Chat with AIExam 9: Part A: Business Cycles, Unemployment, and Inflation
Explain the difference between nominal and real interest rates.
(38) 
VerifiedNominal interest rates are the stated rates of interest.The real rates are the nominal rates corrected for the effects of inflation on the interest payments.The real rate represents the increase in purchasing power that the lender receives from the borrower and can be approximated by subtracting the rate of inflation from the nominal rate of interest.
Why might the unemployment rate increase when the economy moves into its recovery phase?
(36) VerifiedDuring a recovery the unemployment rate can increase as a result of an increase in frictional unemployment.Some employed workers may feel more confident in switching jobs given the improving economic and labour market conditions and thus choose to become unemployed frictionally to search for a new position.Furthermore, economic recovery may also entice discouraged workers who were not in the labour force to begin searching for work again.This surge in the unemployed can cause the unemployment rate to be higher.
"Inflation is a harsh and arbitrary form of taxation." Do you agree? If so, who pays this tax?
(38) VerifiedPeople who make this statement typically assume that government causes inflation by running deficits, which are financed by printing money and using it to marshal resources away from the private sector and toward the public sector.Thus, according to this view, government allegedly benefits from inflation.If the increase in government expenditures is "paid for" by savers and by people on fixed nominal incomes, then there is an "inflation tax." Savers find that their savings will not purchase as many goods and services as before and fixed income receivers discover that their real incomes have declined.In this sense government has imposed an arbitrary and harsh tax on these groups.
Inflation is a form of higher taxation in other respects as well, and one could regard it as particularly harsh and/or arbitrary since taxes are increased via inflation without citizens or their representatives voting directly on the increase.Some illustrations of how this occurs follow: as the prices of products rise, any sales taxes paid on retail prices would also increase and the same would hold for property taxes if levied on rising property values; income and payroll taxes would also increase if proportional or progressive as nominal incomes increased.Note that this would occur unless the income or payroll taxes were indexed to inflation in such a way that individuals were paying taxes only on their real income.The basic point is that inflation allows tax revenues of nearly every type to increase without an explicit tax hike being passed.
Describe and explain what is meant by clipping coins, from an economic perspective.
(42) Assume that nominal income is $35,000 and the price index is 1.20 in year 1.In year 2, nominal income rises to $38,000 and the price index rises to 1.25.What was the percentage change in real income from year 1 to year 2? What was the absolute amount of increase in real income? Make your calculations of the percentage change in real income and the absolute change in real income using the approximation formula and using the more precise method with index numbers.
(36) What are two criticisms of the unemployment rate? How do these criticisms relate to the overstating or understating of the unemployment rate?
(45) Explain how policy makers Core Inflation data to assess whether any deliberate changes are in polices aimed at achieving acceptable levels of Inflation.
(29) Define the "full-employment" or "natural" rate of unemployment and give its approximate percentage rate as economists currently define it.
(34) Describe and explain what is meant by downward sticky wages and unemployment.
(38) "The economic cost of unemployment is measured by the GDP gap." Explain this statement.
(33) If the population is 26.7 million, the labour force is 13.6 million, and the number measured as unemployed is 0.68 million, what is the rate of unemployment?
(46) Explain the difference between real and nominal income.How can you get an approximation of the percentage change in real income from one-time period to another?
(35) Calculate the rate of inflation between Year 1 and Year 2.The price index in Year 1 was 124.0.It was 130.7 in Year 2.
(29) In the table below are statistics showing the labour force and total employment during year 1 and year 5.Make the computations necessary to complete the table. 
(a) How is it possible that both employment and unemployment increased?
(b) Would you say that year 5 was a year of full employment?
(c) Why is the task of maintaining full employment over the years more than just a problem of finding jobs for those who happen to be unemployed at any given time?
(a) How is it possible that both employment and unemployment increased?
(b) Would you say that year 5 was a year of full employment?
(c) Why is the task of maintaining full employment over the years more than just a problem of finding jobs for those who happen to be unemployed at any given time?
(42) 
Filters
- Essay(0)
- Multiple Choice(0)
- Short Answer(0)
- True False(0)
- Matching(0)