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

With a population of 100 million, a labor force of 90 million and the unemployed measured at 9 million what is the rate of unemployment?

Discuss how inflation can redistribute income.

If gasoline prices rise and the CPI goes up as a consequence why might there be reason to believe that the true cost of living has not risen by the full amount of the increase in gasoline prices?

Explain what structural unemployment is and give some examples.

What is the CPI or consumer price index?

Explain the differences between the unemployment rate and the labor-force participation rate.

Explain some of the costs associated with inflation.

What is meant by the phrase "not in the labor force?" Give examples of why people might be in this state.

How does the Bureau of Labor Statistics officially characterize an employed person?

Why is unemployment bad for society? Why is it bad for the individual or household?

Explain how the unemployment rate can drop even if the total number of people with and without jobs remains constant.

What is the PPI or producer price index?

Why would the number of fixed rate mortgages offered to the public by banks decline in the face of inflation while the offering of adjustable rate mortgages rises?

Suppose that you take out a loan at the bank for $1000 and are required to pay it back with interest of $100 at the end of the year. Suppose that there was no inflation at all when you took out the loan. By the end of the year the price level has increased 7%. Calculate both the nominal interest rate and the real interest rate on this simple loan arrangement.

The inflation rate measured by changes in the consumer price index is 5%. Does this mean that every individual's cost of living has increased by 5%? Explain.

Explain how low or nonexistent inflation can actually have a positive impact on the ability of people to adequately plan for retirement.

Explain what is meant by the discouraged-worker effect?

An "ideal" economy would be represented by what type of situation?

Why might retired persons argue that their cost of living is much higher than what is reported by the CPI? What is going on here that might support this claim?

Identify the following individuals as either "better off", "worse off" or "no different" from unanticipated inflation.