Macroeconomics Exam 2 Flashcards

Questions and Answers

The amount of unemployment that an economy normally experiences is called the:

Natural rate of unemployment (correct)

Cyclical rate of unemployment

Average rate of unemployment

Typical rate of unemployment

Cyclical unemployment refers to:

The portion of unemployment created by wages set above the equilibrium level

The portion of unemployment created by job search

Changes in unemployment due to changes in the natural rate of unemployment

Short-run fluctuations around the natural rate of unemployment (correct)

To be counted as 'employed' in the U.S. labor force statistics, a person:

Does not have to be working for pay if they are working for a family business but must be employed full time

Must be working for pay and be working full time

Must be working for pay but does not have to be working full time

Does not have to be working for pay if they are working for a family business and does not have to be working full time (correct)

Which of the following is not one of the categories into which the Bureau of Labor Statistics places each adult of each surveyed household?

Underemployed Signup and view all the answers

Who of the following is not included in the Bureau of Labor Statistics' 'employed' category?

Those waiting to be recalled to a job from which they had been laid off Signup and view all the answers

The correct formula for calculating the unemployment rate is:

number of unemployed/labor force x 100 Signup and view all the answers

Suppose that the adult population in some country is 225 million. If 40 million are unemployed and 100 million are employed, then the unemployment rate is approximately:

29% Signup and view all the answers

If all workers and all jobs were the same such that all workers were equally well suited for all jobs, then there would be no:

Frictional unemployment Signup and view all the answers

Frictional unemployment can be the consequence of:

All of the above are correct Signup and view all the answers

Which of the following is not correct?

Minimum wages are the predominant reason for unemployment in the U.S. economy Signup and view all the answers

The Bureau of Labor Statistics defines the unemployment rate as the percentage of:

The labor force that is unemployed Signup and view all the answers

The labor-force participation rate is computed as:

(Labor Force / Adult Population) x 100 Signup and view all the answers

A person who is not employed and claims to be trying hard to find a job but really is not trying hard to find a job is:

Counted as unemployed but should be counted as out of the labor force Signup and view all the answers

Suppose that some people are counted as unemployed when, to maintain unemployment compensation, they search for work only at places where they are unlikely to be hired. If these individuals were counted as out of the labor force instead of as unemployed, then:

Both the unemployment rate and labor-force participation rate would be lower Signup and view all the answers

The Bureau of Labor Statistics counts discouraged workers as:

None of the above is correct Signup and view all the answers

Minimum-wage laws:

None of the above is correct Signup and view all the answers

Minimum wages create unemployment in markets where they create a:

Surplus of labor. Unemployment of this type is called structural Signup and view all the answers

Workers searching for jobs that best suit them is most closely associated with:

Frictional unemployment Signup and view all the answers

Sam has no job but keeps applying to get a job with a business that is unionized. He is qualified and he finds the pay attractive, but the firm is not hiring. Sam is:

Structurally unemployed. Structural unemployment exists even in the long run Signup and view all the answers

If unions were formed in more industries, the supply of labor in other industries would:

Increase, causing employment in other industries to fall Signup and view all the answers

Emeril is the owner of a restaurant. He decides to raise the wages of his workers even though he faces an excess supply of labor. His decision:

Might increase profits if it attracts a better pool of workers to apply for jobs at his restaurant Signup and view all the answers

The existence of money:

Makes trade easier Signup and view all the answers

Which of the following is a function of money?

All of the above are correct Signup and view all the answers

You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?

Medium of exchange Signup and view all the answers

Which of the following best illustrates the concept of a store of value?

You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies Signup and view all the answers

You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money's function as a _____. The laptop's price is posted as $500. The $500 price illustrates money's function as a _. You use the $500 to purchase the laptop. This transaction illustrates money's function as a ____.

Store of value, medium of exchange, unit of account Signup and view all the answers

Which of the following statements is correct?

Credit cards are included in both M1 and M2 Signup and view all the answers

Banks are able to create money only when:

Only a fraction of deposits are held in reserve Signup and view all the answers

If the reserve ratio is 10 percent, $1,400 of additional reserves can create up to:

$140,000 of new money Signup and view all the answers

The leverage ratio is calculated as:

Assets divided by bank capital Signup and view all the answers

Which of the following policies is NOT in the Fed's monetary toolbox?

Issuing a bank run Signup and view all the answers

A problem that the Fed faces when it attempts to control the money supply is that:

The Fed does not control the amount of money that households choose to hold as deposits in banks Signup and view all the answers

Study Notes

Unemployment Concepts

The normal level of unemployment in an economy is termed the natural rate of unemployment.
Cyclical unemployment relates to fluctuations around the natural rate, influenced by economic cycles.
To count as "employed" in the U.S., a person must be working for pay, not necessarily full-time.
The Bureau of Labor Statistics categorizes individuals as employed, unemployed, or not in the labor force; underemployed is not a recognized category.
Individuals temporarily absent from work for reasons such as vacations are counted as employed.
Unemployment rate is calculated as the number of unemployed divided by the labor force, multiplied by 100.

Unemployment Rate Calculation

Given a population of 225 million, with 40 million unemployed and 100 million employed, the unemployment rate is approximated at 29%.
Frictional unemployment occurs when workers transition between jobs or are temporarily out of work due to better job matches; it does not exist in a perfectly matched labor market.

Types of Unemployment

Structural unemployment arises when there are more job seekers than job openings, often due to industry shifts.
Frictional unemployment can result from job changes for better opportunities, industry declines, or changing work conditions.

Economic Impacts of Wages and Unemployment

Minimum wage laws can cause structural unemployment by leading to a surplus of labor if wages are set above equilibrium.
Higher minimum wages can increase labor supply while potentially reducing demand for low-skilled workers.

Labor Statistics Insights

The Bureau of Labor Statistics designates individuals who claim to seek jobs without genuine effort as unemployed rather than out of the labor force.
Discouraged workers are considered out of the labor force; counting them as unemployed would increase the unemployment rate.

Money and Its Functions

The existence of money simplifies trade, enabling specialization and economic efficiency.
Functions of money include serving as a medium of exchange, a store of value, and a unit of account.
Saving money illustrates its function as a store of value, while listed prices illustrate its role as a unit of account.

Banking and Money Creation

Banks create money by holding only a fraction of deposits in reserve; they require a reserve ratio below 100%.
A reserve ratio of 10% on an additional $1,400 in reserves can yield up to $14,000 in new money through the banking system.
The leverage ratio is determined by dividing total assets by bank capital.

Federal Reserve and Monetary Policy

The Federal Reserve employs several policies, including buying government bonds and adjusting reserve quantities, but cannot issue a bank run as a policy.
A significant challenge for the Fed is that it does not control how much money households choose to keep as deposits.

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Test your knowledge with these flashcards focused on key concepts from Macroeconomics Exam 2. Cover topics such as unemployment rates and their classifications, including natural and cyclical unemployment. Perfect for reviewing important definitions and concepts before your exam.