question
Consumer Price Index (CPI)
answer
- measure of the overall level of prices
- measure of the overall cost of goods and services bought by a typical consumer
- computed and reported every month by the bureau of labor statistics
- measure of the overall cost of goods and services bought by a typical consumer
- computed and reported every month by the bureau of labor statistics
question
Calculating CPI
answer
1. fix the basket
- which prices are most important to the typical consumer
- different weight
2. find the prices at each point in time
3. compute the basket's cost
- same basket of goods
- isolate the effects of price changes
4. chose a base year and compute the CPI
- base year = benchmark
- price of basket of goods and services in current year, divide by price of basket in base year, times 100
5. compute the inflation rate
- which prices are most important to the typical consumer
- different weight
2. find the prices at each point in time
3. compute the basket's cost
- same basket of goods
- isolate the effects of price changes
4. chose a base year and compute the CPI
- base year = benchmark
- price of basket of goods and services in current year, divide by price of basket in base year, times 100
5. compute the inflation rate
question
Inflation Rate
answer
- percentage change in the price index from the preceding period
question
Core CPI
answer
- measure the overall cost of consumer goods and services excluding food and energy
question
Producer Price Index (PPI)
answer
- measure the cost of a basket of goods and services bought by firms
- changes in PPI are often thought to be useful in predicting changes in CPI
- changes in PPI are often thought to be useful in predicting changes in CPI
question
Cost of Living Measurement Problems
answer
1. substitution bias
- prices do not change proportionately
- consumers substitute toward goods that have become relatively less expensive
2. introduction of new goods
- more variety of goods
3. unmeasured quality change
- changes in quality
- prices do not change proportionately
- consumers substitute toward goods that have become relatively less expensive
2. introduction of new goods
- more variety of goods
3. unmeasured quality change
- changes in quality
question
GDP Deflator vs. CPI
answer
GDP Deflator
- ratio of nominal GDP to real GDP
- reflects prices of all goods and services produced domestically
- compares the price of currently produced goods and services to the price of the same goods and services in the base year
CPI
- reflects prices of goods and services bought by consumers
- compares price of a fixed basket of goods and services to the price of the basket in the base year
- ratio of nominal GDP to real GDP
- reflects prices of all goods and services produced domestically
- compares the price of currently produced goods and services to the price of the same goods and services in the base year
CPI
- reflects prices of goods and services bought by consumers
- compares price of a fixed basket of goods and services to the price of the basket in the base year
question
Correcting Economic Variables
answer
1. dollar figures from different times
2. a price index such as the CPI
- measure the price level and thus determines the size of the inflation correction
3. indexation
- automatic correction by law or contract of a dollar amount for the effects of inflation
- COLA: cost-of-living allowance
2. a price index such as the CPI
- measure the price level and thus determines the size of the inflation correction
3. indexation
- automatic correction by law or contract of a dollar amount for the effects of inflation
- COLA: cost-of-living allowance
question
Real vs. Nominal Interest Rates
answer
Real interest rate
- interest rate correct for the effects of inflation = nominal interest rate - inflation rate
Nominal interest rate
- interest rate as usually reported without a correction for the effects of inflation
- interest rate correct for the effects of inflation = nominal interest rate - inflation rate
Nominal interest rate
- interest rate as usually reported without a correction for the effects of inflation
question
Economic Growth Around the World
answer
1. real GDP per person
- living standard varies widely from country to country
2. growth rate
- how rapidly real GDP per person grew in the typical year
3. because of differences in growth rates
- ranking of countries by income changes substantially over time
- living standard varies widely from country to country
2. growth rate
- how rapidly real GDP per person grew in the typical year
3. because of differences in growth rates
- ranking of countries by income changes substantially over time
question
Productivity
answer
- the quantity of goods and services produced from each unit of labor input
- important because...
1. it is a key determinant of living standards
2. growth in productivity is the key determinant of growth in living standards,
3. an economy's income is the economy's output
- important because...
