Question 1

Suppose the labor force in a country is 150 million people, and 135 million are employed. What is the unemployment rate? Use the formula: 
$$
	ext{Unemployment Rate} = \frac{	ext{Unemployed}}{	ext{Labor Force}} 	imes 100
$$

Accepted Answer

5%

Question 2

Which of the following best describes structural unemployment?

Accepted Answer

Unemployment that results from a mismatch between workers’ skills and the skills needed for available jobs.

Question 3

If the labor force participation rate is calculated as 
$$
\frac{	ext{Labor Force}}{	ext{Adult Population}} 	imes 100
$$
and the labor force is 80 million while the adult population is 100 million, what is the labor force participation rate?

Accepted Answer

80%

Question 4

During a recession, which type of unemployment typically increases the most?

Accepted Answer

Cyclical unemployment

Question 5

A minimum wage law sets a price floor in the labor market. If the minimum wage is set above the equilibrium wage, what is the likely result?

Accepted Answer

An increase in unemployment

Question 6

Which of the following is an example of frictional unemployment?

Accepted Answer

A recent college graduate spends several months searching for a job that matches his degree.

Question 7

If the Consumer Price Index (CPI) was 200 last year and 210 this year, what is the inflation rate? Use the formula:
$$
	ext{Inflation Rate} = \frac{	ext{CPI}_{	ext{this year}} - 	ext{CPI}_{	ext{last year}}}{	ext{CPI}_{	ext{last year}}} 	imes 100
$$

Accepted Answer

5%

Question 8

Which of the following best explains the concept of 'menu costs'?

Accepted Answer

The cost to firms of changing listed prices when inflation occurs

Question 9

Suppose the nominal interest rate on a loan is 8% and the inflation rate is 3%. What is the real interest rate? Use the formula:
$$
	ext{Real Interest Rate} = 	ext{Nominal Interest Rate} - 	ext{Inflation Rate}
$$

Accepted Answer

5%

Question 10

Which of the following is most likely to be hurt by unanticipated inflation?

Accepted Answer

A bank that made a fixed-rate loan

Question 11

If actual GDP is less than potential GDP, what type of unemployment is present?

Accepted Answer

Cyclical unemployment

Question 12

Which of the following best describes demand-pull inflation?

Accepted Answer

Inflation caused by too much demand chasing too few goods

Question 13

A worker is laid off because a recession reduces demand for the goods produced at his factory. This is an example of:

Accepted Answer

Cyclical unemployment

Question 14

Which of the following is NOT included in the labor force?

Accepted Answer

A full-time student not seeking employment

Question 15

If the price level increases by 4% and nominal income increases by 2%, what happens to real income? Use the formula:
$$
	ext{Real Income} = \frac{	ext{Nominal Income}}{	ext{Price Level (as index)}}
$$

Accepted Answer

Real income decreases by 2%

Question 16

Which of the following is an example of a 'shoe-leather cost' of inflation?

Accepted Answer

The cost of holding less cash and making more frequent trips to the bank

Question 17

Which of the following would increase the labor force participation rate?

Accepted Answer

An increase in the number of people actively seeking work

Question 18

If the minimum wage is set below the equilibrium wage, what is the likely effect on the labor market?

Accepted Answer

It will have no effect on employment or unemployment

Question 19

Which of the following best describes the effect of labor unions on the labor market?

Accepted Answer

They negotiate higher wages for their members, which can lead to a decrease in the equilibrium quantity of labor demanded

Question 20

Which of the following is a likely result of cost-push inflation?

Accepted Answer

Prices rise due to increased production costs, such as higher wages or raw material prices

Unemployment and Inflation: Key Concepts and Applications

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