the minimum wage
C)
building an on–line job database that helps workers find jobs
D)
a job retraining program
D
91)
The advice to “retrain” would be most appropriate for which of the following types of
unemployment?
91)
A)
frictional unemployment
B)
core unemployment
C)
cyclical unemployment
D)
structural unemployment
D
A
92)
Which of the following causes the unemployment rate as measured by the Bureau of Labor
Statistics to understate the true extent of joblessness?
92)
A)
unemployed persons who falsely report themselves to be actively looking for a job
B)
inflation
C)
discouraged workers
D)
people employed in the underground economy
93)
If inflation is perfectly anticipated
93)
A)
no one in the economy loses.
B)
those that hold paper money lose.
C)
those that lend money lose.
D)
those that borrow money lose.
Table 12–4
Base Year (2000) 2006
Product Quantity Price Quantity Price
Meat 100 $10 120 $12
Potatoes 200 $2 180 $3
94)
Refer to Table 12–4. Assume the market basket for the consumer price index has two products
meat and potatoes. The Consumer Price Index for 2006 equals
94)
A)
141.
B)
129.
C)
125.
D)
135.
95)
The cost to firms of changing prices
95)
A)
is called a menu cost.
B)
is small even when there is rapid inflation.
C)
does not exist if inflation is perfectly anticipated.
D)
all of the above
96)
If you have trouble finding a job because of a slowdown in the overall economy, we would say that
you are
96)
A)
structurally unemployed.
B)
cyclically unemployed.
C)
seasonally unemployed.
D)
frictionally unemployed.
97)
An unemployment insurance program has which of the following effects?
97)
A)
It lowers the overall unemployment rate.
B)
It contributes to the severity of a recession or economic downturn.
C)
It increases the amount of time spent searching for a job.
D)
It decreases the amount of personal income of the unemployed.
C
98)
If the minimum wage is set above the market wage,
98)
A)
unemployment will rise.
B)
highly skilled workers will have a harder time finding jobs.
C)
the quantity of labor supplied will be less than the quantity of labor demanded.
D)
all of the above are correct.
A
99)
Which of the following is true about the consumer price index?
99)
A)
It frequently updates the price changes of new products added to the market basket, as these
have a tendency to fall.
B)
It accounts for people switching to goods whose prices have fallen.
C)
It assumes that consumers purchase the same amount of each product in the market basket
each month.
D)
It filters out the part of price increases that occurs because of quality improvements in
products.
C
B
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
100)
The Bureau of Labor Statistics counts as employed people who work part–time, but would
prefer to work full–time. Suppose the people who had part–time jobs, but wanted
full–time jobs, were counted as unemployed. Explain how the unemployment rate and the
labor force participation rate would change.
100)
101)
To understand why someone cannot get a job, it helps to know the three types of
unemployment. List the three types of unemployment and explain what causes each type.
What advice for finding a job would be appropriate for someone in each type of
unemployment?
101)
102)
Explain whether you agree or disagree with the following statement: “The reason that
inflation is bad is because it increases the cost of living the costs of goods and services we
buy without increasing our incomes.”
102)
103)
A central concept in macroeconomics is the idea of the natural rate of unemployment. Why
does it make sense to define full employment to occur when the unemployment rate equals
the natural rate of unemployment, instead of when the unemployment rate equals zero?
Elaborate and explain carefully.
103)
104)
During the 1990s Japan experienced periods of deflation and very low nominal interest
rates. Why would lenders of money agree to a nominal interest rate of almost zero?
104)
105)
Fill in the missing values in the table of data collected in the household survey for
November, 2005. The working–age population, employment, unemployment, and labor
force are measured in thousands. Show your work.
Working–Age
Population 227,204
Employment
Unemployment
Unemployment Rate 5.0%
Labor Force
Labor Force
Participation Rate 66.1%
105)
106)
The Bureau of Labor Statistics does not count discouraged workers as unemployed.
Suppose discouraged workers were counted as unemployed. Explain how the
unemployment rate and the labor force participation rate would change.
106)
107)
The reasons why someone cannot get a job are similar to the reasons why someone cannot
get a date. Using the ideas of frictionally unemployed, structurally unemployed, and
cyclically unemployed, describe and explain how a student at your university might be
frictionally “undated,” structurally “undated,” and cyclically “undated.”
107)
108)
Real interest rates at times have been negative. Why would anyone lending money agree
to a negative real interest rate?
108)
109)
Why does the substitution bias cause the consumer price index to overstate inflation and
the cost of living? Why does the increase in quality bias cause the consumer price index to
overstate inflation and the cost of living?
109)
110)
When the actual inflation rate turns out to be greater than the expected inflation rate, who
gains the borrower or the lender and who loses? Explain why.
110)
111)
Fill in the missing values in the table of data collected in the household survey for
December, 1996. The working–age population, employment, unemployment, and labor
force are measured in thousands. Show your work.
Working–Age
Population
Employment
Unemployment
Unemployment Rate 5.4%
111)
29
Unemployment Rate 5.4%
Labor Force 135,113
Labor Force
Participation Rate 67.0%
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.
112)
Investors are taxed on the nominal interest income that they earn from bonds and not the real
interest income.
112)
113)
Counting part–time workers who are looking for full–time work as employed overstates the degree
of joblessness in the economy.
113)
114)
The inflation rate measures the average prices of goods and services in the economy.
114)
115)
Eliminating frictional unemployment would be good for the economy.
115)
116)
In the U.S. the typical person that has lost her job finds another one in a few months except during
severe recessions.
116)
117)
The unemployment rate in the United States is lower than in Western Europe because, in part, the
U.S. has tougher requirements for the unemployed to receive government payments.
117)
118)
If inflationary expectations are increasing, we would expect that the nominal interest rate would
also be increasing, holding everything else constant.
118)