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Exploring Macroeconomics 5th Edition Robert L. Sexton - Solutions
Consumption spending is usually broken down into three subcategories: _____________ goods, _____________ consumer goods, and _____________.
For analytical purposes, economists usually categorize expenditures into four categories: _____________, _____________, _____________, and _____________.
With the ______________ approach, GDP is calculated by adding up the expenditures of market participants on final goods and services over a period of time.
The two primary ways of calculating economic output are the _____________ approach and the _____________ approach.
A(n) _____________ good or service is one that is ready for its designated ultimate use, in contrast to _____________ goods or services, which are used in the production of other goods.
_____________ is defined as the value of all final goods and services produced in a country in a period of time, almost always one year.
_____________ accounting was created to provide a reliable, uniform method of measuring economic performance.
Say that the bundle of goods purchased by a typical consumer in the base year consisted of 20 gallons of milk at a price of $1 per gallon and 15 loaves of bread at a price of $2 per loaf. What would the price index be in a year in whicha. milk cost $2 per gallon and bread cost $1 per loaf?b. milk
Calculate a price index for 2005, 2006, and 2007 using the following information about prices. Let the market basket consist of one pizza, two sodas, and three video rentals. Let the year 2005 be the base year (with an index value of 100).How much inflation occurred between 2005 and 2006? Between
In 2000, a proposal was made in Santa Monica, California, to raise the minimum wage in the hotel and shopping district to a “living” wage of $10.69 per hour. Predict the effect of such legislation on unemployment in the hotel and shopping industries in Santa Monica. What would you expect to
You borrow money at a fixed rate of interest to finance your college education. If the rate of inflation unexpectedly slows down between the time you take out the loan and the time you begin paying it back, is there a redistribution of income?Do you gain or lose? What if you already expected the
Answer the following questions about the nominal and real interest rates:a. What would be the real interest rate if the nominal interest rate were 14 percent and the inflation rate were 10 percent? If the nominal interest rate were 8 percent and the inflation rate were 1 percent?b. What would
Answer the following questions about inflation:a. What would be the effect of unexpected inflation on each of the following?retirees on fixed incomes creditors workers shoe-leather costs debtors menu costsb. How would your answers change if the inflation was expected?
How can unions result in higher unemployment rates? How would the results differ for someone who wants to be employed in the union sector as compared with someone who currently has a job in the union sector?
Unemployment benefits in many European countries tend to be both more generous and available for longer periods than those in the United States. What impact do you think this is likely to have on the unemployment rate in a European country? Why?
a. What is the relationship between the natural rate of unemployment and frictional, structural, and cyclical unemployment?b. What would happen to both unemployment and the normal rate of unemployment if:i. cyclical unemployment increases.ii. frictional unemployment increases.iii. structural
Answer the following questions about reasons for unemployment:a. In a severe recession, what would tend to happen to the number of people in each of the following categories?job losers reentrants job leavers new entrantsb. In good economic times, why might the number of job leavers, reentrants, and
Which type of unemployment would be affected with the following changes? Would it go up or down?a. increased employment benefitsb. heavy snowfall in Minnesotac. online job search becomes more effectived. a large, permanent decrease in the demand for coale. more people have been retrained to develop
Identify whether each of the following reflects seasonal, structural, frictional, or cyclical unemployment.a. A sales employee is laid off due to slow business after consumer spending falls.b. An automotive worker is replaced by robotic equipment on the assembly line.c. A salesperson quits a job in
Which of the following individuals would economists consider unemployed?a. Sam looked for work for several weeks but has now given up his search and is going back to college.b. A 14-year-old wants to mow lawns for extra cash but is unable to find neighbors willing to hire her.c. A factory worker is
Answer the following questions about unemployment:a. If a country has a noninstitutional population of 200 million and a labor force of 160 million, and 140 million people were employed, what is its labor force participation rate and its unemployment rate?b. If 10 million new jobs were created in
What would be the labor force participation rate if:a. The __________ population 200 million, the labor force 160 million, and employment 140 million?b. The __________ population 200 million, the labor force 140 million, and employment 120 million?c. Starting from the situation in (a),
The cost of an aircraft carrier produced domestically would be included ina. the CPI, but not the GDP deflator.b. the GDP deflator, but not the CPI.c. both the GDP deflator and the CPI.d. neither the GDP deflator nor the CPI.
The CPI overestimates changes in the cost of living becausea. the growth of discount stores where consumers can obtain goods at discount prices has not been adequately represented in the construction of the CPI.b. the CPI does not adequately deal with changes in the quality of products over time.c.
The current cost of a market basket of goods is $6,000. The cost of the same basket of goods in the base year was$4,000. The current price index isa. 600.b. 160.c. 150.d. 133.e. 66.7.
The CPI is a measure ofa. the overall cost of goods and services produced in the economy.b. the overall cost of inputs purchased by a typical producer.c. the overall cost of goods and services bought by a typical consumer.d. the overall cost of stocks on the New York Stock Exchange.
