question
What are some examples of vast differences around the world in GDP per capita?
answer
- A typical family with all their possessions in the U.K. is an advanced income country
- A family with all their possessions in Mexico is a middle class income country
- A family with all their possessions in Mali, is a poor country.
- A family with all their possessions in Mexico is a middle class income country
- A family with all their possessions in Mali, is a poor country.
question
What are some examples of vast differences in GDP growth rate?
answer
Since growth rates vary, the country rankings can change over time.
- Poor countries are not necessarily doomed to poverty forever, e.g. Singapore incomes were low in 1960 and are quite high now.
- Rich countries can't take their status for granted; they may be overtaken by poorer but faster growing countries
- Poor countries are not necessarily doomed to poverty forever, e.g. Singapore incomes were low in 1960 and are quite high now.
- Rich countries can't take their status for granted; they may be overtaken by poorer but faster growing countries
question
If differences in GDP growth rate add up pretty quickly over time, what effects take place with poor and developed countries?
answer
rapidly growing poor countries over time can become wealthier than slow growing countries that were initially wealthier.
question
Rule of 72
answer
- a rule of thumb (not exact)
- If something id growing at a rate of r percent per year, then the # of years it will take to double its initial value is 72/r.
- If something id growing at a rate of r percent per year, then the # of years it will take to double its initial value is 72/r.
question
What is produced at the national level?
answer
Wealth
question
A country is wealthy if and only if..
answer
it can produce a large quantity of goods and services
question
A key measure of a country's ability to produce goods and services is its...
answer
Productivity
- rich countries have high productivity as poor countries do not
- rich countries have high productivity as poor countries do not
question
What is productivity and why is it so important?
answer
- The average quantity of goods and services produced per unit of labor input. (avg. output per hr worked).
Important:
- When nations workers are very productive, real GDP is large and incomes are high.
Important:
- When nations workers are very productive, real GDP is large and incomes are high.
question
When productivity grows rapidly, what else grows rapidly too?
answer
living standards
question
What determines productivity?
answer
physical capital
human capital
natural resources
production tech
human capital
natural resources
production tech
question
What is physical capital and how does it relate to productivity?
answer
-the stock of equipment and structures used to produce goods and services (K)
Productivity is higher when the average worker has more capital(machines, equip., etc.)
K/L = capital per worker
- an increase in K/L causes an increase in Y/L.
Productivity is higher when the average worker has more capital(machines, equip., etc.)
K/L = capital per worker
- an increase in K/L causes an increase in Y/L.
question
What is human capital (H) and how does it relate to productivity?
answer
- the knowledge and skills workers acquire through education, training, and experience
Productivity is higher when the average worker has more human capital(education, skills, etc.)
H/L = average workers human capital
- an increase in H/L causes an increase in Y/L.
Productivity is higher when the average worker has more human capital(education, skills, etc.)
H/L = average workers human capital
- an increase in H/L causes an increase in Y/L.
question
What are natural resources (N) and how do they relate to productivity?
answer
- The inputs into production that nature provides (land, mineral deposits)
More N allows a country to produce more Y.
An increase in N/L causes an increase in Y/L.
some countries are rich because they have abundant natural resources.
More N allows a country to produce more Y.
An increase in N/L causes an increase in Y/L.
some countries are rich because they have abundant natural resources.
question
What is technological knowledge and how does it relate to productivity?
answer
Societies understanding of the best ways to produce goods and services.
- any advance in knowledge that boost productivity allows a society to get more output from its resources
- any advance in knowledge that boost productivity allows a society to get more output from its resources
question
Whether or not workers have a significant amount of physical capital depends on...
answer
whether or not firms have made investments.
question
What leads to greater productivity and a higher standard of living?
answer
A government policy that encourages investment
question
When it comes to government policies, which policies help economic growth?
answer
-Offer tax incentives for investment by local firms
-Offer tax incentives for investment by foreign firms
- Give cash payments for a good school attendance
-Crackdown on government corruption
-Restrict imports to protect domestic industries
-Allow free trade
"policies promote growth"
-Offer tax incentives for investment by foreign firms
- Give cash payments for a good school attendance
-Crackdown on government corruption
-Restrict imports to protect domestic industries
-Allow free trade
"policies promote growth"
question
What government policies encourage investment?
answer
A fall in interest rate
question
What government policies discourage investment?
answer
a larger Increase in budget deficit causes fall in investment
question
A prominent feature regarding investment is...
answer
that investment is subject to diminishing returns.
