Ch. 20 - The Labor Market
What are the three types of unemployment?
Structural, frictional, cyclical
What is the Life Cycle - Permanent Income Hypothesis?
Consumption smoothing and forward looking decisions
What are the three functions of money?
Store of value, unit of account, medium of exchange
What is the name of the central bank of the United States?
The Federal Reserve (The Fed)
Labor unions typically favor restrictions on immigration, while employers tend to favor more liberal rules. Why?
Immigration raises labor supply (right shift in supply curve) which increases employment and decreases wages
If there are 40 gallons of water in a tub at 7:15 p.m. and water is being drained at a rate of 3 gallons per minute, what will be the stock and flow at 7:17 p.m.?
The flow is -3 gallons/minute and the stock is 3 gallons of water
What is the difference between M1 and M2?
M2 is broader than M1; M2 includes savings deposits, small-denomination time deposits, money market mutual funds
M1 is more liquid forms of money
The United States has a ___ reserve banking system.
Fractional
Suppose the market wage for computer technicians is $60k/year. What is the relationship between marginal product and wage that must exist for a firm to hire a technician?
A firm will hire an extra worker if their marginal product > wage
How do the following events affect one’s saving and wealth? Derek deposits $20 in the bank and charges $50 on his credit card; Miguel uses $300 from his checking account to pay off his credit card bill; Bill’s car rises in market value from $3500 to $4000.
Derek’s net saving is -$30 and his wealth has decreased by $30
There is no change in Miguel’s savings or wealth
Bill’s wealth rises by $500
In 2022, M1 was $20,404.0 billion and nominal GDP was $25,462.7 billion. What was the velocity of M1?
$25,462.7 billion/$20,404.0 billion = 1.25
What are the 2 types of returns on stocks?
Dividends and capital gains
How can people who are laid off from work due to a recession eventually turn into structurally unemployed people? Choose one: failing to file for unemployment, becoming discouraged workers, staying unemployed so long that their skills become outdated, receiving food stamps
Staying unemployed so long that their skills become outdated
Lauren can buy a $4000 lawn mower by taking out a loan at 6% annual interest. With this mower, she can net $6000 per summer (after deducting costs). Of the $6000 net revenues, 20% must be paid to the government in taxes. Assume that Lauren could earn $4400 after taxes by working a different job. Should she buy the lawn mower?
Compare the financial benefits and costs: $4800 > $4400 (she should buy the mower)
Imagine an economy with $1 million ($500k is held in the form of currency and the rest is deposited in banks). Banks keep reserves equal to 10% of deposits. What is the money supply?
$5.5 million
Imagine a small, open economy with a money supply of $400,000 with a velocity of money of 5. If the price level is 1, what is the value of real GDP?
$2 million
Imagine a country with a population of 30 million people. 27 million of these people are in the labor force and, as of last month, there were 24 million employed. What is the unemployment rate?
11.1%
Consider the supply and demand graph with real interest rate on the y-axis and saving/investment on the x-axis. What happens when the public becomes more “grasshopper-like” in making saving decisions (less concerned about saving for the future)?
A decline in household saving shifts the supply curve to the left (higher real interest rate, lower saving/investment)
Imagine an economy with $1000 held as currency by the public, $200 in bank deposits, and a desired reserve-deposit ratio of 0.2. What is the money supply when the central bank prints $100 and uses it to buy government bonds from the public?
Before the $100: Money Supply = $2000
After the $100: Money Supply = $2500
Suppose you must sell a bond with a principal of $500 and a coupon rate of 8% one year before it matures. The prevailing interest rate on new one-year bonds is 7%. At what price can you sell your bond?
$504.67