Exam #2 Review (Chapters 20, 21)

Question 1

current unemployment rate

Answer 1

7.9%

Question 2

natural rate of employment

Answer 2

5-6%

Question 3

4 kinds of unemployment

Answer 3

1. season
2. frictional
3. structural
4. cyclical

Question 4

seasonal unemployment

Answer 4

certain profession’s demand for labor is seasonal

Question 5

frictional unemployment

Answer 5

some people are looking for jobs and some firms are looking for peole
-in fluid markets, matching workers with jobs takes time

Question 6

structural employment

Answer 6

a mismatch between workers and the skills/requirements for the jobs
-as the economy changes, we produce different goods and services which means we will have demand for different labor

Question 7

cyclical unemployment

Answer 7

• unemployment caused by recession

- simply too few jobs around

Question 8

how much of unemployment rate can be attested to natural rate of unemployment? (seasonal, frictional, structural)

Answer 8

5-6%

Question 9

how much of unemployment can be attested to demand related? (cyclical)

Answer 9

2-3%

Question 10

who calculates the rate of unemployment?

Answer 10

Bureau of Labor Statistics

Question 11

According to BLS, who is part of the labor force?

Answer 11

Those who have looked for a job in the past four weeks, those employed

Question 12

Who is not in labor force?

Answer 12

1. housewife
2. retired
3. not looking
4. looked for work 6 weeks ago, but not in past 4 weeks
5. gave up looking two months ago
6. doing odd jobs for cash
7. under 16 years old
8. full time students

Question 13

How many Americans are currently employed?

Answer 13

143.3 million people employed

Question 14

how many Americans have looked for work in the past four weeks?

Answer 14

12.3 million people

Question 15

how many are not in the labor force?

Answer 15

89 million

Question 16

Marginally Attached worker

Answer 16

have looked for work in the past year, but not in the past 4 weeks

Question 17

discouraged workers

Answer 17

a subset of marginally attached

-gave up looking because they believe there are no jobs

Question 18

working part time for economic reasons

Answer 18

you want a full-time job, all you can find is a part time job
-technically counted as employed

Question 19

U6 Unemployment Formula

Answer 19

(Unemployed + marginally attached + part time for economic reasons) / (labor force + marginally attached)

Question 20

Labor Force Participation Rate

Answer 20

of people who could be in the labor force, how many are in the labor force?

Question 21

who isn’t counted as a part of the labor force participation rate?

Answer 21

• 16 and under
• in hospital or prison
• military

Question 22

what is the current labor force participant rate for America?

Answer 22

63.6%

Question 23

What do efficiency wages have to do with unemployment?

Answer 23

• wages paid exceed the going market wage
• this can technically create less jobs
• however, some argue that this keeps workers productive

Question 24

Labor Unions and Unemployment

Answer 24

• union wages are above market equilibrium, and therefore, create labor surplus
• however, labor members have dropped significantly since 1950

Question 25

minimum wages and Unemployment

Answer 25

-supposedly above the market equilibrium wage -however, it is likely that the wage out there is higher than the minimum wage -

Question 26

unemployment insurance and unemployment

Answer 26

-we pay people not to work -however, this allows people to find jobs suitable to their degree and it allows them to continue to buy goods (boosting economy) -

Question 27

inflation

Answer 27

continual rise in the overall price level

Question 28

deflation

Answer 28

continual fall in the price level

Question 29

two ways to measure inflation

Answer 29

1. GDP Deflator | 2. Consumer Price Index

Question 30

GDP Deflator

Answer 30

- measures how GDP has grown from time to time | - however, it may not represent the price changes the average person experiences

Question 31

Consumer Price Index

Answer 31

- released monthly | - measures how common goods prices change over time

Question 32

who calculates the CPI?

Answer 32

BLS

Question 33

Market Basket

Answer 33

set of goods and services that the CPI examines

Question 34

Breakdown of Food and Beverage, Transportaion, and Housing by percentage according to Market basket

Answer 34

Housing (42%) Transportation (17%) Food and Beverage (15%)

Question 35

what is the current base year for CPI?

Answer 35

1983

Question 36

how much has CPI increased in the past year? how about past month?

Answer 36

1. 7% in past year | - 0 in past month

Question 37

whats the current value of CPI?

Answer 37

230

Question 38

what is not included in CPI?

Answer 38

ONLINE GOODS

Question 39

Billion Prices Project

Answer 39

project by MIT economist to track inflation of online goods

Question 40

quality bias

Answer 40

over time, most products included in the CPI imporve in quality -increases in the price of these things partly reflect the increased quality

Question 41

substitution bias

Answer 41

consumers are likely to buy fewer of those products that increase most in price and more of those products that increase last in price

Question 42

new product bias

Answer 42

new products introduced byeween updates of market basket were not included in the market basket

Question 43

outlet bias

Answer 43

manh consumers have begun to increase their purchases from discount stores -because BLS continued to collect price statistics from traditional full price retial stores, the CPI did not reflect the prices some consumers actually paid

Question 44

nominal interest rate

Answer 44

stated rate of interest on a loan or financial asset

Question 45

what is the current mortgage loan itnerest rate?

Answer 45

5.7%

Question 46

what is the current US Treasury Bond interest rate?

Answer 46

2.1% annually

Question 47

real interest rate

Answer 47

nominal rate minus inflation rate

Question 48

REAL rate on mortgage loan

Answer 48

5.7%-1.7% or 4%

Question 49

Real rate on your US Saving Bond

Answer 49

2.1%-1.7% OR .4%

Question 50

nominal wages

Answer 50

what you get paid

Question 51

real wages

Answer 51

real wages are adjusted for inflation

Question 52

Long run economic growth

Answer 52

rising productivity, increases in standard of living

Question 53

what are the three things that make a country's GDP grow?

Answer 53

natural resources, labor supply, labor productivity

Question 54

labor productivity

Answer 54

amount of output that can be produced by one worker, or one unit of labor

Question 55

what is the key to growth?

Answer 55

capital is key to growth

Question 56

demand for loanable funds

Answer 56

companies borrow money to purchase capital, when they borrow they pay an interest rate

Question 57

when interest rates are high, there is _______ for loanable funds

Answer 57

less demand

Question 58

when interest rates are lower, there is ______ for loanable funds

Answer 58

more demand

Question 59

supply of loanable funds

Answer 59

money being borrowed

Question 60

What are the four parts of the business cycle?

Answer 60

1. expansion 2. peak 3. downturn 4. trough

Question 61

who decides where we are in the business cycle?

Answer 61

National Bureau of Economic Research

Question 62

during a business cycle, unemployment will _________ during the recession and continue to _______ into the expansion

Answer 62

increase, increase

Question 63

can unemployment rise during expansion?

Answer 63

YES

Question 64

During a business cycle, ________ goods are much more effected than __________ goods

Answer 64

durable, nondurable

Question 65

when we are shrinking, ______ goods production goes down

Answer 65

durable goods

Question 66

when we are raising, ________ goods go up

Answer 66

durable goods

Question 67

during the recession portion of the business cycle, inflation rate will ____________

Answer 67

decline | -but this is NOT the same thing as prices declining