Question 1

Evidence shows that for many people,delaying searching for a job for a year or longer after they are laid off will contribute to a deterioration of their job skills,making it harder for them to find employment.This deterioration in job skills and the subsequent retraining that is necessary to obtain employment relates to which type of unemployment?

Accepted Answer

The deterioration in job skills and subsequent retraining necessary to obtain employment relates to structural unemployment, which occurs when there is a mismatch between the skills that workers have and the skills that employers need.

Question 2

If the rate of inflation in the economy is steady at 5 percent per year,how does the short-run Phillips curve predict that the unemployment rate will be changing,if at all? Does your answer change if inflation in the economy is 0 percent? Illustrate your answer with a Phillips curve.

Accepted Answer

The answer of If the rate of inflation in the...

Question 3

The key to understanding the short-run trade-off behind the Phillips curve is that an increase in inflation will decrease unemployment if the inflation is ________ by both workers and firms.

Accepted Answer

The Phillips curve illustrates a short-run trade-off between inflation and unemployment, suggesting that unexpected inflation can reduce unemployment temporarily because workers and firms do not immediately adjust their expectations about inflation. This leads to real wage adjustments and changes in employment levels.

Question 4

If actual inflation is less than expected inflation,actual real wages will be ________ expected real wages and unemployment will ________.

Accepted Answer

The answer of If actual inflation is less than expected...

Question 5

An increase in the inflation rate increases employment only if the increase in inflation is unexpected.

Accepted Answer

An increase in the inflation rate usually leads to a decrease in employment as it increases the cost of production for firms and reduces the purchasing power of consumers. This relationship is known as the Phillips curve. However, if the increase in inflation is unexpected, it may temporarily increase employment due to the fact that wages may not immediately adjust to changes in prices. This is known as the short-run Phillips curve.

Question 6

A higher inflation rate can lead to lower unemployment if ________ mistakenly expect the inflation rate to be lower than it turns out to be.

Accepted Answer

The answer of A higher inflation rate can lead to...

Question 7

Workers at a local mining company are paid $25.60 per hour,and they have incorporated a 3 percent annual raise in their contracts to account for expected inflation.Explain how unexpected inflation of 5 percent will affect the real wage and the unemployment rate.

Accepted Answer

The answer of Workers at a local mining company are...

Question 8

Canadians have loaded up on debt to historic levels; per capita debt is over 165 percent of disposable income,mirroring that of the United States prior to the subprime financial crisis.The primary cause for this is

Accepted Answer

The historically low interest rates maintained by the Bank of Canada have made borrowing easier and cheaper for Canadians, leading to higher levels of debt.

Question 9

When will an increase in aggregate demand not result in lower unemployment rates in the short run?

Accepted Answer

The answer of When will an increase in aggregate demand...

Question 10

The natural rate of unemployment is the rate that exists when the economy is producing at potential GDP.

Accepted Answer

The natural rate of unemployment is commonly defined as the rate of unemployment that is consistent with full employment, when the economy is producing at its potential level of output. It is the rate of unemployment that is present when there is no cyclical unemployment or when there is only frictional and structural unemployment.

Question 11

Ceteris paribus,in the short run following a decrease in the rate of growth in Aggregate Demand,we would expect to see an increase in the rate of unemployment and a decrease in the rate of inflation.

Accepted Answer

A decrease in the rate of growth in aggregate demand will lead to a decrease in output and employment in the short run, which may cause an increase in the rate of unemployment. Additionally, the decrease in demand will lead to a decrease in prices which can cause a decrease in the rate of inflation.

Question 12

If workers and firms expect that inflation will be 3 percent next year,and real wages are not changing over time,by how much will nominal wages increase?

Accepted Answer

If workers and firms expect inflation to be 3 percent next year, then they will adjust nominal wages by adding 3 percent to keep up with inflation. Therefore, nominal wages will increase by 3 percent.

Question 13

In the ________,A.W.Phillips plotted data for Great Britain that revealed a relationship between rates of change in wages versus unemployment rates.Economists later discovered other "Phillips curve" relationships between rates of inflation versus unemployment rates.

Accepted Answer

In the 1950s, A.W. Phillips plotted data for Great Britain, revealing a relationship between wage changes and unemployment, leading to the concept of the Phillips curve, which was later expanded to describe the relationship between inflation and unemployment.

Question 14

In 2017 the small country of Notrealia had a price level of 149.35.In 2016 the price level was 145.If the average Notrealian earns a wage of $29 an hour in 2017.What is their real wage?

Accepted Answer

To find the real wage, we need to adjust the nominal wage (which is $29/hr) to account for inflation. We can use the formula:
Real Wage = Nominal Wage / Price Level x 100

Plugging in the values for 2017, we get:
Real Wage = 29 / 149.35 x 100 = 19.43

Therefore, the real wage in 2017 is $19.43/hr in 2016 dollars. To compare the real wage to 2016, we need to adjust it again for inflation using the 2016 price level of 145:
Real Wage (2016) = Real Wage (2017) x Price Level (2016) / Price Level (2017)

Plugging in the values, we get:
Real Wage (2016) = 19.43 x 145 / 149.35 = 18.94

Therefore, the Notrealian's real wage in 2017 is equivalent to $18.94/hr in 2016 dollars. To find the closest answer choice, we round this to the nearest cent, which is $18.94.
The closest answer choice is A, $25.04, which is the closest choice to $18.94.

Question 15

If workers accurately predict the rate of inflation,is there a short-run trade-off between inflation and unemployment,as predicted by the Phillips curve? Why or why not?

Accepted Answer

The answer of If workers accurately predict the rate of...

Question 16

Does the short-run Phillips curve have a positive or negative slope? Explain how this slope is derived.

Accepted Answer

The answer of Does the short-run Phillips curve have a...

Question 17

A study conducted by Robert Shiller,a Yale Economist,found that a large majority of the public thinks that increases in inflation will not quickly lead to an increase in wages.

Accepted Answer

According to the study conducted by Robert Shiller, a large majority of the public believes that increases in inflation will not quickly lead to an increase in wages. Therefore, option A is true.

Question 18

If the long-run aggregate supply curve is vertical,

Accepted Answer

The vertical long-run aggregate supply curve indicates that the economy's output is determined by its resources, technology, and institutions, not by the price level. This implies that attempts to reduce unemployment below its natural rate through monetary or fiscal policy will only cause inflation in the long run, without permanently affecting unemployment. Thus, there cannot be a permanent trade-off between unemployment and inflation, as any such attempts will only lead to higher inflation without affecting long-term unemployment.

Question 19

The price level in the economy between 2017 and 2018 rose from 130 to 135.Between 2018 and 2019,the price level rose from 135 to 140.19.How does the short-run Phillips curve predict the unemployment rate will change as a result?

Accepted Answer

The answer of The price level in the economy between...

Question 20

Matt's real wage in 2017 is $26.80.If the price level is 104,what is Matt's nominal wage?

Accepted Answer

Nominal wage = (price level/100) x real wage
= (104/100) x $26.80
= $27.87

Quiz 13: Inflation, Unemployment, and Bank of Canada Policy