B5-M2

Question 1

Frictional unemployment

Answer 1

• normal unemployment from employees routinely changing jobs or from lay offs
• arises from the need to match qualified job seekers with available jobs

Question 2

Frictional unemployment

Answer 2

• normal unemployment from employees routinely changing jobs or from lay offs
• arises from the need to match qualified job seekers with available jobs
• ex. increased from rise in a younger workforce (change jobs more frequently)

Question 3

Structural unemployment

Answer 3

• jobs available in the workforce do not correspond to the skills of the workforce
• unemployed workers don’t live where the jobs are
• ex. invention that renders an industry obsolete (technological advances)

Question 4

Cyclical unemployment

Answer 4

-amt of unemployment from declines in GDP during contraction or recession

Question 5

Cyclical unemployment

Answer 5

• amt of unemployment from declines in GDP during contraction or recession
• rises during recession, falls during expansion

Question 6

Natural rate of unemployment

Answer 6

• normal rate due to cyclical unemployment

- sum of other types of unemployment

Question 7

To decrease money supply

Answer 7

• sell government securities
• increase discount rate
• increase required reserve ratio

Question 8

To decrease money supply (contractionary policy)

Answer 8

• sell government securities
• increase discount rate
• increase required reserve ratio
• rise in interest rates
• increase margin requirements

Question 9

Expansionary monetary policy

Answer 9

• purchase gov securities/ buy bonds

- lower discount rate

Question 10

Consumer price index (CPI)

Answer 10

=(current cost of market basket)/ (base year cost of market basket) * 100

Question 11

Consumer price index (CPI)

Answer 11

=(current cost of market basket)/ (base year cost of market basket) * 100

• overall cost of a fixed basket of goods and services purchased by an average household
• measure of inflation rate
• compares relative price changes over time

Question 12

Stagflation

Answer 12

-recession with falling output, rising unemployment and rising price level

Question 13

Stagflation

Answer 13

-recession with falling output (falling GDP), rising unemployment and rising price level (high inflation rates)

Question 14

Real interest rate

Answer 14

=Nominal interest rate- Inflation rate

-purchasing power of interest earned/paid

Question 15

Nominal interest rate

Answer 15

• amount of interest earned/ paid measured in current dollars
• not a good measure when economy experiences inflation