Macro Exam 1 Preparation For Dummies

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At 8:30 A.M. on a Friday early in each month, the U.S. Department of Labor reports its estimate of the previous month’s ________________

unemployment rate.

The Household Survey

60,000 households

• Employed

if they worked during the week before the survey or if they were temporarily away from their jobs because they were ill, on vacation, on strike, or for other reasons

Unemployed

if they did not work in the previous week but were available for work and had actively looked for work at some time during the previous four weeks

Unemployment rate formula

unemployed / labor force * 100

Labor force participation rate

labor force / working age population * 100

One problem that the BLS confronts is

distinguishing between people who are unemployed and people who are not in the labor force.

BLS may understate the true degree of joblessness in the economy during a recession. Why?

During an economic recession, for example, an increase in discouraged workers usually occurs, as people who have had trouble finding jobs stop actively looking—these workers are not counted as unemployed

The issue with BLS regarding part time employment

In a recession, counting as “employed” a part-time worker who wants to work full time makes the employment situation appear better than it is

The issue with BLS regarding a lack of verifying answers

Some people who claim to be unemployed and actively looking for work may not really be actively looking. A person might claim to be actively looking for a job in order to remain eligible for government payments to the unemployed. In this case, a person who is actually not in the labor force is counted as unemployed.

How would it affect the unemployment rate if the Bureau of Labor Statistics counted as unemployed both​ (1) discouraged workers and​ (2) people who work​ part-time but would prefer to work​ full-time?

The unemployment rate would increase.

When the economy was expanding in early​ 2007, fewer than​ _______ percent of the unemployed had been jobless for more than 6 months.

20

The labor force participation rate is important because

it determines the quantity of labor that will be available to the economy from a given population.

Two important trends in the labor force participation rates of adults aged 20 and over in the United States since 1948 are the​ _________ labor force participation rate of adult women and the​ __________ labor force participation rate of adult men.

rising; falling

The establishment survey

Monthly

300,000 business establishments

Provides information on the total number of persons who are employed and on a company payroll

Establishment survey drawbacks

1. The survey does not provide information on the number of self-employed persons because they are not on a company payroll.

2. The survey may fail to count some persons employed at newly opened firms that are not included in the survey.

3. The survey provides no information on unemployment.

4. The values for employment that the BLS initially announces can be significantly revised as data from additional establishments become available.

Establishment survey advantage

determined by actual payrolls rather than by unverified answers

BLS difficulty measuring employment and unemployment during COVID

During the pandemic, many people were not working because the state or local government had ordered the businesses that employed them to close. The interviewers conducting the job survey initially counted these workers as “employed but absent from work” and not as unemployed

(The establishment survey doesn’t report an estimate of the unemployment rate.)

The BLS’s estimate of the unemployment rate is calculated from responses to the household survey.

Unemployment rate falls under this condition:

If the number of people employed increases—thereby increasing the denominator in the unemployment rate equation—while the number of people unemployed remains the same or falls, as a matter of arithmetic, the unemployment rate will have to fall

The BLS reported that the unemployment rate in August 2022 rose, even though total employment increased. That outcome is possible only if:

the number of people who are unemployed also increased, resulting in a proportionally larger increase in the numerator in the unemployment equation relative to the denominator.

One important fact about employment is not very well known:

The U.S. economy creates and destroys millions of jobs every year.

The creation and destruction of jobs results from

changes in consumer tastes, technological progress, and the successes and failures of entrepreneurs in responding to the opportunities and challenges of shifting consumer tastes and technological change.

The extent of job creation and job destruction is

what we would expect in a vibrant market system.

AHE is calculated by

adding all of the wages and salaries workers are paid—including overtime and bonus pay—and dividing by the total number of hours worked.

AHE has the drawback of

not including benefits that many workers receive, such as health insurance or contributions to retirement accounts

The employment cost index (ECI), includes

benefits workers receive in addition to wages and salaries and which holds constant changes in the mix of occupations in which people are employed

The employment cost index​ (ECI) gives a ____ accurate picture of wages than do data on average hourly earnings​ (AHE).

more

The unemployment rate follows the

business cycle

Frictional unemployment

is short-term unemployment that arises from the process of matching workers with jobs.

Why frictional unemployment is inevitable

The process of job search takes time, so there will always be some workers who are frictionally unemployed because they are between jobs and in the process of searching for new ones.

Seasonal unemployment

refers to frictional unemployment due to factors such as weather or variations in tourism and other calendar-related events.

the BLS reports two unemployment rates each month

one that is seasonally adjusted and one that is not seasonally adjusted.

Structural unemployment

arises from a persistent mismatch between the job skills or attributes of workers and the requirements of jobs.

cyclical unemployment

Workers who lose their jobs because of a recession

Economists consider the sum of frictional and structural unemployment to be the

natural rate of unemployment

Governments can help reduce the level of frictional unemployment

with policies that speed up the process of matching unemployed workers with unfilled jobs. Government-sponsored job fairs are an example of this type of policy.