Savings=Investment
Savings=Investment
question
What are diminishing returns?
answer
as K rises, the extra output from an additional unit of K falls. (K= Physical Capital)
question
What is the catch up effect?
answer
the property whereby poor countries tend to grow more rapidly than rich ones
question
How do the existence of diminishing returns lead to the catch up affect?
answer
The government can implement policies that raise saving and investment. Then K will rise, causing productivity and living standards to rise
question
Why is all investment good for the economy?
answer
it creates jobs and increases productivity. This includes foreign investment
question
What are the two broad categories of foreign investment?
answer
foreign direct and foreign portfolio investment
-some of the returns from these flow back to the foreign countries that supplied the funds
-especially beneficial in poor countries that cant generate enough savings to fund investment projects themselves
-also helps poor countries learn state of the art technologies developed in other countries.
-some of the returns from these flow back to the foreign countries that supplied the funds
-especially beneficial in poor countries that cant generate enough savings to fund investment projects themselves
-also helps poor countries learn state of the art technologies developed in other countries.
question
Foreign direct investment is..
answer
a capital investment (e.g. a factory) that is owned and operated by a foreign entity
question
Foreign Portfolio investment is..
answer
a capital investment financed with foreign money, but not operated by domestic residents
question
What is the role of education in creating and maintaining human capital?
answer
- Government can increase productivity by promoting education - investment in human capital (H).
- In the U.S. each year of schooling raises a workers wage by 10%.
-Investing in H also Involves a trade off between the present and future: Spending a year in school requires sacrificing a years wages now to have a higher wage later.
- In the U.S. each year of schooling raises a workers wage by 10%.
-Investing in H also Involves a trade off between the present and future: Spending a year in school requires sacrificing a years wages now to have a higher wage later.
question
What is the role of health care in creating and maintaining human capital?
answer
- type of investment in human capital- healthier workers are more productive.
question
What is the role of adequate nutrition in creating and maintaining human capital?
answer
-In countries with significant malnourishment, raising workers caloric intake raises productivity.
question
What are some things that provide a positive incentive for firms to invest?
answer
- having firmly established property rights
- a rule of law
- political stability
- a rule of law
- political stability
question
The rule of law is..
answer
the legal principle that law should govern a nation, as opposed to being governed by decisions of individual government officials
question
Where do firms not like to invest?
answer
in places where one or more of the positive incentives is missing
question
What does lack of investment lead to?
answer
slower growth and a lower standard of living
question
Property Rights are..
answer
the ability of people to exercise authority over the resources they own.
question
Political instability creates..
answer
uncertainly over whether property rights will be protected in the future
question
Economists disagree on many things, but they agree with near unanimity that..
answer
specialization and free trade between countries improves the standard of living in both countries
question
Wealthy countries engage in what?
answer
specialization and free trade
question
Wealthy countries resist the temptation to..
answer
restrict trade through tariffs, quotas, and other measures
question
What does trade do?
answer
improves productivity and living standards
question
Free Trade: Inward-oriented policies
answer
aim to raise living standards by avoiding interaction with other countries
question
Free Trade: Outward-oriented policies
answer
promote integration with the world economy.
question
What can research and development do for a country?
answer
improve a country's technological knowledge, and therefore can improve its standard of living
question
Having an abundance of what makes it easier for a country to be wealthy?
answer
natural resources
- however, some natural resource-poor countries are wealthy and some countries are relatively poor despite having abundant natural resources
- however, some natural resource-poor countries are wealthy and some countries are relatively poor despite having abundant natural resources
question
Does a small or large population usually make a positive contribution to economic growth? Also, what other kind of population presents some real problems?
answer
Large population and a rapidly growing population
question
Worker productivity is one of the most important factors that helps us determine the performance of an economy. What describes productivity?
answer
Per Capita GDP
question
Standard of living...
answer
is most likely to increase as a nation experiences an increase in productivity
question
What is the catch-up effect concerning developed and developing countries?
answer
Developing countries may grow faster than developed countries because they lack the most basic tools and capital investment leads to higher productivity growth.
question
Differences in natural resources per worker account for..
answer
some differences in the standards of living between countries
question
All else equal, given the scenarios below, which scenario would exhibit a country with the most economic growth?
