Macro Exam 3

Question Answer
Unemployment correlated with the ups and downs of the business cycle is called Cyclical and this is because 1. Real shocks 2. Deficiencies in aggregate demand.
Which of the following does NOT contribute directly to the persistence of structural unemployment? Work Test
What are the three parts to Structural Unemployment? 1. Unemployment Benefits (The amount and duration) 2. Minimum Wage 3. Employment Protection Laws
What are unemployment benefits? As the Unemployed rates increase, more employed workers are incited to remain unemployed.
What is Minimum Wage? Finding the Unemployment Rate QS-QD/QS
What are the protection laws? The EMPLOYEE-AT-WIll-DOCTRINE An employee may quit and an employer may fire an employee at any time for any reason.
How can you reduce "Structural Unemployment'? 1. Job retraining 2. Job Search Assistance 3. Work Test 4. Early Unemployment Bonus.
Which of the following would be considered unemployed? Janice, a senior in college, started job hunting early in the hope that she would have secured a job by the time she graduates in May.
Which of the following individuals can be counted as unemployed ean, who left her job to search for a higher-paying position
he presence of discouraged workers causes the measured unemployment rate to be? understated.
Discouraged workers are workers who have given up looking for work but would still like a job
The short-term unemployment caused by the ordinary difficulties of matching employee to employer is called frictional unemployment.
Oil shocks, the shift from manufacturing to service jobs, and the use of new technologies are reasons for _____ unemployment structural
A worker repairing VHS cassette-tape players was laid off because most of his customers have started using DVD players. This worker is now structurally unemployed.
Which of the following does NOT contribute directly to the persistence of structural unemployment? work tests
Active labor market policies: focus on getting unemployed workers back to work
If a national government improves its unemployment benefits, its unemployment rate will most likely increase
Unemployment correlated with the ups and downs of the business cycle is called cyclical unemployment.
If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be 8.33%
The consumer price index measures the prices of: a basket of goods bought by a typical American consumer
If the velocity of money and real GDP are fixed, then the quantity theory of money implies that the price level will: increase at the same rate as the growth in the money supply
Nobel Prize–winning economist Milton Friedman says, “Inflation is always and everywhere a _____.” monetary phenomenon
With respect to real output, in the long run, money is: neutral
The primary reason we think of inflation as bad even when wages rise with it is that it distorts the information delivered by prices.
Jordan loaned Taylor $1,200 on March 15, 2009. Taylor returned $1,260 on March 14, 2010. Inflation was 2% over the 1-year period. What is the real interest rate that Taylor paid? 3%
Which of the following correctly represents unexpected disinflation? E? > ?
Debt monetization means that a government pays off its debt by: increasing the money supply
The term “business fluctuations” refers to: movement in real GDP around its long-term trend.
If spending in an economy increases by 3% and real GDP increases by 1%, the result will be inflation
If spending growth is 6% and inflation is also 6%, this means that: real GDP did not increase
Which of the following combinations would be on an aggregate demand curve with a spending growth rate of 6%? inflation rate of 8%, real growth rate of –2%
For an aggregate demand curve with = 10% and = 0%, if inflation is 6%, then real growth is: 4%
According to the quantity theory of money, if both the growth rate of the money supply and the velocity of money are fixed, then a higher inflation rate means: a lower real growth rate.
If the growth rate of the money supply in an economy is 5%, the growth rate of output is 2%, and the velocity of money is constant, what will the inflation rate in this economy be? 3%
The primary purpose of the AD-AS model is to explain: business fluctuations
An increase in inflation will cause the long-run aggregate supply curve to not shift at all.
In the basic model with an AD and LRAS curve only, if spending growth is 10% and the Solow growth rate falls from 5% to 3%, then inflation will: increase from 5% to 7%
During the Internet revolution in the late 1990s, a positive real shock shifted the long-run aggregate supply curve to the right, which led to: an increase in real growth rate and decrease in the inflation rate
Wages are sticky when labor unions set wage contracts for a certain period of time.
