Question 1

Is the CPI the best measure of inflation?

Accepted Answer

The "best" measure of inflation for a given application depends on the intended use of the data. The CPI is generally the best measure for adjusting payments to consumers when the intent is to allow consumers to purchase, at today's prices, a market basket of goods and services equivalent to one that they could purchase in an earlier period.

Question 2

Explain why some economists argue that counting discouraged workers as unemployed gives a better picture of the unemployment situation. How would the magnitude of the unemployment rate change if discouraged workers were counted as unemployed?

Accepted Answer

Some argue that discouraged workers should be included because they would take jobs if a job became available. If discouraged workers were included, the unemployment rate would increase.

Question 3

Suppose you want to earn a 7% rate of return on a one-year loan you are about to make and the expected inflation rate for the duration of the loan is 5%. How much interest should be charged? Secondly, suppose that your forecasts are 2% below the actual level. What would happen to your real rate of return? What if you overestimated inflation by 2%.

Accepted Answer

You would need to assess an interest rate of 12% to earn 7%. The 5% is simply an inflation premium. However, if you underestimate inflation by 2% your real rate of return will only be 5% not 7%. Likewise, if you overestimate the inflation rate you will be in the happy circumstance of earning a 9% rate of return (12% - 3%).

Question 4

Lenders and borrowers expect the inflation rate to equal the actual inflation rate. The consumer price index is 110 in year 1 and 126.5 in year 2. If the interest rate charged by Richie Rich in year 2 is 40%, what is Rich's real interest rate?

Accepted Answer

Rich's real interest rate is 25%. The in

Question 5

Identify the following events as either increasing or decreasing the natural rate of unemployment.

Accepted Answer

The answer of Identify the following events as either increasing...

Question 6

What are the administrative costs and inefficiencies associated with inflation?

Accepted Answer

One is simply the cost of trying to keep

Question 7

Explain how an unanticipated increase in inflation would affect creditors and debtors.

Accepted Answer

Creditors, on the one hand, are hurt by

Question 8

The CPI does not include investment items, such as stocks, bonds, real estate, and life insurance? What reason would the BLS have for not counting these items?

Accepted Answer

These items relate t

Question 9

Explain how it might be possible for the unemployment rate to drop inspite of a severe recession.

Accepted Answer

When a recession becomes very severe and

Question 10

For each of the following, indicate if the person would be classified as employed, unemployed, or not in the labor force 	(a) a 70-year-old man who left his job to help his daughter in her business for 10 hours a week, 	(b) a 20-year-old college student who is out of school for the summer and is looking for a job, 	(c) a 30-year-old woman with a Ph.D. in history who has not been able to find a teaching position and is driving a cab 30 hours a week, and 	(d) a 40-year-old steel worker who isn't working and has given up searching for a job.

Accepted Answer

These individuals would be cla

Question 11

What changes might take place to reduce the number of discouraged workers?

Accepted Answer

Increased confidence on the pa

Question 12

List and explain the three major types of unemployment.

Accepted Answer

Frictional unemployment - caused by shor

Question 13

Assume a population of 3,000,000 people, 500,000 people employed and 1,500,000 in the labor force. Calculate the unemployment rate.

Accepted Answer

The number of unemployed perso

Question 14

Explain the costs of unemployment. Be sure to include both the economic and noneconomic costs.

Accepted Answer

The costs of unemployment include the va

Question 15

Why might a certain amout of frictional unemployment improve the efficiency of labor markets?

Accepted Answer

Many workers whose productivity has run

Question 16

Below are different groups of people in society. Explain how each one of them would fair under unanticipated inflation.
Social Security recipient
Welfare beneficiary
Union worker
Landlord
Savers

Accepted Answer

Social Security recipient - they are nei

Question 17

Why is anticipated inflation less of a problem than unanticipated inflation?

Accepted Answer

Anticipated inflation is less of a probl

Question 18

Explain why some unemployment is inevitable. How can unemployment actually benefit the economy?

Accepted Answer

Some unemployment is inevitable because

Question 19

What might happen to the official unemployment rate if unemployment compensation were eliminated? Explain your answer.

Accepted Answer

The official unemployment rate may actua

Question 20

During a press conference, the Secretary of Employment notes that the unemployment rate is 7.0%. As a political opponent, how might you criticize this figure as an underestimate? In rebuttal, how might the Secretary argue that the reported rate is an overestimate of unemployment?

Accepted Answer

The unemployment rate given by the secre

Is the CPI the best measure of inflation?

Explain why some economists argue that counting discouraged workers as unemployed gives a better picture of the unemployment situation. How would the magnitude of the unemployment rate change if discouraged workers were counted as unemployed?

Lenders and borrowers expect the inflation rate to equal the actual inflation rate. The consumer price index is 110 in year 1 and 126.5 in year 2. If the interest rate charged by Richie Rich in year 2 is 40%, what is Rich's real interest rate?

