Chapter 5

Question 1

unemployment rate

Answer 1

the percentage of people who are unemployed

number of unemployed/labour force x 100%

Question 2

labour force

Answer 2

those who are either working or looking for work

Question 3

labour force participation rate

Answer 3

labour force/working-age population x 100%

Question 4

employment-population ratio

Answer 4

number of employed/working-age population x 100%

Question 5

the employment rate ______ problems in the labour market

Answer 5

understates

Question 6

frictional unemployment

Answer 6

short-term unemployment that arises from the process of matching workers with jobs

Question 7

structural unemployment

Answer 7

job troubles due to a persistent mismatch between the skills or attributes of workers and the requirements of jobs

Question 8

cyclical unemployment

Answer 8

loss of jobs due to a recession

Question 9

seasonal unemployment

Answer 9

due to weather or demand that fluctuates with the time of year

Question 10

full employment

Answer 10

when the only unemployment is structural and frictional

Question 11

natural rate of unemployment

Answer 11

the necessary amount of unemployment - structural and frictional

Question 12

efficiency wage

Answer 12

a higher-than-market wage that a firm pays to motivate workers to be more productive

Question 13

consumer price index (CPI)

Answer 13

the average prices and amounts of goods and services that people tend to buy

Question 14

CPI calculation

Answer 14

expenditures now/expenditures in base year x100

Question 15

substitution bias

Answer 15

the assumption that the basket doesn’t change, when in reality it does change in response to price fluctuations

Question 16

increase in quality bias

Answer 16

some of the price increases are due to increased quality, and NOT inflation

Question 17

new product bias

Answer 17

the CPI product list may not be updated at times, leading to incorrect data due to the release of new items (or changes in popularity of existing items)

Question 18

outlet bias

Answer 18

the CPI may not always reflect WHERE people buy things (ie discount stores)

Question 19

producer price index (PPI)

Answer 19

tracks the prices that firms receive for goods and services at all stages of production

Question 20

nominal variables

Answer 20

economic variables that are calculated in current-year prices

Question 21

real variables

Answer 21

nominal variable/price index x 100

variables calculated in base-year prices

Question 22

nominal interest rate

Answer 22

the interest rate stated on a loan

uses current year prices

Question 23

real interest rate

Answer 23

nominal interest rate - inflation rate