1. For the United States, explain why the amount of output that each worker can produce per hour has risen in the last half century.2. Define what is meant by capital and discuss the various types of capital.3. An "ideal" economy would be represented by what type of situation?Table 7-1Table 7.3The unemployment rate is 9 million/(90 million) x 100% = 10%The unemployment rate is equal to 400,000/500,000 x 100% = 80%.Inflation is an increase in the average price level in the economy across time.The inflation rate = (130 - 120)/120 * 100% = 8.33%Social Security recipientThe three main stages are finished goods, intermediate materials and crude materials.71. Explain what the consumer price index (CPI) represents.72. Explain some of the costs associated with inflation.73. Explain how an unanticipated increase in inflation would affect creditors and debtors.74. Recessions are believed to have some benefits for an economy. What might they be?Chapter 7 (20): Long-Run and Short-Run Concerns: Growth, Productivity, Unemployment, and Inflation 7(20) Long-Run and Short-Run Concerns: Growth, Productivity, Unemployment, and Inflation Long-Run Output and Productivity Growth1. For the United States, explain why the amount of output that each worker can produce per hour has risen in the last half century. There are several reasons for this. First, the amount of capital per worker has increased. As the amount of capital per worker rises, workers will be able to produce a greater number of goods and services. Second, there have been increases in the quality of both labor and capital. As the skill level of workers rises and the quality of, for example, the equipment they use improves, workers will be able to produce more goods and services. And finally, there have been increases in technology during this period. Difficulty: M Type: C2. Define what is meant by capital and discuss the various types of capital. Capital is anything that is produced that is later used as an input to produce other goods and services. Physical capital would represent machinery and factories. Human capital would represent the knowledge and skills acquired by workers. Capital can also be private and public (e.g., highways). Difficulty: M Type: D3. An "ideal" economy would be represented by what type of situation? In an ideal economy, we would observe rapid growth of output per worker, low inflation, and low unemployment. 123Test Item File 3: Principles of MacroeconomicsDificulty: E Type: DRecessions, Depressions, and Unemployment4. In a simple economy, how can output increase?There are a number of ways. Output can increase if there are more workers, more skills per worker, more machines, faster machines, or a longer work week.Difficulty: E Type: C5. What is the technical definition of a recession?It is a period in which real GDP declines for at least two consecutive quarters. It is marked by falling output and rising unemployment.Difficulty: E Type: D6. How does the Bureau of Labor Statistics officially characterize an employed person?It is anyone who is 16 years of age or older who is working for pay either for someone else as an employee or in his or her own business for one or more hours per week. It can also be someone who works without pay in a family run businessat least 15 hours per week, or who has a job but has been temporarily absent, with or without pay.Difficulty: E Type: D7. What is meant by the phrase "not in the labor force?" Give examples of why people might be in this state.It means people over the age of fifteen who are not looking for work, either because they do not want a job or because they have given up looking. It might include retirees, full-time students, stay-at-home parents, individuals in institutions like prisons or mental hospitals or elderly parents.Difficulty: E Type: F8. Explain how it might be possible for the unemployment rate to drop inspite of a severerecession.When a recession becomes very severe and protracted many workers who may have responded in the BLS survey that they were looking for work may become discouraged and stop looking. If this happens they effectively drop out of the labor force. The only way to be officially counted as unemployed is if you are actively seeking employment. Therefore the unemployment rate drops.Difficulty: M Type: C124Chapter 7 (20): Long-Run and Short-Run Concerns: Growth, Productivity, Unemployment, and Inflation 9. What is the official definition of an unemployed person?It is anyone who is without work aged 16 or older who is available for work and has been actively seeking work in the last four weeks.Difficulty: E Type: DTable 7-110. Using Table 7.1 above, calculate the unemployment rate.The total amount of people who are unemployed and looking for work are 400 + 200 + 100 = 700. The labor force equals this number plus the employed - 700 + 8000. The unemployment rate is equal to 700/8700 x 100% = 8.04%Difficulty: E Type: ATable 7.211. Using the Table 7.2 calculate the labor-force participation rate.Labor-force participation rate = Labor force/Population = (45,000 + 5000)/70000 x 100% = 71.4%Difficulty: E Type: A12. Using Table 7.2 calculate the unemployment rate and show your work.Unemployment rate = Unemployed / (Employed + Unemployed) = 5000/(45000 + 5000) x 100% = 10%Difficulty: E Type: A13. What might happen to the official unemployment rate if unemployment compensation were eliminated? Explain your answer.125Test Item File 3: Principles of MacroeconomicsThe official unemployment rate may actually fall if unemployment compensationwere eliminated. The reason is that unemployment compensation helps reduce the opportunity cost involved in looking for work. Workers may spend a little more time looking for work if they have some amount of income to rely on. However, if the worker is receiving no compensation the opportunity cost of continuing to search is very high and unemployed persons may decide to take job offers more quickly.Difficulty: M Type: MJanuary FebruaryLabor Force140,000 142,000Employed130,000 131,000UnemployedUnemployment Rate%Table 7.314. Fill in the empty cells in the above table 7.3.January FebruaryLabor Force140,000 142,000Employed130,000 131,000Unemployed 10,000 11,000Unemployment Rate%7.1% 7.7Difficulty: E Type: A15. Explain how the unemployment rate can drop even if the total number of people with and without jobs remain constant.People can become discouraged about finding