Identify the following events as either increasing or decreasing the natural rate of unemployment.

What are the administrative costs and inefficiencies associated with inflation?

Explain how an unanticipated increase in inflation would affect creditors and debtors.

The CPI does not include investment items, such as stocks, bonds, real estate, and life insurance? What reason would the BLS have for not counting these items?

Explain how it might be possible for the unemployment rate to drop inspite of a severe recession.

What changes might take place to reduce the number of discouraged workers?

List and explain the three major types of unemployment.

Assume a population of 3,000,000 people, 500,000 people employed and 1,500,000 in the labor force. Calculate the unemployment rate.

Explain the costs of unemployment. Be sure to include both the economic and noneconomic costs.

Why might a certain amout of frictional unemployment improve the efficiency of labor markets?

Below are different groups of people in society. Explain how each one of them would fair under unanticipated inflation. Social Security recipient Welfare beneficiary Union worker Landlord Savers

Why is anticipated inflation less of a problem than unanticipated inflation?

Explain why some unemployment is inevitable. How can unemployment actually benefit the economy?

What might happen to the official unemployment rate if unemployment compensation were eliminated? Explain your answer.

During a press conference, the Secretary of Employment notes that the unemployment rate is 7.0%. As a political opponent, how might you criticize this figure as an underestimate? In rebuttal, how might the Secretary argue that the reported rate is an overestimate of unemployment?

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Introduction to Macroeconomics

Measuring National Output and National Income

Aggregate Expenditure and Equilibrium Output

The Government and Fiscal Policy

The Money Supply and the Federal Reserve System

Money Demand and the Equilibrium Interest Rate

The Determination of Aggregate Output, the Price Level, and the Interest Rate

Policy Effects and Costs Shocks in the Asad Model

The Labor Market in the Macroeconomy

Financial Crises, Stabilization, and Deficits

Household and Firm Behavior in the Macroeconomy: a Further Look

Long-Run Growth

Alternative Views in Macroeconomics

International Trade, Comparative Advantage, and Protectionism

Open-Economy Macroeconomics: the Balance of Payments and Exchange Rates

Economic Growth in Developing and Transitional Economies

Filters

Exam 7: Unemployment, Inflation, and Long-Run Growth

Is the CPI the best measure of inflation?

Explain why some economists argue that counting discouraged workers as unemployed gives a better picture of the unemployment situation. How would the magnitude of the unemployment rate change if discouraged workers were counted as unemployed?

Lenders and borrowers expect the inflation rate to equal the actual inflation rate. The consumer price index is 110 in year 1 and 126.5 in year 2. If the interest rate charged by Richie Rich in year 2 is 40%, what is Rich's real interest rate?

Identify the following events as either increasing or decreasing the natural rate of unemployment.

What are the administrative costs and inefficiencies associated with inflation?

Explain how an unanticipated increase in inflation would affect creditors and debtors.

The CPI does not include investment items, such as stocks, bonds, real estate, and life insurance? What reason would the BLS have for not counting these items?

Explain how it might be possible for the unemployment rate to drop inspite of a severe recession.

What changes might take place to reduce the number of discouraged workers?

List and explain the three major types of unemployment.

Assume a population of 3,000,000 people, 500,000 people employed and 1,500,000 in the labor force. Calculate the unemployment rate.

Explain the costs of unemployment. Be sure to include both the economic and noneconomic costs.

Why might a certain amout of frictional unemployment improve the efficiency of labor markets?

Below are different groups of people in society. Explain how each one of them would fair under unanticipated inflation. Social Security recipient Welfare beneficiary Union worker Landlord Savers

Why is anticipated inflation less of a problem than unanticipated inflation?

Explain why some unemployment is inevitable. How can unemployment actually benefit the economy?

What might happen to the official unemployment rate if unemployment compensation were eliminated? Explain your answer.

During a press conference, the Secretary of Employment notes that the unemployment rate is 7.0%. As a political opponent, how might you criticize this figure as an underestimate? In rebuttal, how might the Secretary argue that the reported rate is an overestimate of unemployment?

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Introduction to Macroeconomics

Measuring National Output and National Income

Aggregate Expenditure and Equilibrium Output

The Government and Fiscal Policy

The Money Supply and the Federal Reserve System

Money Demand and the Equilibrium Interest Rate

The Determination of Aggregate Output, the Price Level, and the Interest Rate

Policy Effects and Costs Shocks in the Asad Model

The Labor Market in the Macroeconomy

Financial Crises, Stabilization, and Deficits

Household and Firm Behavior in the Macroeconomy: a Further Look

Long-Run Growth

Alternative Views in Macroeconomics

International Trade, Comparative Advantage, and Protectionism

Open-Economy Macroeconomics: the Balance of Payments and Exchange Rates

Economic Growth in Developing and Transitional Economies

Filters