ECONOMICS
Economic Challenges – Chapter 13
1) How do frictional and structural unemployment differ? Give an example of each. (10 points)
Frictional unemployment occurs when people take time to find a job – for example, the time spent looking for
a job after schooling is finished. Structural unemployment occurs when workers’’ skills do not match the
available jobs, as when compact disc technology reduced the need for workers who made vinyl phonograph
record.
2) When does cyclical unemployment take place?
(10 points)
It occurs during economic downturns.
3) How is the unemployment rate calculated? (10 points)
It is calculated by dividing the number of unemployed people by the total labor force and multiplying the
result by 100.
4) Why isn’t full employment the same as zero unemployment?
(10 points)
Even when the economy is working properly, it will experience frictional, seasonal, and structural
unemployment
5) How does inflation affect purchasing power? Give an example.
(10 points)
It reduces the purchasing power of money. For example, a movie ticket that cost a quarter 50 years ago
might cost $7 today. That quarter no longer has the same purchasing power that it did 50 years ago.
6) What is the purpose of the Consumer Price Index (CPI)?
(10 points)
It is a tool for measuring inflation. Consumers and business people use it in making economic decisions.
7) What causes a wage-price spiral, and what can it lead to? (10 points)
One increase in costs – such as wage hikes – leads to an increase in prices, which leads to another increase
in costs, and so on. The result is a cycle of increasing wages and increasing prices, called the wage-price
spiral.
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8) Why did the existence of low inflation and low employment in the 1990s puzzle some economists? (10 points)
Low unemployment is usually accompanied by a rise in inflation.
9) How is the poverty threshold related to the poverty rate? (10 points)
The poverty threshold determines how many people are included in the poverty rate (people below the
poverty threshold).
10) Identify five reasons that help account for poverty?
(10 points)
(1) Lack of education
(2) Location
(3) Racial and gender discrimination
(4) Economic shifts
(5) Shifts in family structure
11) What is the Lorenz Curve, and what does it suggest about the distribution of income in the United States? (10 points)
It illustrates the distribution of income in the economy. It suggests that there is an unequal distribution of
income in the United States.
12) How do existing government policies deal with poverty?
(10 points)
Programs focus on cash assistance, education, medical benefits, and subsidized housing. Enterprise zones
attempt to revitalize inner city areas. Other programs focus on job training.
Week 14 of 21.
The 1 quiz towards your Final.
st
Economic Challenges - Ch 13
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