The contractionary phase of the business cycle is characterized bya. reduced output and increased unemployment.b. reduced output and reduced unemployment.c. increased output and increased unemployment.d. increased output and reduced unemployment.
In the contraction phase of the business cycle,a. output is rising.b. unemployment is falling.c. consumer and business confidence are high.d. investment is rising.e. none of the above is true.
A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle in order area. expansion, peak, contraction, and trough.b. expansion, trough, contraction, and peak.c. contraction, recession, expansion, and boom.d. trough, expansion, contraction, and
An increase in the expected future rate of inflation will lead toa. an increase in the supply of funds.b. a decrease in the supply of funds.c. an increase in the demand for funds.d. a decrease in the demand for funds.e. both b and d.
If people correctly anticipate inflation, it willa. benefit borrowers.b. benefit lenders.c. benefit neither borrowers nor lenders.d. harm both borrowers and lenders.
What is the real interest rate paid on a loan bearing 7 percent nominal interest per year if the inflation rate is 6 percent?a. 13 percentb. 7 percentc. 6 percentd. 1 percent
If the nominal interest rate is 9 percent and the inflation rate is 3 percent, the real interest rate isa. 3 percent.b. 6 percent.c. 9 percent.d. 12 percent.e. 27 percent.
The costs of inflation includea. menu costs.b. shoe-leather costs.c. a distortion of price signals.d. all of the above.
Unexpected inflation generally benefitsa. lenders.b. borrowers.c. the poor.d. people on fixed incomes.
Inflation will be least harmful ifa. interest rates are not adjusted accordingly when inflation occurs.b. worker wages are set by long-term contracts.c. it is correctly anticipated and interest rates adjust accordingly.d. it is not fully anticipated.
Inflation can harma. retirees on fixed pensions.b. borrowers who have long-term fixed interest rate loans.c. wage earners whose incomes grow slower than inflation.d. either a or c.e. all of the above.
When would consumers and producers experience increased difficulty in coordinating their plans and decisions?a. in a period of inflationb. in a period of deflationc. in a period of either inflation or deflationd. none of the above
Which of the following is false?a. At the natural rate of unemployment, the economy is considered to be at full employment.b. At full employment, the economy is producing at its potential output.c. If unemployment is greater than its natural rate, the economy is producing at greater than its
If a nation’s labor force receives a significant influx of young workers,a. the natural rate of unemployment is likely to increase.b. the natural rate of unemployment is likely to decrease.c. the natural rate of unemployment is unlikely to change.d. frictional unemployment will likely decrease to
The natural rate of unemployment would increase when which of the following increases?a. frictional unemploymentb. structural unemploymentc. cyclical unemploymentd. any of the abovee. either frictional or structural unemployment
When an economy is operating at full employment,a. the unemployment rate will equal zero.b. frictional unemployment will equal zero.c. cyclical unemployment will equal zero.d. structural unemployment will equal zero.e. both b and d are correct.
When unemployment rises above the natural rate, it reflects the existence of ___________________ unemployment.a. frictionalb. structuralc. seasonald. cyclical
A federal program aimed at retraining the unemployed workers of the declining auto and steel industries is designed to reduce which type of unemployment?a. seasonalb. cyclicalc. structurald. frictional
Unemployment caused by a contraction in the economy is calleda. frictional unemployment.b. cyclical unemployment.c. structural unemployment.d. seasonal unemployment.
Frictional unemployment isa. unemployment that is due to normal turnover in the labor market.b. unemployment caused by automation in the workplace.c. unemployment caused by lack of training and education.d. unemployment that is due to the friction of competing ideological systems.e. all of the
According to the Bureau of Labor Statistics, the four main categories of unemployed workers area. discouraged workers, part-time workers, the cyclically unemployed, and the frictionally unemployed.b. discouraged workers, job losers, new entrants, and the underemployed.c. new entrants, job losers,
If the unemployment rate is 6 percent and the number of persons unemployed is 6 million, the number of people employed is equal toa. 100 million.b. 94 million.c. 106 million.d. 6 million.e. none of the above.
Persons who do not have jobs and who do not look for work are considereda. unemployed.b. out of the labor force.c. underemployed.d. overemployed.e. part of the underground economy.
After looking for a job for more than eight months, Kyle became frustrated and stopped looking. Economists view Kyle asa. unemployed.b. part of the labor force, but neither employed nor unemployed.c. a discouraged worker.d. cyclically unemployed.e. both b and c.
If unemployment benefits increase, leading more people to claim to be seeking work when they are not really seeking work, the measured unemployment rate willa. rise.b. fall.c. be unaffected.d. change in an indeterminate direction.
The unemployment rate may underestimate the true extent of unemployment ifa. employees increase the number of hours they work overtime.b. many people become discouraged and cease looking for work.c. a large number of people are working in the underground economy.d. any of the above occur.
The official unemployment rate may overstate the extent of unemployment becausea. it excludes discouraged workers.b. it counts part-time workers as fully employed.c. it does not count those with jobs in the underground economy as employed.d. it includes those who claim to be looking for work as
In Littletown, the population includes 1,000 people over the age of 16; 800 are in the labor force, and 600 are employed.The unemployment rate isa. 33 percent.b. 25 percent.c. 20 percent.d. 75 percent.e. none of the above.