1. it is a key determinant of living standards
2. growth in productivity is the key determinant of growth in living standards,
3. an economy's income is the economy's output
question
Productivity Determinants
answer
- physical capital per worker
- human capital per worker
- natural resources per worker
- technological knowledge
- human capital per worker
- natural resources per worker
- technological knowledge
question
Physical Capital
answer
- stock of equipment and structures used to produce goods and services
question
Human Capital
answer
- knowledge and skills that workers acquire through education, training, and experience
question
Natural Resources
answer
- inputs into the production goods and services
- provided by nature, such as land, rivers, and mineral deposits
- provided by nature, such as land, rivers, and mineral deposits
question
Technological Knowledge
answer
- society's understanding of the best ways to produce goods and services
question
Raise Future Productivity
answer
- invest more current resources in the production of capital
- trade-off: devote fewer resources to produce goods and services for current consumption
- trade-off: devote fewer resources to produce goods and services for current consumption
question
Higher Savings Rate
answer
- fewer resources are used to make consumption goods
- more resources are used to make capital goods
- capital stock increases
- rising productivity
- more rapid growth in GDP
- more resources are used to make capital goods
- capital stock increases
- rising productivity
- more rapid growth in GDP
question
Diminishing Returns
answer
- benefit from an extra unit of an input
- declines as the quantity of the input increases
- declines as the quantity of the input increases
question
In the long run, higher savings rate
answer
- higher level of productivity
- higher level of income
- not higher growth in productivity or income
- higher level of income
- not higher growth in productivity or income
question
Catch-Up Effect
answer
- countries that start off poor tend to grow more rapidly than countries that start off rich
question
Poor Countries
answer
- low productivity
- even small amounts of capital investment increase workers' productivity substantially
- tend to grow faster than rich countries
- even small amounts of capital investment increase workers' productivity substantially
- tend to grow faster than rich countries
question
Rich Countries
answer
- high productivity
- additional capital investment has a small effect on productivity
- additional capital investment has a small effect on productivity
question
Investment from Abroad
answer
- another way for a country to invest in new capital
- foreign direct investment: capital investment that is owned and operated by a foreign entity
- foreign portfolio investment: investment financed with foreign money but operated by domestic residents
- foreign direct investment: capital investment that is owned and operated by a foreign entity
- foreign portfolio investment: investment financed with foreign money but operated by domestic residents
question
Benefits from Investment
answer
- some flow back to the foreign capital owners
- increase the economy's stock of capital
- higher productivity
- higher wages
- state-of-the-art technologies
- increase the economy's stock of capital
- higher productivity
- higher wages
- state-of-the-art technologies
question
World Bank
answer
- encourages flow of capital to poor countries
- funds from world's advanced countries
- makes loans to less developed countries
- advice about how the funds might best be used
- funds from world's advanced countries
- makes loans to less developed countries
- advice about how the funds might best be used
question
World Bank and the International Monetary Fund
answer
- set up after WWII
- economic distress leads to political turmoil, international tensions, and military conflict
- every country has an interest in promoting economic prosperity around the world
- economic distress leads to political turmoil, international tensions, and military conflict
- every country has an interest in promoting economic prosperity around the world
question
Education
answer
- investment in human capital
- gap between wages of educated and uneducated workers
- opportunity cost: wages forgone
- conveys positive externalities
- public education: large subsidies to human-capital investment
- gap between wages of educated and uneducated workers
- opportunity cost: wages forgone
- conveys positive externalities
- public education: large subsidies to human-capital investment
question
Health & Nutrition
answer
1. human capital
- education
- expenditures that lead to a healthier population
2. healthier workers
- more productive
3. wages
- reflect a worker's productivity
4. right investments in the health of population
- increase productivity raise living standards
