INFLATION/UNEMPLOYMENT

1. Distinguish between a stock variable and a flow example. Give examples (from

national economic data) of each.

2. What is/are the cost/costs of unemployment?

3. Who are in the labor force? Who are not? What is meant by the term

“labor force participation rate”? How has that variable changed in recent years?

4. What are the four major types of unemployment? What causes each type? How

might each type be approached policy-wise?

5. What is meant by the term “inflation”? How do we measure inflation in the

U.S.?

6. What are the main effects of inflation? How are the effects influenced by

whether the inflation is anticipated?

7. Given: the price of an 8 foot pine 2x4 has increased each year over the past

12 years. Does this mean that the economy is experiencing inflation? Explain.

8. Labor Department figures indicate that in August of 1998, the U.S. Consumer

Price Index stood at 163.6. How would one interpret that figure?

9. Explain the relationship between movements in the CPI and the value

of money.

10. Distinguish between real and nominal variables. Must nominal values always

exceed real values? Explain why or why not.

11. If we say that a variable (eg., social security benefits) has been “indexed”,

what does this mean?

12. “If inflation is bad, then its opposite, deflation, must be good.” Evaluate.

13. Say that the CPI currently stands at 188.9. Which of the following could

one safely conclude?

a) Prices have risen 188.9% since the base period.

b) If good xyz cost $10.00 in the base period, then that

particular good must cost $18.89 now.

c) The economy must be experiencing inflation.

d) That representative bundle of goods and services that

cost $100 during the base period would cost $188.90 now.

d) Prices have risen 88.9% since the base period.

14. Say that you graduate in May, that you are loaded with marketable skills and

that dozens of employers are eager to hire you and pay you major bucks.

But you plan to take a few months to visit and study the prospective employers

before making your decision. Let them sweat. During this period of time you

would most nearly fit the discription of which type of unemployment?

a) structural/technological unemployment

b) seasonal unemployment

c) frictional unemployment

d) cyclical unemployment