## (Solution document) New Government Employment and True Unemployment. Suppose the U. government hires workers who are currently unemployed but does not give them any work...

1.New Government Employment and True Unemployment. Suppose the U.S. government hires workers who are currently unemployed but does not give them any work to do. What will happen to the measured U.S. unemployment? rate?

The unemployment rate will

?increase, decrease, or remain unchanged _____ choose one

.

Under these? circumstances, do changes in the measured U.S. unemployment rate accurately reflect changes in the underlying economic situation and? production?

A.

Yes. GDP will increase and the underlying economic situation will have improved.

B.

Yes. GDP will remain unchanged though the underlying economic situation will have improved.

C.

No. GDP will increase though the underlying economic situation will not have improved.

D.

No. GDP will remain unchanged and the underlying economic situation will not have improved.

2.Unemployment Rates in June.

Unadjusted unemployment data show that the number of unemployed rise in June because

A.

people look for jobs to earn extra money for vacations.

B.

teenagers are looking for summer jobs.

C.

many businesses close for the summer.

D.

teachers are looking for summer jobs.

If the government decided that homemakers should be counted as employed because they perform important? services, this would

A.

decrease the labor? force, decrease the labor force participation? rate, and increase the unemployment rate.

B.

increase the labor? force, increase the labor force participation? rate, and decrease the unemployment rate.

C.

increase the labor? force, increase the labor force participation? rate, and increase the unemployment rate.

D.

increase the labor? force, decrease the labor force participation? rate, and decrease the unemployment rate.

3.The nation of Answeria has a labor force of 220,000. If 176,000 persons are employed in Answeria, the unemployment rate is what %

4.When the economy is at full? employment, there is only cyclical unemployment. True or false?

5.What is likely to occur in the economy if the unemployment rate drops below the natural rate of? unemployment?

A.

increased cyclical unemployment

B.

lower inflation

C.

higher inflation

D.

higher structural unemployment

6.In? 1983, during a high period of? unemployment, it was estimated that actual GDP was? ____% below its potential.

A.

5

B.

4

C.

6

D.

7

7.Economists believe that the CPI tends to under estimate the increase in the cost of living over time. True or False?

8.APPLYING THE? CONCEPTS: How large is the bias in the CPI due to not immediately incorporating new? goods?

?Today, it is hard to imagine a world without cell phones. Every college student and most high school students carry them everywhere. But cell phones were not introduced to the public until 1983. And it took fifteen? years, until? 1998, before the Bureau of Labor Statistics included them in calculating the? CPI!

Economist Jerry Hausman of MIT estimated the bias in the CPI caused by the failure to include cell phones in a timely manner. He calculated that because of this? delay, the telecommunication component of the price index was biased upwards by between 0.8 and 1.9 percent per year. In other? words, instead of rising by 1.1 percent per? year, telecommunication prices could have been falling by 0.8 percent per year. This is a significant bias.

But cell phones are not the only examples of the slow introduction of goods into the CPI. The BLS also took fifteen years to recognize the room air conditioners into the CPI. As new products are constantly invented and? introduced, the bias in the CPI can be large.

New Goods and the CPI Bias.

Many? "cell phones" today are more than cell phones long dash they are? mini-computers on which you check your email and surf the web. If the BLS treated them as? old-fashioned cell? phones, the telecommunication component of the price index would have been measured as

A.

too low due to the improved quantity of the cell phones.

B.

too high due to the improved quality of the cell phones.

C.

too high due to the improved quantity of the cell phones.

D.

too low due to the improved quality of the cell phones

9.Inflation in the United States was higher from 1990 to 2009 than it was from 1970 to 1980. True or False?

10. Online Shopping and Menu Costs. How do you think the Internet and online shopping would affect the menu costs of? inflation?

A.

Prices on the Internet will be changed at lower cost than prices on menus or billboards because? they're not in print.

B.

Prices on the Internet will be more expensive to change than prices in print because an employee with computer skills must be hired to make the changes.

C.

Prices on the Internet will be changed faster than prices in? print, saving money by allowing quicker adjustments.

D.

Any of the above are reasonable arguments.

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