Chapter 7 The Macroeconomy: Unemployment, Inflation, and Deflation 69
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d. Twenty people are structurally unemployed, and 60 people are frictionally unemployed. Hence,
80 people are unemployed, and the unemployment rate is (80/1000) 100 = 8 percent.
7-6. a. Ten new people become unemployed each month, so the unemployment rate is (10/200) 100
= 5 percent.
b. one month
c. two months
d. Now, a total of 20 people are unemployed each month, so the unemployment rate is (20/200)
100 = 10 percent.
7-8. The price index for 2014 if 2012 is the base year is ($2,100/$2,000 100) =105.0.
7-10. 120/1.091 = 110.
7-12. The anticipated inflation rate is the difference between the 6 percent nominal interest rate and the
4 percent real interest rate, or 2 percent
7-14. a. The real interest rate is the difference between the 7 percent nominal interest rate and the
5 percent expected inflation rate, or 2 percent.
b. 105.0
7-16. a. V
b. U
c. X
d. S
◼ Selected References
Alchian, Arman A., “Information Costs, Pricing, and Resource Unemployment,” Western Economic
Journal, Vol. 7, June 1969, pp. 109–128.
Alchian, Arman A. and Reuben A. Kessel, “Redistribution of Wealth through Inflation,” Science, Vol.
130, No. 3375, September 4, 1959, pp. 535–539.
Brimmer, Andrew F., “Inflation and Income Distribution in the United States,” Review of Economics and
Statistics, Vol. 53, No. 1, February 1971, pp. 37–48.
Bronfenbrenner, Martin and Franklyn D. Holzman, “Survey of Inflation,” The American Economic
Review, Vol. 53, 1963.
Brozen, Yale, Automation—The Impact of Technological Change, Washington, D.C.: American Enterprise
Institute, 1963.
Cagan, Philip et al., A New Look at Inflation: Economic Policy in the Early 1970s, Washington, D.C.:
American Enterprise Institute, 1973.
Campbell, Colin D., ed., Wage-Price Controls in World War II: United States and Germany, Washington,
D.C.: American Enterprise Institute, 1971.
Economic Indicators, January 1993, Washington, D.C.: Government Printing Office.
Feldstein, Martin, “The Economics of the New Unemployment,” The Public Interest, Fall 1973.
Kessel, Reuben A. and Arman A. Alchian, “Effects of Inflation,” Journal of Political Economy, Vol. 70,
December 1962, pp. 521–537.