Unemployment and Inflation sample problems

Unemployment and Inflation sample problems - Econ 2006:...

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Unformatted text preview: Econ 2006: Principles of Macroeconomics Department of Economics Virginia Polytechnic Institute and State University Sample Exercise 1_1: Unemployment and Inflation Choose the one alternative that best completes the statement or answers the question. 1) Suppose an economy consists of 300,000 individuals 16 years and older, 160,000 are employed, and 18,000 are unemployed but actively seeking work. In this example the labor force is: A) 140,000. B) 160,000. C) 178,000. D) 300,000. 2) Unemployment that naturally occurs during the normal workings of an economy as people change jobs and move across the country is called: A) frictional unemployment. B) cyclical unemployment. C) structural unemployment. D) natural unemployment. 3) The natural rate of unemployment: A) tends to remain constant over time and is the same across countries. B) can vary over time and will differ across countries. C) tends to remain constant over time but at different levels for different countries. D) can vary over time but tends to be the same across countries. 4) Actual unemployment can fall below the natural rate of unemployment due to: A) structural unemployment. B) frictional unemployment. C) negative cyclical unemployment. D) all of the above 5) Economic expansions might lead to inflation because an expansion leads to: A) an increase in the unemployment rate, which increases wages. B) a decrease in the unemployment rate, which increases wages. C) an increase in the unemployment rate, which decreases wages. D) a decrease in the unemployment rate, which decreases wages. The following table lists the basket of goods in the Carnivore Price Index (Assume 1993 is the base year.) 1993 1993 1994 1994 1995 1995 Quantity Price Quantity Price Quantity Price Steak 4 $3.00 5 $3.50 4 $4.00 Pork Chops 5 $2.00 7 $3.00 8 $3.00 Liver 3 $2.00 1 $1.00 2 $1.50 Table 1 6) Using the information in Table 1 the inflation rate from 1993 to 1994 is about: A) 11 percent. B) 14 percent. C) 114 percent. D) 41 percent. 7) Cost-of-living adjustments are: A) quality measurements included in the calculation of the CPI. B) automatic wage changes based on the CPI which are included in some union contracts. C) averages of neighboring yearsʹ base prices used in constructing the CPI. D) changes in the basket of goods used in calculating the CPI. 8) Suppose that a price index in a country was 200 in 2004 and 210 in 2005. The inflation rate between those two years was: A) 2.5 percent. B) 5 percent. C) 4.76 percent. D) 10 percent. 9) Suppose that the chain index for GDP in a country was 190 in 2004 and 210 in 2005. The inflation rate between those two years was: A) 9.5 percent. B) 10.53 percent. C) 20 percent. D) 15.78 percent. The following table lists the basket of goods in the Carnivore Price Index (Assume 1993 is the base year.) 1993 1993 1994 1994 1995 1995 Quantity Price Quantity Price Quantity Price Steak 4 $3.00 5 $3.50 4 $4.00 Pork Chops 5 $2.00 7 $3.00 8 $3.00 Liver 3 $2.00 1 $1.00 2 $1.50 Table 1 10) Using the information in Table 1, the inflation rate from 1994 to 1995 is about: A) 11.4 percent. B) 13.0 percent. C) 114 percent. D) 127 percent. 11) Using the information in Table 1 the inflation rate from 1993 to 1995 is approximately: A) 11 percent. B) 27 percent. C) 14 percent. D) 54 percent. 12) Auto workers laid off from Hot-Rod Autoworks as the result of a recession are considered: A) structurally unemployed. B) seasonally unemployed. C) frictionally unemployed. D) cyclically unemployed. 13) Steel workers laid off from their jobs as the result of a recession are considered: A) seasonally unemployed. B) structurally unemployed. C) cyclically unemployed. D) frictionally unemployed. 14) When the ʺrealʺ GDP falls, the rate of unemployment generally: A) increases. B) equals the natural rate. C) decreases. D) stays constant. 15) At full employment the unemployment rate equals the: A) structural unemployment rate plus the cyclical unemployment rate. B) structural unemployment rate plus the frictional unemployment rate. C) structural unemployment rate. D) cyclical unemployment rate. 16) Suppose an economy consists of 300,000 individuals 16 years and older, 160,000 are employed, and 18,000 are unemployed but actively seeking work. In this example the labor force participation rate is approximately: A) 53 percent. B) 59 percent. C) 6 percent. D) 47 percent. 