A) Mirari, a country embroiled in a civil war.
B) Froland, a country known to be able to resolve most trials and legal issues within a year.
C) Dos Rios, under a communist regime, where property is communal.
D) Katanga, a country with a long line of bureaucrats, which creates ample amounts of red tape.
A) Mirari, a country embroiled in a civil war.
B) Froland, a country known to be able to resolve most trials and legal issues within a year.
C) Dos Rios, under a communist regime, where property is communal.
D) Katanga, a country with a long line of bureaucrats, which creates ample amounts of red tape.
answer
B) Froland, a country known to be able to resolve most trials and legal issues within a year.
question
Ch. 16
What are the 3 functions of money?
What are the 3 functions of money?
answer
medium of exchange
unit of account
store of value
unit of account
store of value
question
What is a Medium of exchange?
answer
an item buyers give to sellers when they want to purchase g&s
question
What is a unit of account?
answer
the yardstick people use to post prices and record debts
question
What is a store of value?
answer
an item people can use to transfer purchasing power from the present to the future
question
What is money?
answer
an asset used to make purchases and store value
2 kinds of it:
1)Commodity-gold coins, has intrinsic value
2)Fiat- U.S. dollars, doesnt have intrinsic vale
- Households hold part of their wealth in the form of money-convenient
- doesn't earn interest or appreciate
2 kinds of it:
1)Commodity-gold coins, has intrinsic value
2)Fiat- U.S. dollars, doesnt have intrinsic vale
- Households hold part of their wealth in the form of money-convenient
- doesn't earn interest or appreciate
question
What is wealth?
answer
= total value of assets - total liabilities
question
What are examples of assets?
answer
equity in a house, value of cars, jewelry, stocks, bonds, cash value of life insurance and funds in a checking or savings account
question
What is money supply?
answer
the quantity of money available in the economy
= (Bank reserves X money multiplier)
= (Bank reserves X money multiplier)
question
How do we control money supply?
answer
Feds Buy bonds, making money supply go up.
Sell bonds=money supply goes down
Example= 400 millionX5(multiplier)=2000 million=2 billion
-money supply increases by 2 billion
Sell bonds=money supply goes down
Example= 400 millionX5(multiplier)=2000 million=2 billion
-money supply increases by 2 billion
question
What 2 assets should be considered part of the money supply?
answer
1)Currency- paper bills and coins in the hands of the public
2)Demand deposits- balances in bank accounts that depositors can access on demand by writing a check.
2)Demand deposits- balances in bank accounts that depositors can access on demand by writing a check.
question
What is "M1" of the money supply?
answer
= currency, demand deposits, travelers checks, and other checkable deposits.
M1= $1.9 trillion (February 2011)
M1= $1.9 trillion (February 2011)
question
What is "M2" of the money supply?
answer
= everything in M1 + savings deposits, small time deposits, money market mutual funds, and a few minor categories.
M2= $8.9 trillion (February 2011)
M2= $8.9 trillion (February 2011)
question
What is a central bank?
answer
an institution that oversees the banking system and regulates the money supply
question
What is the Monetary policy?
answer
the setting of the money supply by policymakers in the central bank
question
What is the Federal Reserve?
answer
the central bank of the U.S.
question
What all does the Federal Reserve consist of?
answer
- Board of Governors (7) located in D.C.
- 12 regional Federal banks around the U.S.
-Federal Open Market Committee
- 12 regional Federal banks around the U.S.