5. historical trends: long-run economic growth
- improved health from better nutrition
- taller workers have higher wages and better productivity
6. vicious circle in poor countries
- poor countries are poor because their populations are not healthy
- populations are not healthy because they are poor and cannot afford better healthcare and nutrition
7. virtuous circle
- policies that lead to more rapid economic growth would naturally improve health outcomes which in turn would further promote economic growth
- education
- expenditures that lead to a healthier population
2. healthier workers
- more productive
3. wages
- reflect a worker's productivity
4. right investments in the health of population
- increase productivity raise living standards
5. historical trends: long-run economic growth
- improved health from better nutrition
- taller workers have higher wages and better productivity
6. vicious circle in poor countries
- poor countries are poor because their populations are not healthy
- populations are not healthy because they are poor and cannot afford better healthcare and nutrition
7. virtuous circle
- policies that lead to more rapid economic growth would naturally improve health outcomes which in turn would further promote economic growth
question
Foster Economic Growth
answer
- protect property rights
- ability of people to exercise authority over the resources they own
- courts enforce property rights
- promote political stability
- ability of people to exercise authority over the resources they own
- courts enforce property rights
- promote political stability
question
Property Rights
answer
- prerequisite for the price system to work
question
Lack of Property Rights
answer
- major problem because contracts are hard to enforce
- fraud goes unpunished
- corruption: impedes the coordinating power of markets, discourages domestic saving, discourages investment from abroad
- fraud goes unpunished
- corruption: impedes the coordinating power of markets, discourages domestic saving, discourages investment from abroad
question
Political Instability
answer
- a threat to property rights
- revolutions and coups
- revolutionary government might confiscate the capital of some businesses
- domestic residents have less incentive to save, invest, and start new businesses
- foreigners have less incentive to invest
- revolutions and coups
- revolutionary government might confiscate the capital of some businesses
- domestic residents have less incentive to save, invest, and start new businesses
- foreigners have less incentive to invest
question
Inward-Oriented Policies
answer
- avoid interaction with the rest of the world
- infant-industry argument (tariffs, other trade restrictions)
- adverse effect on economic growth
- infant-industry argument (tariffs, other trade restrictions)
- adverse effect on economic growth
question
Outward-Oriented Policies
answer
- integrate into the world economy
- international trade in goods and services
- economic growth
- international trade in goods and services
- economic growth
question
Trade Amount Determinants
answer
- government policy
- geography
- easier to trade for countries with natural seaports
- geography
- easier to trade for countries with natural seaports
question
Knowledge as a Public Good
answer
- government encourages research and development
- farming methods
- aerospace research
- research grants
- tax breaks
- patent system
- farming methods
- aerospace research
- research grants
- tax breaks
- patent system
question
Large Population
answer
- more workers to produce foods and services
- larger total output of goods and services
- more consumers
- larger total output of goods and services
- more consumers
question
Stretching Natural Resources
answer
- Malthus: an ever increasing population
- Strain society's ability to provide for itself
- mankind: doomed to forever live in poverty
- Strain society's ability to provide for itself
- mankind: doomed to forever live in poverty
question
Diluting the Capital Stock
answer
- high population growth
- spread the capital stock more thinly
- lower productivity per worker
- lower GDP per worker
- spread the capital stock more thinly
- lower productivity per worker
- lower GDP per worker
question
Reducing the Rate of Population Growth
answer
- government regulation
- increased awareness of birth control
- equal opportunities for women
- increased awareness of birth control
- equal opportunities for women
question
Promoting Technological Progress
answer
- world population growth
- engine for technological progress and economic prosperity
- more people = more scientists, more inventors, more engineers
- engine for technological progress and economic prosperity
- more people = more scientists, more inventors, more engineers
question
Financial System
answer
- group of institutions in te economy that help match one person's saving with another person's investment
