Question 1

Table 20-17
 
-Between 2017 and 2018, the CPI of a small nation rose from 182 to 185. If household incomes rose by 3% during that period of time, which of the following is true?

Accepted Answer

A)   The purchasing power of household income rose between 2017 and 2018.
B)   The purchasing power of household income fell between 2017 and 2018.
C)   The purchasing power of household income remained constant between 2017 and 2018.
D)   The CPI cannot be used to determine how the purchasing power of household income changes over time. A

Question 2

Table 20-23
 
-Refer to Table 20-23. The table above lists the actual minimum wage and CPI in 1974 and in 2017. Using the above table, calculate the real minimum wage for 1974 and 2017. Calculate the rate of growth of the real minimum wage from 1974 to 2017. Are workers better off in terms of the purchasing power of a dollar in 1974 or 2017? Explain why.

Accepted Answer

The real minimum wage in 1974 is  × 100 = $4.06.
The real minimum wage in 2017 is  × 100 = $2.97.
The rate of growth of the real wage from 1974 to 2017 is  × 100 = -26.8%.
Workers who earned the minimum wage were better off in 1974 as compared to 2017. The value of the real minimum wage was higher in 1974. It has declined by 26.8% from 1974 to 2017.

Question 3

The real rate of interest is

Accepted Answer

A)   the nominal interest rate plus the inflation rate.
B)   the nominal interest rate minus the inflation rate.
C)   the interest rate determined by the supply and demand in the money market.
D)   the nominal interest rate. B

Question 4

Which of the following describes a situation in which the person is hurt by inflation?

Accepted Answer

A)   a retiree whose pension is adjusted for inflation
B)   a person who borrows money during a period when inflation is under-predicted
C)   a person who lends money during a period when inflation is over-predicted
D)   a person paid a fixed income during an inflationary period

Question 5

Suppose 180,000 people are employed, 20,000 people are unemployed, and 50,000 people are not in the labor force. Calculate the labor force participation rate.

Accepted Answer

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

Question 6

Which of the following individuals would be most negatively affected by anticipated inflation?

Accepted Answer

A)   a retired railroad engineer who receives a fixed income payment every month
B)   a union contractor whose pay is adjusted based on changes in the CPI
C)   a full-time employee at a pizza parlor who makes more than the minimum wage
D)   a student who borrows $10,000 at a nominal interest rate of 5% to finance educational expenses

Question 7

An efficiency wage

Accepted Answer

A)   is higher than the market wage and tends to increase productivity.
B)   is lower than the market wage and tends to increase productivity.
C)   is higher than the market wage and tends to decrease productivity.
D)   is lower than the market wage and tends to decrease productivity.

Question 8

The increased generosity of unemployment insurance programs in Canada as compared to the United States should

Accepted Answer

A)   decrease the duration of unemployment in Canada as compared to the United States.
B)   increase the duration of unemployment in Canada as compared to the United States.
C)   have no impact on the duration of unemployment in Canada.
D)   raise the duration of unemployment in the United States.

Question 9

If inflation is unanticipated, no redistribution of income can occur.

Accepted Answer

A) True 
 B)False

Question 10

If the minimum wage is set above the market wage

Accepted Answer

A)   the quantity of labor supplied will be below the quantity of labor demanded.
B)   unemployment will rise.
C)   highly-skilled workers will have a harder time finding jobs.
D)   All of the above are correct.

Question 11

Table 20-14
  The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010.
-Refer to Table 20-14. The real average hourly earnings for 1965 in 1982-1984 dollars equal

Accepted Answer

A)   $1.28.
B)   $6.49.
C)   $8.28.
D)   $15.45.

Question 12

The Bureau of Labor Statistics does not count discouraged workers as unemployed. Suppose discouraged workers were counted as unemployed. Explain how the unemployment rate and the labor force participation rate would change.

Accepted Answer

The answer of The Bureau of Labor Statistics does not...

Question 13

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 14

Except for recessions, the duration of unemployment for the typical person lasts

Accepted Answer

A)   less than six months.
B)   six to nine months.
C)   over nine months.
D)   over one year.
E)   over five years.

Question 15

If your nominal wage rises more slowly than the price level, we can say your real wage has ________ and the purchasing power of a dollar has ________.

Accepted Answer

A)   fallen; fallen
B)   fallen; risen
C)   risen; risen
D)   risen; fallen

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Sarah is a full-time student who is not looking for work. What kind of unemployment is Sarah experiencing?

Accepted Answer

A)   cyclical
B)   structural
C)   frictional
D)   Sarah is not experiencing unemployment of any kind, because she is not currently part of the labor force.

Question 18

Paying efficiency wages are a way for a company to cut costs and become more efficient, and are therefore lower than market wages.

Accepted Answer

A) True 
 B)False

Question 19

The economy has gone into a recession. You have majored in computer science and, because of the recession, have difficulty in finding a job. According to the information in the chapter, should you go back to school and get a second major?

Accepted Answer

A)   Yes, the recession will ensure that you will never find a job as a programmer.
B)   Yes, the recession will lower income in my field permanently.
C)   No, the recession will most likely be short-lived and I can get a job after it is over.
D)   No, the recession will have no impact on my ability to get a job or my future income.

Question 20

If the CPI changes from 125 to 120 between 2017 and 2018, how did prices change between 2017 and 2018?

Accepted Answer

A)   Prices increased by 5%.
B)   Prices decreased by 5%
C)   Prices increased by 25%.
D)   Prices decreased by 4%.

Exam 20: Unemployment and Inflation

Table 20-17 -Between 2017 and 2018, the CPI of a small nation rose from 182 to 185. If household incomes rose by 3% during that period of time, which of the following is true?

The real rate of interest is

Which of the following describes a situation in which the person is hurt by inflation?

Suppose 180,000 people are employed, 20,000 people are unemployed, and 50,000 people are not in the labor force. Calculate the labor force participation rate.

Which of the following individuals would be most negatively affected by anticipated inflation?

An efficiency wage

The increased generosity of unemployment insurance programs in Canada as compared to the United States should

If inflation is unanticipated, no redistribution of income can occur.

If the minimum wage is set above the market wage

Table 20-14 The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010. -Refer to Table 20-14. The real average hourly earnings for 1965 in 1982-1984 dollars equal

The Bureau of Labor Statistics does not count discouraged workers as unemployed. Suppose discouraged workers were counted as unemployed. Explain how the unemployment rate and the labor force participation rate would change.

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

Except for recessions, the duration of unemployment for the typical person lasts

If your nominal wage rises more slowly than the price level, we can say your real wage has and the purchasing power of a dollar has .

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

Sarah is a full-time student who is not looking for work. What kind of unemployment is Sarah experiencing?

Paying efficiency wages are a way for a company to cut costs and become more efficient, and are therefore lower than market wages.

The economy has gone into a recession. You have majored in computer science and, because of the recession, have difficulty in finding a job. According to the information in the chapter, should you go back to school and get a second major?

If the CPI changes from 125 to 120 between 2017 and 2018, how did prices change between 2017 and 2018?