Exam 2 SSG Solutions.docx - Exam 2 Study Guide Chapters 9...

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Exam 2 Study Guide: Chapters 9, 10, 11, and 14 Topics for Chapter 9 1. Are discouraged workers included as unemployed? Are they included in the labor force? Are they included in the working-age population? Discourage workers are NOT counted as unemployed and NOT counted in the labor force. They ARE included in the working-age population. 2. What are the equations for the labor force, the unemployment rate, and the labor force participation rate? Labor force = unemployed + employed Unemploymentrate = unemployed labor force × 100 Labor force participationrate = labor force working age population × 100 3. What are the problems with measuring the unemployment rate? Doesn’t include discouraged workers. Part-time and full-time jobs are all counted as one job. It relies on accurate answers to survey questions. 4. What are the three types of unemployment? How are they defined? Structural unemployment arises from a mismatch of worker skills and job requirements. Frictional unemployment results from the time it takes to match workers with jobs. Cyclical unemployment is unemployment as a result of economic recession. 5. What does “full employment” mean? Is it more likely during a recession or expansion? Cyclical unemployment is zero. This occurs during expansion. 6. What are the causes of unemployment? Increase minimum wage, higher/longer unemployment insurance, more labor unions, efficiency wages. 7. What does the Consumer Price Index (CPI) measure? (Hint: the same thing as the GDP deflator) Price level.
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8. How is expenditure for each year calculated? (Are base year prices or quantities used?) How is CPI calculated from expenditures? How is inflation calculated from CPI? Expenditures for year t is calculated by multiplying the quantity in the base year and the price in year t for each good and adding up all the results across all goods. CPI in year t is calculated dividing year t expenditure by base year expenditure and multiplying by 100. CPI t = expenditure t expenditure base × 100 Inflation is calculated from CPI using the following equation. π = CPI t CPI t 1 CPI t 1 × 100 9. What are the problems with CPI? Substitution bias, increase in quality bias, new product bias, and outlet bias.
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