- moves the economy's scarce resources from savers to borrowers
- moves the economy's scarce resources from savers to borrowers
question
Financial Institutions
answer
- financial markets
- financial intermediaries
- financial intermediaries
question
Financial Markets
answer
- savers can directly provide funds to borrowers
- the bond market
- the stock market
- the bond market
- the stock market
question
Bond Market
answer
- bond: certificate of indebtedness
- date of maturity, when the loan will be repaid
- rate of interest, paid periodically until the date of maturity
- principal, amount borrowed
- borrowing from the public
- used by large corporations, the federal government, or state and local governments
- date of maturity, when the loan will be repaid
- rate of interest, paid periodically until the date of maturity
- principal, amount borrowed
- borrowing from the public
- used by large corporations, the federal government, or state and local governments
question
Bond Differ Characteristics
answer
1. term: length of time until maturity
- long-term bonds are risker than short-term bonds
- long-term bonds usually pay higher interest rates
2. credit risk: probability of default
- probability that that borrower will fail to pay some of the interest or principal
- higher interest rates for higher probability of default
- U. S. government bonds lend to pay low interest rates
- junk bonds, very high interest rates, issued by financially shaky corporations
3. tax treatment: interest on most bonds is taxable income
- long-term bonds are risker than short-term bonds
- long-term bonds usually pay higher interest rates
2. credit risk: probability of default
- probability that that borrower will fail to pay some of the interest or principal
- higher interest rates for higher probability of default
- U. S. government bonds lend to pay low interest rates
- junk bonds, very high interest rates, issued by financially shaky corporations
3. tax treatment: interest on most bonds is taxable income
question
Municipal Bonds
answer
- issued by state and local governments
- owners are not required to pay federal income tax on the interest income
- lower interest rate
- owners are not required to pay federal income tax on the interest income
- lower interest rate
question
Stock Market
answer
- stock: claim to partial ownership in a firm, a claim to the profits that a firm makes
- organized stock exchanges, stock prices: demand and supply
- equity finance, sale of stock to raise money
- stock index, average of a group of stock prices
- organized stock exchanges, stock prices: demand and supply
- equity finance, sale of stock to raise money
- stock index, average of a group of stock prices
question
Financial Intermediaries
answer
- savers can indirectly provide funds to borrowers
- banks
- mutual funds
- banks
- mutual funds
question
Banks
answer
- take in deposits from savers, banks pay interest
- make loans to borrowers, banks charge interest
- facilitate purchasing of goods and services, checks are a medium of exchange
- make loans to borrowers, banks charge interest
- facilitate purchasing of goods and services, checks are a medium of exchange
question
Mutual Funds
answer
- institution that sells shares to the public
- uses the proceeds to buy a portfolio of stocks and bonds
- advantages: diversification, professional money managers
- uses the proceeds to buy a portfolio of stocks and bonds
- advantages: diversification, professional money managers
question
Identity
answer
- an equation that must be true because of the way the variables in the equation are defined
- clarify how different variables are related to one another
- clarify how different variables are related to one another
question
GDP Equation
answer
Y = C + I + G + NX
- Y = GDP
- C = consumption
- I = investment
- G = government purchases
- NX = net exports
- Y = GDP
- C = consumption
- I = investment
- G = government purchases
- NX = net exports
question
Closed Economy
answer
- doesn't interact with other economies
- NX = 0
- NX = 0
question
Open Economy
answer
- interacts with other economies
- NX =/= 0
- NX =/= 0
question
National Saving, S
answer
- total income in the economy that remains after paying for consumption and government purchases
question
Private Saving, Y - T - C
answer
- income that households have left after paying for taxes and consumption
question
Public Saving, T - G
answer
- tax revenue that the government has left after paying for its spending
question
Budget Surplus, T - G > 0
answer
- excess of tax revenue over government spending
question
Budget Deficit, T - G < 0
answer
- shortfall of tax revenue from government spending
question
Saving = Investment
answer
- for the economy as a whole
- one person's savings can finance another person's investment
- one person's savings can finance another person's investment
question