An increase in _____ will shift the SRAS curve. expected inflation, but not actual inflation
The cost a business faces when changing prices in response to an economic shock is called a menu cost
In the AD-AS model with a long-run potential growth rate of 2%, a 6 percentage point increase in the money supply growth rate will cause the economy's growth rate to be _____ in the long run. 2%
If the actual rate of inflation turns out to be higher than the expected rate of inflation, what happens to the growth rate of output before expectations are updated? The growth rate is higher than the Solow growth rate.
The short-run aggregate supply curve shows the _____ relationship between the inflation rate and real growth during the period when prices and wages are _____. positive; sticky
Nominal wage confusion occurs when workers respond to their nominal wage instead of to their real wage
If stock prices go up and people feel richer, aggregate demand will: increase
An increase in consumer pessimism will lead to increased inflation in neither the short run nor the long run
Which of the following is a negative real shock that occurred during the Great Depression? Widespread bank failures led to a reduction in the productivity of financial intermediation
Which of the following best describes the conditions during the Great Depression? Both real GDP growth and inflation were negative.
Which of the following is part of the labor force? a person who was laid off and is now looking for work
An unemployed person is one who: does not have a job but is actively looking for one
What is the term for workers who have given up looking for a job but would still like one? discouraged workers
When workers lose their jobs and become officially unemployed, the unemployment rate increases
The short-term unemployment caused by the ordinary difficulties of matching employee toemployer is called: frictional unemployment.
Which of the following individuals can be counted as part of the labor force? someone who is collecting unemployment benefits
The shift toward more of a service economy and less of a manufacturing economy in the UnitedStates has caused an increase in: structural unemployment
Long-lasting unemployment benefits tend to: increase the rate of structural unemployment.
What allows an employee to quit at any time and an employer to fire at any time for anyreason? employment-at-will
During recessions the unemployment rate: . increases
How can people who are laid off from work due to a recession eventually turn into structurallyunemployed people? by staying unemployed for so long that their skills become outdates
Suppose that Congress decided to exempt seniors from paying income tax on labor income.What would happen to the labor force participation rate for seniors? It would increase.
The invention of birth control in pill form substantially labor force participation. increased female
Inflation is: an increase in the average level of prices
The consumer price index measures the prices of: a basket of goods bought by the typical American consumer
In a small economy, the money supply is $600,000, and the velocity of money is 2. The currentaverage price level in the economy is 3. What is the level of nominal GDP in this economy? $1.2 million
Current forecasts say that mild inflation is expected next year. If, however, deflation occursinstead: lenders on existing fixed rate loans will gain while borrowers will lose
What is the Fisher effect? the tendency of nominal interest rates to rise with higher expected inflation rates
Suppose the nominal interest rate is 4% and the inflation rate is 5%. The real interest rate is: -1%
Business fluctuations are fluctuations in the: growth rate of real GDP around its trend growth rate
Holding everything else constant, an increase in the growth rate of the money supply willcause the aggregate demand curve to: shift outward
The aggregate demand curve shows all the combinations of and thatare consistent with a specified rate of . inflation; real GDP growth; spending growth
The position of the long-run aggregate supply curve shows the economy’s: potential growth rate given by the real factors of production
The long-run aggregate supply curve shows that long-run economic growth: does not depend on the rate of inflation
As a result of an increase in expected inflation, the SRAS curve shifts up and to the left
An unexpected increase in export growth is a: positive AD shock
. If ? > ?e firms’ profits will increase
What are Unemployed Workers? Adults who do not have a job but who are looking for one.
what is Unemployment Rate? Percentage of the labor force without a job.
What is a Labor Force? Percentage of adults in the labor force.
What is Unemployment Rate Unemployed divided by unemployed + employed * 100
What are Discourage Workers,? Workers who have given up looking for work but would still like a job
What happens to the unemployment rate when discouraged workers are involved? The unemployment rate goes down
Does unemployment excludes discouraged workers. yes
What is Underemployment rate includes part time workers who would rather have a full time position and people who would like to work but given up looking for jobs.
Underemployment Rate includes (Employed persons) incudes both part and full time workers
What is the Velocity of money? Average of times a dollar is spent on final goods and services during a year
What is structural unemployment higher in Europe instead of the United States Unemployment Benefits (Amount and Duration, Minimum Wages and Unions as well as Employment Protection Laws.

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