Chapter 9

Question 1

employed

Answer 1

if they worked during the week before the survey, or if they were temporarily away from their jobs because they were ill, on vacation, on strike, or for other reasons

Question 2

unemployed

Answer 2

someone who is currently not at work but who is available for work and who has actively looked for work during the previous month

Question 3

labor force

Answer 3

the sum of employed and unemployed workers in the economy

Question 4

unemployment rate

Answer 4

the percentage of the labor force that is unemployed

Question 5

discouraged workers

Answer 5

people who are available for work but have not looked for a job during the previous 4 weeks because they believe no jobs are available for them

Question 6

unemployment rate equation

Answer 6

number of unemployed/labor force x 100

Question 7

labor force participation rate

Answer 7

the percentage of the working age population in the labor force

Question 8

labor force participation rate

Answer 8

labor force/working age population x 100

Question 9

what are the three types of unemployment

Answer 9

frictional, structural, cyclical

Question 10

frictional unemployment

Answer 10

short-term unemployment that arises from the process of matching workers with jobs, frictional unemployment increases economic efficiency

Question 11

structural unemployment

Answer 11

long-term unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirement of jobs

Question 12

cyclical unemployment

Answer 12

unemployment caused by a business cycle recession

Question 13

full employment

Answer 13

when the only remaining unemployment is structural and frictional

Question 14

natural rate of unemployment

Answer 14

the normal rate of unemployment consisting of frictional unemployment and structural unemployment

Question 15

how can government policies increase the unemployment rat

Answer 15

by increasing the time workers devote to searching for jobs, by providing disincentives for firms to hire workers, or by keeping wages above their market level

Question 16

opportunity cost

Answer 16

highest-valued alternative that you must give up to engage in that activity

Question 17

efficiency wage

Answer 17

an above-market wage that a firm pays to increase workers’ productivity

Question 18

price level

Answer 18

a measure of the average prices of goods and services in the economy

Question 19

inflation rate

Answer 19

the percentage increase in the price level from one year to the next

Question 20

consumer price index

Answer 20

a measure of the average change over time in the prices a typical urban family of four pays for the goods and services they purchase

Question 21

market basket

Answer 21

a basket of 211 types of goods purchased by a typical family of four, used in CPI

Question 22

CPI formula

Answer 22

CPI=expenditures in the current year/expenditures in the base year x 100

Question 23

four biases that cause changes in the CPI to overstate the true inflation rate

Answer 23

substitution bias, increase in quality bias, new product bias, outlet bias

Question 24

substitution bias

Answer 24

the assumption the consumers purchase the same amount of each product in the market basket

Question 25

increase in quality bias

Answer 25

most products increase in quality so they get more expensive, so the recorded price increases overstate the pure inflation rate in some products

Question 26

new product bias

Answer 26

the basket is only updated every ten years so new products are not added frequently

Question 27

outlet bias

Answer 27

people buy cheaper stuff from outlets but the full price is counted

Question 28

producer price index

Answer 28

an average of the prices received by producers of goods and services at all states of the production process

Question 29

value in 2012 dollars =

Answer 29

value in 1987 dollars x (CPI in 2012)/(CPI in 1987)

Question 30

nominal interest rate

Answer 30

that stated interest rate on a loan

Question 31

real interest rate

Answer 31

the nominal interest rate minus the inflation rate

Question 32

deflation

Answer 32

a decline in the price level

Question 33

menu costs

Answer 33

the costs to firms of changing prices

Question 34

problems with anticipated inflation rate

Answer 34

paper money loses some of its value and firms incur menu costs

Question 35

problems with unanticipated inflation

Answer 35

the actual inflation rate can turn out to be different from the expected inflation rate, income is redistributed as some people gain and some people loose