Market for Loanable Funds
answer
- market: those who want to save supply funds, those who want to borrow to invest demand funds
- one interest rate: return to saving, cost of borrowing
- assumption: single financial market
- one interest rate: return to saving, cost of borrowing
- assumption: single financial market
question
Supply/Demand of Loanable Funds
answer
1. source of the supply of loanable funds
- saving
2. source of the demand for loanable funds
- investment
3. price of a loan = real interest rate
- borrowers pay for a loan
- lenders receive on their saving
4. as interest rate rises
- quantity demanded declines
- quantity supplied increases
5. demand curve slopes downward
6. supply curve slopes upwards
- saving
2. source of the demand for loanable funds
- investment
3. price of a loan = real interest rate
- borrowers pay for a loan
- lenders receive on their saving
4. as interest rate rises
- quantity demanded declines
- quantity supplied increases
5. demand curve slopes downward
6. supply curve slopes upwards
question
Government Policies
answer
- can affect the economy's saving and investment
- saving incentives
- investment incentives
- government budget deficits and surpluses
- saving incentives
- investment incentives
- government budget deficits and surpluses
question
Policy 1: Saving Incentives
answer
- affect supply of loanable funds
- increases in supply (supply curve shifts right)
- new equilibrium (lower interest rate, higher quantity of loanable funds)
- greater investment
- increases in supply (supply curve shifts right)
- new equilibrium (lower interest rate, higher quantity of loanable funds)
- greater investment
question
Policy 2: Investment Incentives
answer
- affect demand for loanable funds
- increase in demand (demand curve shifts right)
- new equilibrium (higher interest rate, higher quantity of loanable funds, greater saving)
- increase in demand (demand curve shifts right)
- new equilibrium (higher interest rate, higher quantity of loanable funds, greater saving)
question
Policy 3: Budget Deficit/Surplus
answer
- government starts with balanced budget
- then starts running a budget deficit
- change in supply of loanable funds
- decrease in supply (supply curve shifts left)
- new equilibrium (higher interest rate, smaller quantity of loanable funds)
- crowding out decreases investment, results from government borrowing
- government with budget deficit leads to rise in interest rate and fall in investment
- then starts running a budget deficit
- change in supply of loanable funds
- decrease in supply (supply curve shifts left)
- new equilibrium (higher interest rate, smaller quantity of loanable funds)
- crowding out decreases investment, results from government borrowing
- government with budget deficit leads to rise in interest rate and fall in investment
question
Finance
answer
- studies how people make decisions: allocation of resources over time, handling of risk
question
Present Value
answer
- amount of money today that would be needed using prevailing interest rates to produce a given future amount of money
question
Future Value
answer
- amount of money in the future that an amount of money today will yield given prevailing interest rates
question
Compounding
answer
- accumulation of a sum of money where interest earned remains in the account to earn additional interest in the future
question
Discounting
answer
- find present value for a future sum of money
question
Rational Response to Risk
answer
- not necessarily to avoid it at any cost
- take it into account in your decision making
- take it into account in your decision making
question
Risk Aversion
answer
- dislike of uncertainty
question
Utility
answer
- a person's subjective measure of well-being or satisfaction
question
Utility Function
answer
- every level of wealth provides a certain amount of utility
- exhibits diminishing marginal utility
- the more wealth a person has, the less utility he gets from an additional dollar
- exhibits diminishing marginal utility
- the more wealth a person has, the less utility he gets from an additional dollar
question
Markets for Insurance
answer
- person facing a risk pays a fee to an insurance company
- insurance company accepts all or a part of risk
- insurance company accepts all or a part of risk
question
Insurance Contract
answer
- you may not face the risk
- pay the insurance premium
- receive peace of mind
- pay the insurance premium
- receive peace of mind
question
Role of Insurance
answer
- not to eliminate the risks, but to spread the risks around more efficiently
question
Insurance Role Problems
answer
- adverse selection: a high-risk person is more likely to apply for insurance
- moral hazard: after people buy insurance, there is less incentive to be careful
- moral hazard: after people buy insurance, there is less incentive to be careful
question
Insurance Company