17) Suppose an economy consists of 300,000 individuals 16 years and older, 160,000 are employe 18,000 are unemployed but actively seeking work. In this example the d, and unemployment rate is approximately: A) 11.3 percent. B) 6.0 percent. C) 10.1 percent. D) 13.7 percent. 18) In February, 2006, the U.S. labor force consisted of 150,450,000 employed and 7,193,000 unemployed. The U.S. unemployment rate for that year was about: A) 4.2 percent. B) 4.4 percent. C) 4.6 percent. D) 5.2 percent. Employment status of the working age population of Somenation is approximately: Emplyed full-time: 1500 Employed part-time: 500 Not employed and looking for work: 250 Not employed and not looking for work: 150 Table 2 19) Given the data in Table 2, the labor force participation rate of Somenation is approximately: A) 17 percent. B) 22 percent. C) 94 percent. D) 11 percent. 20) Given the data in Table 2, the unemployment rate of Somenation is approximately: A) 11 percent. B) 17 percent. C) 94 percent. D) 22 percent. 21) Suppose that 50 percent of the part-time workers of Somenation are looking for fulltime jobs. Given the data in Table 6.1, if these workers were counted as not employed and looking for work, the unemployment rate of Somenation would be: A) 94 percent. B) 22 percent. C) 11 percent. D) 17 percent. 22) Given the data in Table 2, if the workers who are ʺnot employed and not looking for workʺ were counted as not employed and in the labor force, the unemployment rate of Somenation would be: A) 17 percent. B) 11 percent. C) 93 percent. D) 22 percent. 23) A lumberjack loses his job because timber cutting restrictions are imposed by the EPA to protect the spotted owl habitat. This lumberjack would be A) structurally unemployed. B) seasonally unemployed. C) frictionally unemployed. D) cyclically unemployed. 24) If the federal government implements programs so that the unemployed are more quickly matched with jobs, then A) the natural rate of unemployment will not change. B) the natural rate of unemployment will increase. C) the natural rate of unemployment will decrease. D) the natural rate of unemployment could either increase or decrease. 25) Which of the following would increase the unemployment rate? A) an increase in unemployment insurance payments B) a decrease in the minimum wage C) a law making it illegal to work more than 35 hours per week D) a cut in unemployment compensation 26) Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid? A) 16 percent B) 12 percent C) 8 percent D) 6 percent 27) Suppose you lend $1,000 at an interest rate of 10 percent over the next year. If the expected real interest rate at the beginning of the loan contract is 4 percent, then what rate of inflation over the upcoming year would be most beneficial to you as the lender? An inflation rate A) greater than 6 percent. B) equal to 6 percent. C) equal to 0 percent. D) equal to 4 percent. 28) Which of the following describes situations in which the person is hurt by inflation? A) a person paid a fixed income during an inflationary period B) a person who lends money during a period when inflation is over-predicted C) a retiree whose pension is adjusted for inflation D) a person who borrows money during a period when inflation is under predicted 29) If inflation is perfectly anticipated, A) no one in the economy loses. B) those that hold paper money lose. C) those that borrow money lose. D) those that lend money lose. 30) Suppose that at the beginning of a loan contract, the real interest rate is 4% and expected inflation is currently 6%. If actual inflation turns out to be 7% over the loan contract period, then A) lenders gain 1%. B) borrowers lose 3%. C) borrowers gain 1%. D) lenders gain 3%. 31) Which of the following is not an example of inflation causing a redistribution of income because the inflation was unanticipated? A) Firms have to hire an extra worker to change prices in its store because of inflation. B) A bond-holder pays a higher tax and has less after-tax real income because of inflation. C) A bank collects a lower amount of interest from a loan because inflation was under-predicted. D) A worker receives a raise in salary that is less than the rate of inflation, because management under-predicted inflation. ...
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This note was uploaded on 09/23/2010 for the course ECON 2006 taught by Professor Rdcothren during the Fall '08 term at Virginia Tech.

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