Define the following terms carefully: (a) Full employment (b) Purchasing power of money (c) Real wage rate (d) Relative price
(a) Full employment is a situation in which everyone who is willing and able to work can find a job. At full employment, the measured unemployment rate is still positive.
(b) The purchasing power of a given sum of money is the volume of goods and services that it will buy.
(c) The real wage rate is the wage rate adjusted for inflation. Specifically, it is the nominal wage divided by the price index. The real wage thus indicates the volume of goods and services that the nominal wages will buy.
(d) An item's relative price is its price in terms of some other item rather than in terms of dollars.
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You hire some of your friends to help you move to a new house. You pay them a total of $200 and buy them dinner at Pizza Hut. Which of the following is true?
A) Hiring your friends is an illegal activity and should not be counted in GDP. B) Neither the $200 nor the dinner should be counted in GDP because both are household production. C) The dinner at Pizza Hut should be counted as part of GDP, but not the $200. D) The $200 should be counted as part of GDP but not the dinner at Pizza Hut. E) If your friends do not report the $200 on their tax forms, it becomes part of the underground economy.
Which of the following is not correct about quantitative easing?
A) It is one of the conventional monetary policy tools. B) It refers to the Fed's asset purchasing program. C) It helped reduce term premium on long-term government bonds. D) As a result, the balance sheet of the Fed is much larger than it was before the crisis.