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

How do the costs of unemployment differ in an economy with a large underground sector relative to one with a small underground sector?

What is the official definition of an unemployed person?

Many people like to reminisce about the good old days when movies were a quarter and the price of gasoline was twenty cents and bristle at $8 movie tickets and $4.00 gasoline. Why do economists argue that the increases in these prices today don't really mean anything in real terms?

Table 7.2 -Using the Table 7.2 calculate the labor-force participation rate.

Define inflation.

Explain the costs associated with unanticipated inflation and the costs associated with anticipated inflation.

If year 1 is the base year and the price index for year 2 is 105 and the price index for year 3 is 103, what is the inflation rate in years 2 and 3? Explain what has happened between years 1 and 2, years 2 and 3, and years 1 and 3 to the cost of living.

Provide an explanation for why the Consumer Price Index may somewhat overstate changes in the cost of living.

What does the concept of "capital per worker" tell us?

You are an employee of the Bureau of Labor Statistics involved in the monthly survey of households used to estimate the unemployment rate. In each of the following cases, classify the individual as employed, unemployed, or not in the labor force. Explain your classification. (a) During the entire week containing the 12th of the month, Rosie the Riveter misses work simply because she didn't feel like going in to work. (b) Jenny Wren is a volunteer 20 hours a week on a Rape Crisis telephone hotline. She feels she makes an important contribution to society and would not accept a paid job if one were offered to her. (c) Cauley McCulkin is a hugely successful film star, age 12, who has earned over $5,000,000 each year for the past five years. Currently, Cauley is filming a new movie on location in Tenerife. (d) Maxwell Edison, a full-time Ph.D. student, is involved in ground-breaking research in fiber optics. His dissertation advisor has already claimed that Maxwell's work will revolutionize telecommunications. (e) Maggie Madd, 84, works 10 hours a week doing cleaning services for her son, Norman Neurotic. He pays her minimum wage.

What are the chief costs of inflation?

Critically evaluate the following statement. "As consumers increase their demand for hybrid vehicles in response to high gasoline prices this is leading to higher prices for these sames cars. This inevitably would lead to inflation."

Explain why persisten inflation can have a detrimental impact on the planned investment of firms.

Discuss what is meant by the discouraged-worker effect. Explain whether the existence of the discouraged-worker effect causes the official unemployment rate to understate or overstate the "true" level of unemployment.

In September there are 10,000 people unemployed and the labor force is 250,000. If the only thing that changed between September and October is that 2500 people stop looking for work what can we say is true about the unemployment rate in September and the unemployment rate in October?

Define what is meant by capital and discuss the various types of capital.

How might the official employment statistics of the BLS be a a misleading picture of the overall health of the economy?

"If inflation is fully anticipated by all parties, the redistributional effects would be minimal. It's the fact that inflation surprises us that causes there to be winners and losers." Comment. Which costs still occur even with fully anticipated inflation?

Explain the major differences in the unemployment rate by demographic group.

Suppose state employees complain bitterly that they are not receiving substantial enough raises. In addition, lawmakers respond by saying they have nothing to complain about since they have been receiving 8% pay raises the past three years. What could account for the apparent disagreement?