answer
- cannot perfectly distinguish between high-risk and low-risk customers
- cannot monitor all of its customers' risky behavior
- cannot monitor all of its customers' risky behavior
question
Price of Insurance
answer
- reflects the actual risks that the insurance company will face after the insurance is bought
question
Diversification
answer
- reduction of risk by replacing a single risk with a large number of similar, unrelated risks
question
Risk
answer
- standard deviation measures the volatility of a variable
question
Risk of a Portfolio of Stocks
answer
- depends on number of stocks in the portfolio
- the higher the standard deviation, the riskier the portfolio
- the higher the standard deviation, the riskier the portfolio
question
Firm-Specific Risk
answer
- affects only a single company
question
Market Risk
answer
- affects all companies in the stock market
question
Trade-Off
answer
- the more a person puts into stocks, the greater the risk and the return
question
Fundamental Analysis
answer
- study of a company's accounting statements and future prospects to determine its value
question
Stock Prices
answer
- undervalued if price < value
- overvalued if price > value
- fairly valued if price = valued
- overvalued if price > value
- fairly valued if price = valued
question
Fundamental Analysis to Pick a Stock
answer
- do all the necessary research yourself
- rely on the advice of Wall Street analysts
- buy a mutual fund
- a manager conducts fundamental analysis and makes the decision for you
- rely on the advice of Wall Street analysts
- buy a mutual fund
- a manager conducts fundamental analysis and makes the decision for you
question
Efficient Market Hypothesis
answer
- asset prices reflect all publicly available information about the value of an asset
- each company listed on a major stock exchange is followed closely by many money managers
- equilibrium of supply and demand sets the market price
- each company listed on a major stock exchange is followed closely by many money managers
- equilibrium of supply and demand sets the market price
question
Stock Markets
answer
- exhibit informational efficiency
question
Informational Efficiency
answer
- description of asset prices rationally reflect all available information
- implication of efficient markets hypothesis
- stock prices should follow random walk
- changes in stock prices are impossible to predict from available information
- implication of efficient markets hypothesis
- stock prices should follow random walk
- changes in stock prices are impossible to predict from available information
question
Market Irrationality
answer
1. efficient markets hypothesis
- assumes that people buying and selling stock are rational
- process information about stock's underlying value
2. fluctuations in stock prices
- partly psychological
3. when price of an asset
- above its fundamental value
- market is experiencing a speculative bubble
4. possibility of speculative bubbles
- value of the stock to a stockholder depends on: stream of dividend payments, final sale price
5. debate: frequency and importance of departures from rational pricing
- market irrationality: movement in stock market is hard to explain: news that alter a rational valuation
- efficient markets hypothesis: impossible to know the correct/rational valuation of a company
- assumes that people buying and selling stock are rational
- process information about stock's underlying value
2. fluctuations in stock prices
- partly psychological
3. when price of an asset
- above its fundamental value
- market is experiencing a speculative bubble
4. possibility of speculative bubbles
- value of the stock to a stockholder depends on: stream of dividend payments, final sale price
5. debate: frequency and importance of departures from rational pricing
- market irrationality: movement in stock market is hard to explain: news that alter a rational valuation
- efficient markets hypothesis: impossible to know the correct/rational valuation of a company
question
Employed
answer
- those who worked, paid employees, in their own business, unpaid workers in a family member's business
- full-time and part-time workers
- temporarily absent like vacation, illness, bad weather
- full-time and part-time workers
- temporarily absent like vacation, illness, bad weather
question
Unemployed
answer
- those who were not employed, available for work, tried to find employment during the previous four weeks
- those waiting to be recalled to a job, got laid off
- those waiting to be recalled to a job, got laid off
question
Labor Force Exceptions
answer
- not employed and not unemployed
- full-time students
- homemakers
-retirees
- full-time students
- homemakers
-retirees
question
Labor Force
answer
- total number of workers, employed and unemployed = number of employed + number of unemployed
question
Unemployment Rate
answer
