Question 1

The recession of 2007-2009 and its aftermath had different effects on various sectors of the economy.Which of the following sectors of the U.S.economy had the highest unemployment rate in August 2011,topping 12 percent?
A)education and health services
B)manufacturing
C)construction
D)financial activities

Accepted Answer

The construction sector had the highest unemployment rate of all sectors in August 2011, topping 12 percent. This was due to the burst of the housing bubble and the subsequent decline in construction activity.

Question 2

Explain whether you agree or disagree with the following statement: "The reason that inflation is bad is because it increases the cost of living - the costs of goods and services we buy - without increasing income in general."

Accepted Answer

The answer of Explain whether you agree or disagree with...

Question 3

Describe how inflation can be costly even if it is anticipated.

Accepted Answer

The answer of Describe how inflation can be costly even...

Question 4

The costs to firms of changing prices are called menu costs.

Accepted Answer

This statement is true. The costs associated with changing prices, such as printing new menus or updating pricing software, are referred to as menu costs. These costs can discourage firms from changing prices frequently, leading to price stickiness in the short run.

Question 5

If inflation is anticipated,some effects of inflation on the redistribution of income can be avoided.

Accepted Answer

If inflation is anticipated, individuals and businesses can take steps to adjust their behavior and avoid some of the negative effects on the redistribution of income. For example, they may negotiate higher wages or prices to keep pace with inflation or invest in assets that are likely to appreciate in value as prices rise.

Question 6

When the actual inflation rate turns out to be greater than the expected inflation rate,who gains - the borrower or the lender - and who loses? Explain why.

Accepted Answer

The answer of When the actual inflation rate turns out...

Question 7

If an economy experiences deflation,the real interest rate
A)will be less than the nominal interest rate.
B)will be negative when the nominal interest rate is positive.
C)will be greater than the nominal interest rate.
D)will be equal to the deflation rate,so long as the nominal interest rate is positive.

Accepted Answer

Deflation means the general level of prices is falling. When this happens, the purchasing power of money increases over time. The real interest rate adjusts the nominal interest rate for the effect of inflation (or deflation). In a deflationary environment, because the value of money is increasing, the real interest rate (which reflects the true cost of borrowing when adjusted for changes in purchasing power) will be higher than the nominal interest rate (the stated rate without adjustment for inflation/deflation).

Question 8

If inflation is unanticipated,no redistribution of income can occur.

Accepted Answer

If inflation is unanticipated, it will affect all income groups equally, thus no redistribution of income will occur. However, if inflation is anticipated, individuals and businesses may adjust their behavior to try and mitigate the effects, resulting in different levels of impact on different income groups and potentially causing redistribution of income.

Quiz 13: Unemployment and Inflation

The recession of 2007-2009 and its aftermath had different effects on various sectors of the economy.Which of the following sectors of the U.S.economy had the highest unemployment rate in August 2011,topping 12 percent?