Governments can help reduce structural unemployment by

implementing policies that aid worker retraining.

For example, the federal government’s Trade Adjustment Assistance program offers training to workers who lose their jobs as a result of competition from foreign firms.

The unemployment rate in the United States is usually​ ________ than the unemployment rates in most other​ high-income countries, partly because the United States has​ _________ requirements for the unemployed to receive government payments.

lower; more stringent

Increases in the minimum wage will

increase unemployment among teenagers.

Most economists agree that the​ above-market wage paid in unionized industries significantly increases the unemployment rate in the United States.

False

An efficiency wage

is an above-market wage that a firm pays to motivate workers to be more productive.

The consumer price index

(CPI) is a measure of the average of the prices a typical urban family of four pays for the goods and services they purchase.

The price level

measures the average prices of goods and services in the economy

The inflation rate

is the percentage increase in the price level from one year to the next.

To obtain prices of a representative group of goods and services, the BLS surveys _____ households nationwide on their spending habits.

14,000

Because the CPI measures the cost to a typical family of buying a representative basket of goods and services, it is sometimes called the

cost-of-living index.

The CPI is intended to measure

changes in the price level over time.

Of the eight categories in the CPI market​ basket, which three categories make up the largest percent of the​ basket?

housing, transportation, and food

Computation of the CPI assumes that households buy the same market basket of products each month. For this​ reason, which one of the following factors is not relevant in calculating the​ CPI?

the quantities of the products households purchase in the current year

The BLS collects price statistics from traditional​ full-price retail​ stores, which do not reflect the prices some consumers pay by shopping at discount stores or on the Internet.

the outlet bias

whereas the CPI tracks the prices of goods and services purchased by a typical household, the PPI tracks the prices

firms receive for goods and services at all stages of production.

The PPI includes the prices of i

ntermediate goods, such as flour, yarn, steel, and lumber; and raw materials, such as raw cotton, coal, and crude petroleum.

U 3 unemployment

Only those looking for a job

U 6

Includes discouraged workers, underemployed workers, and those marginally attached to the labor force

Always higher than U 3

Inelligible for state insurance

Clergy and amtrak workers across state lines

A benchmark revision

is a periodic update to official economic data, such as employment and GDP figures, to improve accuracy by incorporating more complete and reliable information.

Why is January important?

January is an important month for the Bureau of Labor Statistics (BLS) because it’s when they implement benchmark revisions and key methodological updates to employment data.

What are the four major categories of​ expenditure?

Consumption, investment, government​ purchases, and net exports

What are the four categories of​ income?

Wages, Interest,​ Rent, and Profit.

Which of the following equations sums up the components of Gross Domestic Product​ (GDP)?

Y = C + I + G + NX

GDP = consumption + investment + government purchases + net exports

Why is GDP an imperfect measurement of total production in the​ economy?

GDP does not include household production or production from the underground economy

Real GDP per capita is often used as a measure of general​well-being. While increases in real GDP often do lead to increases in the​well-being of the​population, why is real GDP not a perfect measure of​well-being?

A.

GDP does not include crime rates or income distribution.

B.

The value of leisure is not included.

C.

The costs of pollution are not included.

D.

All of the above

All of the above

GDP deflator equation

(nominal / real) * 100

Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the​ present, what would be true of the relationship between nominal GDP and real GDP​?

RGDP​ < NGDP because prices are rising

If prices rise over​ time, then real GDP will be

larger than nominal GDP in years before the base year.

Disposable personal income is

personal income minus personal taxes.

Which of the following would be included in the gross national product​ (GNP) of the United​ States?

Production from a U.S. firm that operates in Mexico

The largest component of

gross domestic income is

wages

National income is

GDP minus depreciation

Personal income is

national income minus retained corporate earnings plus government transfer payments and interest on government bonds

Suppose John Q. Worker is currently unemployed. Each​ day, John Q. Worker spends the entire day searching available job openings for an appropriate position given his set of​ skills, abilities, and interests. If someone asks John Q. what he does for​ work, he tells them that he is currently​ "in-between jobs." Which of the following best classifies John​ Q.'s unemployment​ status?

Frictionally unemployed

(Short-term unemployment that arises from the process of matching workers with jobs.)

The economy is at full employment when

the only remaining unemployment is either frictional or structural.

What effect do labor unions have on the unemployment​ rate?

Since few​ non-government workers are​ unionized, there is no significant effect on the unemployment rate.

How do unemployment insurance payments in the United States and social insurance programs in other countries increase the unemployment​ rate?

They decrease the opportunity cost of job search.

Which of the following can give an early warning of future increases in the price​ level?

Producer price index

Economic variables valued using​ current-year prices are called

nominal variabes

If the actual value of an economic variable today exceeds its nominal value in a previous year adjusted for​ inflation, then the​ variable's actual value has risen ____ quickly than the cost of living

more

The extent of job creation and job destruction is

what we would expect in a vibrant market system