The largest fraction of those counted as unemployed is due toa. job losers.b. job leavers.c. new entrants.d. reentrants.
Which of these groups tends to have the lowest unemployment rate?a. teenagersb. those with some college educationc. college graduatesd. those with a high school diploma but no college experience
Discouraged workersa. are considered unemployed.b. are considered as not in the labor force.c. are considered as in the labor force.d. are considered as both unemployed and in the labor force.e. are considered as unemployed but not in the labor force.
The civilian labor force includes which of the following groups?a. those in the armed forcesb. those who are currently working part timec. full-time studentsd. retireese. all of the above
The labor force consists ofa. discouraged workers, employed workers, and those actively seeking work.b. all persons over the age of 16 who are working or actively seeking work.c. all persons over the age of 16 who are able to work.d. all persons over the age of 16 who are working, plus those not
The unemployment rate is the number of people officially unemployed divided bya. the civilian labor force.b. the noninstitutional population.c. the total population.d. the number of people employed.e. none of the above.
High rates of unemploymenta. can lead to increased tensions and despair.b. result in the loss of some potential output in society.c. reduce the possible level of consumption in society.d. represent a loss of efficiency in society.e. All of the above are true.
Economic growth is measured by changes ina. nominal GDP.b. the money supply.c. real GDP per capita.d. the rate of unemployment.e. none of the above.
The three major macroeconomic goals of nearly every society area. maintaining stable prices, reducing interest rates, and achieving a high rate of economic growth.b. maintaining high levels of employment, increasing the supply of money, and achieving a high rate of economic growth.c. maintaining
Which is not one of society’s major economic goals?a. maintaining employment at high levelsb. maintaining prices at a stable levelc. maintaining a high rate of economic growthd. All of the above are major economic goals of society.
A Porsche produced in Germany and purchased in the United States would show up in the GDP deflator but not in the CPI. true or False.
The PPI is often useful in predicting changes in the CPI. true or False.
One benefit from chain weighting is that it reduces the upward bias of a price index. true or False.
Many factors can potentially distort the CPI. true or False.
Our ability to calculate inflation accurately is complicated by changing qualities of goods and services over time and the creation of new products. true or False.
The consumer price index measures the average level of prices of all final goods and services produced in the economy. true or False.
A price index can be used to deflate current dollar GDP to real GDP expressed in dollars of constant purchasing power. true or False.
The lead time between a change in the index of economic indicators and changes in business conditions has varied widely. true or False.
Since the development of the index of leading economic indicators, it has never failed to give some warning of an economic downturn. true or False.
Econometric forecasts are generally highly accurate. true or False.
The performance of the economy and the fate of an incumbent’s bid for reelection show a strong correlation. true or False.
The lengths of business cycles are not uniform. true or False.
Unemployment falls substantially as soon as the economy enters the expansion phase of the business cycle. true or False.
A contraction is a period of falling real output and is usually accompanied by rising unemployment and declining business and consumer confidence. true or False.
In an expansion, investment is rising, but expenditures for expensive durable consumer goods are falling. true or False.
In a growing economy, real GDP will tend to rise from one business cycle peak to the next. true or False.
In periods of high unexpected inflation, the nominal interest rate can be high while the real interest rate is low or even negative. true or False.
When both suppliers and demanders of funds begin to expect inflation, it will push up the interest rate to a new, higher equilibrium level. true or False.
When borrowers of funds start expecting future inflation, the demand for funds decreases. true or False.
When people start expecting future inflation, creditors become less willing to lend funds at any given interest rate because they fear they will be repaid in dollars of lesser value than those they loaned. true or False.
If people correctly anticipate inflation, they will behave in a manner that will largely protect them against loss. true or False.
As long as nominal interest rates cannot be negative, real interest rates cannot be negative. true or False.
When the inflation rate exceeds the nominal interest rate, real interest rates are negative. true or False.
The real interest rate equals the nominal interest rate plus the inflation rate. true or False.
Menu costs and shoe-leather costs are modest, regardless of the rate of inflation. true or False.
Inflation brings about changes in real incomes of persons. true or False.
Uncertainty about inflation can increase long-term interest rates by adding an inflation risk premium. true or False.
Wage earners will lose from inflation if wages rise at a slower rate than the price level. true or False.
Debtors lose from inflation. true or False.
Unanticipated and sharp price changes are almost universally considered to be a “bad” thing that needs to be remedied by some policy. true or False.
In both inflation and deflation, a country’s unit of currency changes in purchasing power. true or False.
When the economy is experiencing cyclical unemployment, the unemployment rate is less than the natural rate. true or False.
At the natural rate of unemployment, the economy is producing its potential output. true or False.
The natural rate of unemployment does not change over time. true or False.
When unemployment rises above the natural rate, it reflects the existence of cyclical unemployment. true or False.
The natural rate of unemployment roughly equals the sum of frictional and cyclical unemployment when they are at a maximum. true or False.
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