-Federal Open Market Committee
question
What does the Federal Open Market Committee (FOMC) do?
answer
includes the board of governors and presidents of some of the regional Federal banks. The FOMC decides monetary policy.
question
What is fractional reserve banking?
answer
where banks keep a fraction of deposits as reserves and use the rest to make loans
question
What items count as bank reserves?
answer
-Vault cash
-Deposits at a Federal Reserve bank (% of deposits)
-Deposits at a Federal Reserve bank (% of deposits)
question
How does a fractional reserve banking system expand the money supply?
answer
when banks make loans, they create money. Does not create wealth
question
What is the Money Multiplier and what is its equation?
answer
the amount of money the banking system generates with each dollar of reserves
= 1/R (R=reserves)
= 1/R (R=reserves)
question
To change money supply must change either...
answer
1) Bank reserves (buy or sell bonds)—Open market committee (7 boards of governors)
2) Money multiplier. The money multiplier is equal to 1/R, so Increasing R causes the money supply to fall.
2) Money multiplier. The money multiplier is equal to 1/R, so Increasing R causes the money supply to fall.
question
While cleaning your apartment, you look under the couch and find a $50 bill (and a half eaten taco). You deposit the bill in your checking account. The Fed's Reserve requirement is 20% of deposits.
A) What is the max amount that the money supply could increase?
B) What is the min amount that the money supply could increase?
A) What is the max amount that the money supply could increase?
B) What is the min amount that the money supply could increase?
answer
A) = 1/R = 1/.02 = 5 => 5x$50=$250-currency(50) = $200
B) $0.. If your bank makes no loans from your deposit, currency falls by $50, deposits increase by $50, money supply does not change.
B) $0.. If your bank makes no loans from your deposit, currency falls by $50, deposits increase by $50, money supply does not change.
question
What 3 items will alter the money supply?
answer
1) Open market operations
2) Changing the required reserve ratio
3) Changing the discount rate
2) Changing the required reserve ratio
3) Changing the discount rate
question
What is the discount rate?
answer
the interest rate on loans the Fed makes to banks- to influence the amount of reserves banks borrow
the Fed can increase the money supply by lowering this rate
the Fed can increase the money supply by lowering this rate
question
What is the federal funds rate?
answer
-on any given day, banks with insufficient reserves can borrow from banks with excess reserves
-the interest rate on these loans is the federal funds rate
- The FOMC uses OMO's to target the fed funds rate
- Changes in the fed funds rate cause changes in other rates and have a big impact on the economy.
-the interest rate on these loans is the federal funds rate
- The FOMC uses OMO's to target the fed funds rate
- Changes in the fed funds rate cause changes in other rates and have a big impact on the economy.
question
What exercises the most power over the quantity of money in the U.S. economy?
answer
The U.S. Federal Reserve
question
Suppose that the required reserve ratio is 4.0%. What is the simple money (deposit) multiplier? Round to two decimal places.
Increasing the reserve ratio will ____ the money multiplier.
Increasing the reserve ratio will ____ the money multiplier.
answer
= 25
decrease
decrease
question
For the following questions, assume that the required reserve ratio is set at 0.04.
1) What is the value of the money (deposit) multiplier?
2) How much will the money supply increase if the Fed increases money reserves by $250? Assume that banks only hold in reserves what is required.
1) What is the value of the money (deposit) multiplier?
2) How much will the money supply increase if the Fed increases money reserves by $250? Assume that banks only hold in reserves what is required.
answer
1) 25
2) $6250, because 25(250)
2) $6250, because 25(250)
question
What does fractional reserve banking imply on private banks?
answer
that they have a role in making changes to the money supply.
question
The U.S. central bank sells bonds to the public via the commercial banking system is an example of what?
answer
An open market operation
question
What would happen to other short-term interest rates if the Fed increases its federal funds rate target?
answer
They would also increase
question
The Federal Reserve chooses how much banks lend. T or F?
answer
False
question
The Federal Reserve serves as a lender of last resort. T or F?
answer
True
question
The Federal Reserve loans money to banks. T or F?
answer
True
question
The Federal Reserve sets a target for the federal funds rate. T or F?
answer
True
question
The federal funds rate only matters to banks. T or F?
answer
False
question
Ch. 17
What is inversely related to the price level?
What is inversely related to the price level?
answer
the value of money
question
At what point do people need to hold greater money balances in order to make purchases?
answer
as the price level increases
question
What is the Classical Dichotomy?
answer
the theoretical separation of nominal and real variables
question
What is the difference between real and nominal economic items?
answer
-Hume and the classical economists suggested that monetary developments affect nominal variables but not real variables.