- percentage of labor force that is unemployed
- unemployment rate equals the number of unemployed divided by the labor force multiplied by 100
- unemployment rate equals the number of unemployed divided by the labor force multiplied by 100
question
Labor-Force Participation Rate
answer
- percentage of the total adult population that is in the labor force
- fraction of the population that has chosen to participate in the labor market
- labor-force participation rate equals the labor force divided by the adult population multiplied by 100
- fraction of the population that has chosen to participate in the labor market
- labor-force participation rate equals the labor force divided by the adult population multiplied by 100
question
Labor-Market Experiences
answer
- women of prime working age (25-54 years old) have lower rates of labor-force participation than men
- once in the labor force, men and women have similar rates of unemployment
- Blacks of prime working age have similar rates of labor-force participation as prime-age whites, much higher rates of unemployment
- teenagers have lower rates of labor-force participation, much higher rates of unemployment than older workers
- once in the labor force, men and women have similar rates of unemployment
- Blacks of prime working age have similar rates of labor-force participation as prime-age whites, much higher rates of unemployment
- teenagers have lower rates of labor-force participation, much higher rates of unemployment than older workers
question
Natural Rate of Unemployment
answer
- normal rate of unemployment around which of the unemployment rate fluctuates
question
Cyclical Unemployment
answer
- deviation of unemployment from its natural rate
question
Official Unemployment Rate
answer
- useful
- imperfect measure of joblessness
- imperfect measure of joblessness
question
Into/Out of the Labor Force
answer
- common
- more than 1/3 of unemployed
- recent entrants into the labor force
- more than 1/3 of unemployed
- recent entrants into the labor force
question
Unemployment
answer
- not all unemployment ends with the job seeker finding a job
- half of all spells of unemployment and when the unemployment leaves the labor force
- half of all spells of unemployment and when the unemployment leaves the labor force
question
Unreported Unemployment
answer
- may not be trying hard to find a job
- want to qualify for a government job
- working but paid "under the table"
- want to qualify for a government job
- working but paid "under the table"
question
Out of Labor Force
answer
- may want to work
- discouraged workers are individuals who would like to work but have given up looking for a job
- discouraged workers are individuals who would like to work but have given up looking for a job
question
The Bureau of Labor Statistics Unemployment Defintion
answer
- marginally attached workers
- discouraged workers
- persons employed part-time for economic reasons
- discouraged workers
- persons employed part-time for economic reasons
question
Unemployment Without Work?
answer
- most spells of unemployment are short
- most unemployment observed at any given time is long-term
- most people who become unemployed will soon find jobs
- most spells of unemployment are short, and most unemployment observed at any given time is long-term
- most of the economy's unemployment problem is attributable to the relatively few workers who are jobless for long periods of time
- most unemployment observed at any given time is long-term
- most people who become unemployed will soon find jobs
- most spells of unemployment are short, and most unemployment observed at any given time is long-term
- most of the economy's unemployment problem is attributable to the relatively few workers who are jobless for long periods of time
question
Unemployment Rate Rules
answer
- never falls to zero
- fluctuates around the natural rate of unemployment
- fluctuates around the natural rate of unemployment
question
Frictional Unemployment
answer
- it takes time for workers to search for the jobs that best suit their tastes and skills
- explain relatively short spells of unemployment
- explain relatively short spells of unemployment
question
Structural Unemployment
answer
- results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
- explains longer spells of unemployment
- results when wages are set above the equilibrium
- explains longer spells of unemployment
- results when wages are set above the equilibrium
question
Job Search
answer
- process by which workers find appropriate jobs given their tastes and skills
- workers differ in their tastes and skills
- jobs differ in their attributes
- information about job candidates and job vacancies is disseminated slowly
- workers differ in their tastes and skills
- jobs differ in their attributes
- information about job candidates and job vacancies is disseminated slowly
