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Topics: Inflation, Unemployment, Consumer price index Pages: 5 (619 words) Published: February 26, 2014
Homework #2
Due date: Feb. 25th (Due in the beginning of the class)
Choose the one alternative that best completes the statement or answers the question. (Multiple choice question are worth 1 point each)

1) An advantage of the establishment survey over the household survey of the labor market is that the establishment survey A) is based on actual payrolls, rather than on unverified answers.

2) In March 2009, the Seattle Post-Intelligencer newspaper converted to an online-only format. In making this transition, it laid off 145 of its 165 employees. The laid-off employees who were not able to find jobs at another newspaper due to a permanent decline in business in the newspaper industry would be considered D) cyclically unemployed.

3) According to the text, economists consider full employment to occur when D) the unemployment rate consists of only frictional and structural unemployment.

4) An increase in unemployment insurance payments would, in effect, ________ the amount of time spent searching for a job, which would increase ________ unemployment. A) increase; cyclical
B) increase; frictional
C) decrease; cyclical
D) decrease; frictional

5) To reduce the bias in the consumer price index, the Bureau of Labor Statistics A) updates the market basket every two years, rather than every 10 years. B) updates the market basket every 10 years, rather than every two years. C) incorporates substitutions by consumers when prices of specific products rise rapidly. D) incorporates substitutions by consumers when prices of specific products fall rapidly.

q

Table 8-2

Base Year (2004)
2009
Product
Quantity
Price
Price
Milk
50
$1.20
$1.50
Bread
100
1.00
1.10

6) Refer to Table 8-2. Assume the market basket for the consumer price index has two products – bread and milk – with the following values in 2004 and 2009 for price and quantity: The Consumer Price Index for 2009 equals A) 118.

B) 116.
C) 86.
D) 85.

Table 8-5

Year
CPI
2007
207
2008
215

7) Refer to Table 8-5. Consider the following values of the consumer price index for 2007 and 2008: The inflation rate for 2008 was equal to A) 215 percent.
B) 21.5 percent.
C) 8.0 percent.
D) 3.9 percent.

8) Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 207 in 2008, then the value of your grandfather's salary in 2008 dollars equals A) $80,130.
B) $68,130.
C) $37,200.
D) $21,120.

9) If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest? A) -9.5%
B) -3.5%
C) 1.5%
D) 3.5%
E) 9.5%

10) If inflation is positive and is perfectly anticipated,
A) those that borrow money lose.
B) those that lend money lose.
C) those that hold paper money lose.
D) no one in the economy loses.

11) If real GDP in a small country in 2005 is $8 billion and real GDP in the same country in 2006 is $8.3 billion, the growth rate of real GDP between 2005 and 2006 A) is 3.0%.
B) is 3.6%.
C) is 3.75%.
D) cannot be determined from the information given.

12) In a closed economy, which of the following equations reflects investment? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers) A) Y - C - G
B) Y - C - T
C) Y - T + TR
D) C + G -T

Figure 9-1

13) Refer to Figure 9-1. Which of the following is consistent with the graph depicted above? A) An expected recession decreases the profitability of new investment. B) Technological change increases the profitability of new investment. C) The government runs a budget surplus.

D) Households become spendthrifts and begin to save less.
Short answer questions

Table 8-7

Product
Base Year Quantity
Base Year Price (2001)
Price (2009)
Price (2010)
Tacos
5
$1.50
$2.00
$2.25
Earplugs
10
6.00
7.50
7.00
Toothbrushes
3
2.50
3.50
3.50

14) Refer to Table 8-7. Consider a...
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