Macroeconomics MyEconLab Chapter 9 Homework

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1. Use this data to help determine which one of the following statements is true.

A&B pg 269

2. How does the U.S. economy create and destroy millions of jobs each year?

*Some businesses are expanding, while others are contracting. *In the market system, new firms are constantly entering and exiting various industries.

3. The BLS uses the establishment survey to collect information on employment in the economy. Indicate one drawback of the establishment survey compared to the current population survey and indicate one advantage.

Advantage- It is based on company payroll and not on unverifiable answers. Drawback- It does not include information about self-employed people. (more on page 275)

4. Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?

A) It fails to account for illegal activities B) it does not account for inaccurate responses to the Current Population Survey. C) Discouraged workers are not considered unemployed. D) Underemployed people are considered employed. *ALL of the above*

5. What is typical of the length of unemployment in the modern (post-Great Depression-era) U.S. economy?

Unemployment lasts less than six months

6. Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?

(Number of unemployed / Number in labor force) X 100

7. Suppose John Q. Worker is currently unemployed. Each day, John Q. Worker spends the entire day searching available job openings for an appropriate position given his set of skills, abilities, and interests. If someone asks John Q. what he does for work, he tells them that he is currently "in-between jobs." Which of the following best classifies John Q.’s unemployment status?

Frictionally unemployed

8. When the economy is at full employment,

A) the natural rate of unemployment prevails B) the unemployment rate is greater than zero C) all remaining unemployment is either frictional or structural *ALL of the above*

9. Suppose that Sally J. Society recently lost her job as an underwater welder. In looking for a new job she discovers that the only available jobs are for economists and that there are no openings for underwater welders because the trade is now obsolete. If Sally J. Society decides to return to school to earn an Economics degree, what is the best classification of her unemployment status?

Structurally unemployed

10. What is Costco’s CEO referring to?

Efficiency wages

11. What effect do labor unions have on the unemployment rate?

Since few non-government workers are unionized, there is no significant effect on the unemployment rate.

12. How do unemployment insurance payments in the United States and social insurance programs in other countries increase the unemployment rate?

They decrease the opportunity cost of job search.

13. Complete the following table:

pg 285 CPI formula

14. Which of the following makes changes in the CPI overstate the true inflation rate?

New Product Bias, Substitution Bias, Increase in quality bias *All of the above*

15. Which of the following can give an early warning of future increases in the price level?

Producer price index

16. Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2008 if the CPI in 2008 is 215 and the CPI in 1984 is 104?

$70,288 pg 286

17. Consider the following table:
What is the real average hourly wage in 2009?

$8.21 pg. 287

17. (part 2) What can be said about real average hourly earnings and nominal average hourly earnings between 2008 and 2010?

Both real and nominal average hourly earnings increased

18. If a 3-month Treasury bill pays 5.5% and the change in the consumer price index (CPI) is 4.7%, what is the real interest rate (the true return to lending)?

0.8% Real interest rate = Nominal interest rate – Inflation rate

19. Even perfectly anticipated inflation imposes costs. Why?

Some wages will fail to keep up with anticipated inflation Menu costs Paper money loses its purchasing power by the rate of inflation *All of the above*

20. Indicate whether the following statement is true or false and why.
"A wage rising slower than the rate of inflation is actually falling."

True. If wages are increasing slower than the average price of goods and services, purchasing power falls.

21. 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 that instead of 4.25%, the inflation rate unexpectedly reaches 5.5%. Who gains and who loses from this unanticipated inflation?

Lenders lose from a lower real interest rate. Borrowers gain from a lower real interest rate.

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