If Central bank doubles the money supply:
- all nominal variables, including prices, will double
- all real variables, including relative prices, will remain unchanged
If Central bank doubles the money supply:
- all nominal variables, including prices, will double
- all real variables, including relative prices, will remain unchanged
question
In the long run, does real GDP change in response to a change in M? (money supply)
answer
=NO change in the money supply.... can only affect nominal variables
question
What is the principle of money neutrality?
answer
The proposition that changes in the money supply do not affect real variable's
-describe the economy in the long run in most economists opinions
- Doubling money supply causes all nominal prices to double
The real wage W/P and relative price remain unchanged, so:
- Quantity of labor supplied does not change
- Quantity of labor demand does not change
- Total employment of labor does not change
- Since employment of all resources is unchanged, total output is also unchanged by the money supply
-describe the economy in the long run in most economists opinions
- Doubling money supply causes all nominal prices to double
The real wage W/P and relative price remain unchanged, so:
- Quantity of labor supplied does not change
- Quantity of labor demand does not change
- Total employment of labor does not change
- Since employment of all resources is unchanged, total output is also unchanged by the money supply
question
What is the velocity of money?
answer
the rate at which money changes hands or circulates through an economy
Notation:
P x Y = nominal GDP = (price lvl)x(real GDP)
M= money supply
V= velocity
Velocity formula: V=(PxY)/M
Notation:
P x Y = nominal GDP = (price lvl)x(real GDP)
M= money supply
V= velocity
Velocity formula: V=(PxY)/M
question
Suppose the money supply in country X is 44000 and nominal GDP is 88000. Calculate the velocity of money and enter it below. Round your answer to the nearest hundredth.
answer
V=(PxY)/M
= 88,000/44,000
= 2
= 88,000/44,000
= 2
question
The Velocity of Money Example:
Y= real GDP = 3000 pizzas
P= price lvl = $10
PxY= nominal GDP= $30,000
M= money supply= $10,000
V= velocity= ?????
Y= real GDP = 3000 pizzas
P= price lvl = $10
PxY= nominal GDP= $30,000
M= money supply= $10,000
V= velocity= ?????
answer
$30,000/$10,000 = 3
question
What is the quantity equation?
answer
(MV=PY)
- V is stable
-So, a change in M causes nominal GDP (PxY) to change by the same percentage
- A change in M does not affect Y: money is neutral. Y is determined by technology and resources.
-So, P changes by same percentage as PxY and M.
- Rapid money supply growth causes rapid inflation
- V is stable
-So, a change in M causes nominal GDP (PxY) to change by the same percentage
- A change in M does not affect Y: money is neutral. Y is determined by technology and resources.
-So, P changes by same percentage as PxY and M.
- Rapid money supply growth causes rapid inflation
question
What does the Quantity equation as well as money neutrality dictate?
answer
That everything else held constant, in the long run any change in the money supply will cause an equal percentage change in the price level
question
Using the Quantity Equation... Suppose that for a given period of time velocity is constant, productivity does NOT change and the money supply grows by 3.8 percent. What is the inflation rate?
answer
3.8%
question
Suppose that for a given period of time velocity is constant, productivity increases by 1.5 percent and the money supply grows by 3.8 percent. What is the inflation rate?
answer
= 3.8-1.5
= 2.3%
= 2.3%
question
Suppose the economy only produces one good, which is cars in 2012. Y=25,000 and the price of a car was 40,000. If the velocity of money in 2012 was 4 how, large does the money supply need to be in order to make the quantity equation balance?
answer
MV=PY (quantity equation)
MX4=40,000 x 25,000
4M=1,000,000,000/4=250,000
MX4=40,000 x 25,000
4M=1,000,000,000/4=250,000
question
What is hyperinflation and what causes it?
answer
It's generally defined as inflation exceeding 50% per month.
Excessive growth in the money supply always causes hyperinflation
Excessive growth in the money supply always causes hyperinflation
question
What is the Fisher Effect?
answer
The nominal interest-rate adjusts one for one with changes in the inflation rate
Nominal interest rate= Inflation rate + Real interest rate
The real interest rate is determined by saving & investment in the loanable funds market
Money supply growth determines inflation rate
So, This equation shows how the nominal interest rate is determined.
