Question 1

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?

Accepted Answer

The answer of Why does the substitution bias cause the...

Question 2

Describe the three types of unemployment.

Accepted Answer

The answer of Describe the three types of unemployment....

Question 3

Suppose you borrow $1,000 at an interest rate of 12 percent. If the expected real interest rate is 5 percent, then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation

Accepted Answer

A)  equal to 0 percent. 
B)  greater than 7 percent. 
C)  equal to 7 percent. 
D)  less than 7 percent.

Question 4

The natural rate of unemployment consists of frictional unemployment plus cyclical unemployment.

Accepted Answer

A) True 
 B)False

Question 5

In the modern U.S. economy, the typical unemployed person stays unemployed for

Accepted Answer

A)  a relatively long time, over a year. 
B)  a relatively short time, less than six months. 
C)  a long time during expansions and a short time during recessions. 
D)  an amount of time that is hard to quantify.

Question 6

The natural rate of unemployment is the amount of unemployment

Accepted Answer

A)  associated with the business cycle. 
B)  equal to frictional plus structural unemployment. 
C)  that exists when the economy goes into recession. 
D)  that exists when the economy is in an expansion.

Question 7

If inflation is positive and is perfectly anticipated,

Accepted Answer

A)  those that borrow money lose. 
B)  those that lend money lose. 
C)  those that hold paper money lose. 
D)  no one in the economy loses.

Question 8

When deflation occurs,

Accepted Answer

A)  the real interest rate is greater than the nominal interest rate. 
B)  the nominal interest rate is greater than the real interest rate. 
C)  the nominal interest rate is equal to the real interest rate and inflation is negative. 
D)  the nominal interest rate is equal to the real interest rate and inflation is positive.

Question 9

Suppose 180,000 people are employed, 20,000 people are unemployed, and 50,000 people are out of the labor force, then calculate the labor force participation rate.

Accepted Answer

The answer of Suppose 180,000 people are employed, 20,000 people...

Question 10

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?

Accepted Answer

A)  17 percent 
B)  10 percent 
C)  7 percent 
D)  3 percent

Question 11

Jack lost his job six months ago, and he's been actively looking for a new job ever since. The Bureau of Labor Statistics would classify Jack as

Accepted Answer

A)  unemployed. 
B)  out of the labor force. 
C)  a discouraged worker. 
D)  all of the above.

Question 12

Which of the following is an example of a worker experiencing cyclical unemployment?

Accepted Answer

A)  a worker who changes jobs to move closer her family 
B)  an assembly line worker who loses his job because of automation 
C)  a freightliner employee that got laid off because of the recession of 2007-2009 
D)  a lifeguard who was hired during the summer season is laid off after summer is over 
E)  a worker who quits his job because he does not get along with his boss

Question 13

List three different price indices and explain how they differ in terms of the market basket on which they are based.

Accepted Answer

The answer of List three different price indices and explain...

Question 14

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called

Accepted Answer

A)  frictional unemployment. 
B)  structural unemployment. 
C)  cyclical unemployment. 
D)  seasonal unemployment. 
E)  unnatural unemployment.

Question 15

The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but ________ quality increases. This causes the CPI to ________ the cost of the market basket.

Accepted Answer

A)  also; understate 
B)  also; overstate 
C)  not; understate 
D)  not; overstate

Question 16

If firms pay what are called "efficiency wages," they pay wages that

Accepted Answer

A)  motivate workers to increase their productivity. 
B)  are lower than average to ensure maximum profit. 
C)  will eventually lower the unemployment rate. 
D)  are mandated by the government.

Question 17

The household survey is compiled from firms who answer questions about the number of persons who are employed and on the company payroll.

Accepted Answer

A) True 
 B)False

Question 18

The costs to firms of changing prices are called menu costs.

Accepted Answer

A) True 
 B)False

Question 19

Table 20-5
 
-Refer to Table 20-5. Consider the following values of the consumer price index for 2012 and 2013. The inflation rate for 2013 was equal to

Accepted Answer

A)  215 percent. 
B)  21.5 percent. 
C)  8.0 percent. 
D)  3.9 percent.

Question 20

The nominal interest rate plus the inflation rate equals the real interest rate.

Accepted Answer

A) True 
 B)False

Exam 20: Unemployment and Inflation

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?

Describe the three types of unemployment.

Suppose you borrow $1,000 at an interest rate of 12 percent. If the expected real interest rate is 5 percent, then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation

The natural rate of unemployment consists of frictional unemployment plus cyclical unemployment.

In the modern U.S. economy, the typical unemployed person stays unemployed for

The natural rate of unemployment is the amount of unemployment

If inflation is positive and is perfectly anticipated,

When deflation occurs,

Suppose 180,000 people are employed, 20,000 people are unemployed, and 50,000 people are out of the labor force, then calculate the labor force participation rate.

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?

Jack lost his job six months ago, and he's been actively looking for a new job ever since. The Bureau of Labor Statistics would classify Jack as

Which of the following is an example of a worker experiencing cyclical unemployment?

List three different price indices and explain how they differ in terms of the market basket on which they are based.

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called

The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but quality increases. This causes the CPI to the cost of the market basket.

If firms pay what are called "efficiency wages," they pay wages that

The household survey is compiled from firms who answer questions about the number of persons who are employed and on the company payroll.

The costs to firms of changing prices are called menu costs.

Table 20-5 -Refer to Table 20-5. Consider the following values of the consumer price index for 2012 and 2013. The inflation rate for 2013 was equal to

The nominal interest rate plus the inflation rate equals the real interest rate.