question
Inevitable Frictional Unemployment
answer
- changes in demand for labor among different time
- changes in composition of demand among industries or regions
- changing patterns of international trade (workers need to move along industries
- the economy is always changing
- changes in composition of demand among industries or regions
- changing patterns of international trade (workers need to move along industries
- the economy is always changing
question
Find Jobs
answer
- reduce time for unemployment to find jobs
- reduce natural rate of unemployment
- reduce natural rate of unemployment
question
Government Projects
answer
- to facilitate job search
- government-run employment agencies
- public training programs
- government-run employment agencies
- public training programs
question
Unemployment Insurance
answer
- government program
- partially protects workers' incomes when they become unemployed
- increases frictional unemployment without intending to do so
- qualify: only the unemployed who were laid off because their previous employers no longer needed their skills
- 50% of former wages for 26 wages
- reduces the hardship of unemployment
- increases the amount of unemployment
- partially protects workers' incomes when they become unemployed
- increases frictional unemployment without intending to do so
- qualify: only the unemployed who were laid off because their previous employers no longer needed their skills
- 50% of former wages for 26 wages
- reduces the hardship of unemployment
- increases the amount of unemployment
question
Minimum-Wage Laws
answer
- can cause unemployment
- forces the wage to remain above the equilibrium level
- higher quantity of labor supplied
- similar quantity of labor demanded
- surplus of labor = unemployment
- forces the wage to remain above the equilibrium level
- higher quantity of labor supplied
- similar quantity of labor demanded
- surplus of labor = unemployment
question
Wages Above the Unemployment Level
answer
- minimum-wage laws
- unions
- efficiency wages
- if the wage is kept above the equilibrium level, the result is unemployment
- unions
- efficiency wages
- if the wage is kept above the equilibrium level, the result is unemployment
question
Union
answer
- worker association
- bargains with employers over
- type of cartel
- bargains with employers over
- type of cartel
question
Collective Bargaining
answer
- process by which unions and firms agree on the terms of employment
question
Strike
answer
- organized withdrawal of labor from a firm by a union
- reduces production, sales, and profit
- reduces production, sales, and profit
question
Union Workers
answer
- earn 10-20% more than similar workers who do not belong to unions
question
Union Raises Wages
answer
- higher quantity of labor supplied
- smaller quantity of labor demanded
- unemployment
- better off: employed workers (insiders)
- worse off: unemployed (outsiders)
- smaller quantity of labor demanded
- unemployment
- better off: employed workers (insiders)
- worse off: unemployed (outsiders)
question
Unions Good/Bad?
answer
Good
- necessary antidote to the market power of the firms that hire workers
- in the absence of a union, firms pay lower wages and offer worse working conditions
- help firms respond efficiently to workers' concerns
- keep a happy and productive workforce
Bad
- a type of cartel
- allocation of labor
- inefficient because high union wages reduce employment in unionized firms below the efficient level
- inequitable because some workers benefit at the expense of other workers
- necessary antidote to the market power of the firms that hire workers
- in the absence of a union, firms pay lower wages and offer worse working conditions
- help firms respond efficiently to workers' concerns
- keep a happy and productive workforce
Bad
- a type of cartel
- allocation of labor
- inefficient because high union wages reduce employment in unionized firms below the efficient level
- inequitable because some workers benefit at the expense of other workers
question
Efficiency Wages
answer
- above-equilibrium wages paid by firms to increase worker productivity
- worker health: worker turnover
- worker quality: worker effort
- worker health: worker turnover
- worker quality: worker effort
question
Worker Health
answer
- better paid workers eat a more nutritious diet and are healthier/more productive
question
Worker Turnover
answer
- firm can reduce turnover among its workers by paying them a higher wage
question
Worker Quality
answer
- firm pays a high wage and attracts a better pool of workers, increasing the quality of the workforce
question
Worker Effort
answer
- high wages make workers more eager to keep their jobs
- gives workers an incentive to put forward their best effort
- gives workers an incentive to put forward their best effort
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