Nominal interest rate= Inflation rate + Real interest rate
The real interest rate is determined by saving & investment in the loanable funds market
Money supply growth determines inflation rate
So, This equation shows how the nominal interest rate is determined.
question
The Fisher effect and the inflation tax
answer
The inflation tax applies to people's holdings of money, not their holdings of wealth
The fisher effect: An increase in inflation causes an equal increase in the nominal interest rate, so the real interest rate (on wealth) is unchanged
The fisher effect: An increase in inflation causes an equal increase in the nominal interest rate, so the real interest rate (on wealth) is unchanged
question
What are Shoeleather costs?
answer
The resources wasted when inflation encourages people to reduce their money holdings
question
What are Menu costs?
answer
The cost of changing prices (printing new menus, mailing new catalogs, etc.)
question
Menu costs arise from the way inflation...
answer
requires the regular updating of prices
question
What is a misallocation of resources from relative price variability in the cost of inflation?
answer
Firms don't all raise prices at the same time, so relative prices can vary, which distorts the allocation of resources
question
What is confusion and inconvenience in the cost of inflation?
answer
Inflation changes the yardstick we use to measure transactions. Complicates long range planning and the comparison of dollar amounts overtime
question
What are tax distortions?
answer
Inflation makes nominal income grow faster than real income
Taxes are based on nominal income, and some are not adjusted for inflation
So, inflation causes people to pay more taxes even when their real incomes don't increase
Taxes are based on nominal income, and some are not adjusted for inflation
So, inflation causes people to pay more taxes even when their real incomes don't increase
question
Unexpected Inflation is..
answer
-when you borrow or lend the nominal interest is fixed by the contract, but the real interest rate can change if inflation does something unexpected
-real R=nominal R - inflation
-if inflation is higher than expected, real r is lower, which benefits borrowers and hurts lenders
-if lower is lower than expected, real R is higher which hurts borrowers and helps lenders
-real R=nominal R - inflation
-if inflation is higher than expected, real r is lower, which benefits borrowers and hurts lenders
-if lower is lower than expected, real R is higher which hurts borrowers and helps lenders
question
What does unexpected inflation alter when considering loans?
answer
the real vale of the dollars the borrower will repay.
As a consequence of this:
- Unexpected inflation results in a redistribution of wealth. The direction of the redistribution depends on whether inflation is higher than expected or lower than expected
As a consequence of this:
- Unexpected inflation results in a redistribution of wealth. The direction of the redistribution depends on whether inflation is higher than expected or lower than expected
question
What does the U.S. tax code impose taxes on?
answer
Nominal gains, not real gains
As a consequence of this:
- Higher inflation results in a lower real, after tax rate of return for savers.
As a consequence of this:
- Higher inflation results in a lower real, after tax rate of return for savers.
question
Assume that the economy was in equilibrium and the government decides to inject money by buying government bonds from the public on the open market. Hence, the vertical money supply curve shifts to the right and the convex downward sloping money demand curve does not change. What does the quantity theory of money predict will happen due to the monetary injection?
answer
The price level will rise, due to each dollar being less valuable.
question
Recently you\'ve felt like everything just seems more expensive. You\'ve noticed that gasoline is becoming more costly, food prices are soaring, and your landlord has informed you that rent will be increasing by $150 at the end of the month. Using your well-honed economic reasoning, you deduce that...
answer
the recent, months-long infusion of money into the economy by the Fed has resulted in inflation, and the companies have updated their prices.
question
The Fisher Effect equation can be used to determine the real interest rate. Use this equation to determine the answer to the following question: If the nominal interest rate is 0.080, and the inflation rate is 0.005, what is the real interest rate?
answer
= (0.080-0.005)
= 0.075
= 0.075
question
Suppose the real interest rate is 2.5% and expected inflation is 2%. What is the nominal interest rate?
answer
= 2.5+2
= 4.5%
= 4.5%
question
All else equal, if inflation decreases by 1% what will happen to the nominal interest rate?
answer
it will decrease by 1%.
question
Nominal interest rates can only be low when...
answer
inflation is low, because...
nominal interest rate=inflation rate+ real interest rate
nominal interest rate=inflation rate+ real interest rate
question
What do economists call the relationship between the nominal interest rate and the inflation rate?
answer
the Fisher Effect
question
What does it mean to be Employed?
answer
Paid employees, self-employed, and unpaid workers in a family business
question
What is the labor force compromised of?
answer
The number of employed and unemployed people
question
Chapter 15:
What are the 3 categories for adults?
What are the 3 categories for adults?
answer
Employed, Unemployed and not in the labor force
question
What does it mean to be Unemployed?
answer
People not working to have looked for work during previous four weeks
question
Who reports the official United States unemployment rate?
answer
The U.S. Bureau of Labor Statistics
question
How often is the survey that determines unemployment released?
answer
Monthly
question
What does it mean to not be in the labor force?
answer
Everyone else
question
What are discouraged workers?
answer
people who would like to work but have given up looking for jobs
question
Why are discouraged workers considered "not in the work force"?
answer
Since discouraged workers are no longer looking for employment, they are not counted as active in the labor force. This means that unemployment rates, which are based on labor force calculations, do not consider discouraged workers.
question
unemployment rate formula
answer
= 100 X (# of unemployed/labor force)
question
labor force particitation rate formula
answer
= 100 X (labor force/adult population)
question
Adult population of the U.S. by group
# of employed = 139.7 million
# of unemployed = 13.7 million
# not in labor force = 85.7 million
Calculate the: Labor force, U-rate, Population, and L.F. part. rate.
# of employed = 139.7 million
# of unemployed = 13.7 million
# not in labor force = 85.7 million
Calculate the: Labor force, U-rate, Population, and L.F. part. rate.
answer
Labor force= employed + unemployed = 139.7 + 13.7 = 153.4 million.
U-Rate= 100 X (13.7/153.4) = 8.9%
Population= labor force + not in labor force = 153.4 + 85.7 = 239.1 million
LF partic. rate = 100 X (153.4/239.1) = 64.2%
U-Rate= 100 X (13.7/153.4) = 8.9%
Population= labor force + not in labor force = 153.4 + 85.7 = 239.1 million
LF partic. rate = 100 X (153.4/239.1) = 64.2%
question
Unemployment rate is not a perfect measure of what? What are its flaws?
answer
of the health of the labor market.
Flaws:
- excludes discouraged workers
- Does not distinguish between full-time and part-time work, or people working part time because full-time jobs are not available
- Some people miss report their work status in the BLS survey.
Flaws:
- excludes discouraged workers
- Does not distinguish between full-time and part-time work, or people working part time because full-time jobs are not available
- Some people miss report their work status in the BLS survey.
question
The unemployment rate is never what?
answer
Zero.
Even in outstanding economic times, there are millions of unemployed people United States.
Even in outstanding economic times, there are millions of unemployed people United States.
question
What are the 3 broad types of unemployment?
answer
Frictional, Structural and Cyclical
question
What is frictional unemployment?
answer
Occurs when workers spend time searching for the jobs that best suit their skills and tastes, usually short term
occurs due to turnover as workers switch jobs.
occurs due to turnover as workers switch jobs.
question
What is structural unemployment?
answer
Occurs when there are fewer jobs than workers, usually long-term
question
What is cyclical unemployment?
answer
The deviation of unemployment from its natural rate, associated with business cycles.
Caused by recessions
Caused by recessions
question
What is the natural rate of unemployment?
answer
it is what the unemployment rate would be if there was no cyclical unemployment. In other words, if at some point in time ONLYfrictional and structural unemployment existed, then the actual unemployment rate would be equal to the natural rate.
it still exists when the economy is operating at its full potential.
it still exists when the economy is operating at its full potential.
question
In general, the actual unemployment rate may be what?
answer
Greater than, less than, or equal to the natural rate
question
What kind of worker was Andy?
Andy Friese was formerly employed at AutoZone. He has been out of work for six months, and he gave up looking for work over a month ago.
Andy Friese was formerly employed at AutoZone. He has been out of work for six months, and he gave up looking for work over a month ago.
answer
discouraged worker
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