Q: Suppose the working-age population of a country is 200 million. Out of these, 120 million are employed, 10 million are unemployed and actively seeking work, 5 million are discouraged workers, and 8 million are marginally attached workers. What is the labor force participation rate?

$$\frac{130}{200} \times 100 = 65\%$$

Q: If the Consumer Price Index (CPI) was 120 in 2020 and 132 in 2021, what was the inflation rate between 2020 and 2021?

$$\frac{132 - 120}{120} \times 100 = 10\%$$

Q: If nominal GDP in 2022 is $$5,000 billion and real GDP in 2022 (using 2015 as the base year) is 4$$,000 billion, what is the GDP deflator for 2022?

$$\frac{5,000}{4,000} \times 100 = 125$$

Q: A bank has $$200 million in deposits and the required reserve ratio is 10%. If the bank currently holds 30 $$million in reserves, how much can it lend out as new loans?

$$30\text{ million} - (0.10 \times 200\text{ million}) = 10\text{ million}$$

Q: If the CPI in 2010 is 110 and in 2020 is 150, and a movie ticket cost $10 in 2010, what is the equivalent price in 2020 dollars?

$$10 \times \frac{150}{110} = 13.64$$

Question 1

Suppose the working-age population of a country is 200 million. Out of these, 120 million are employed, 10 million are unemployed and actively seeking work, 5 million are discouraged workers, and 8 million are marginally attached workers. What is the labor force participation rate?

Accepted Answer

$$\frac{130}{200} 	imes 100 = 65\%$$

Question 2

Which of the following best describes a discouraged worker?

Accepted Answer

A person who has stopped looking for work because they believe no jobs are available for them.

Question 3

If the Consumer Price Index (CPI) was 120 in 2020 and 132 in 2021, what was the inflation rate between 2020 and 2021?

Accepted Answer

$$\frac{132 - 120}{120} 	imes 100 = 10\%$$

Question 4

A worker loses their job due to automation and must learn new skills to find employment. What type of unemployment is this?

Accepted Answer

Structural unemployment

Question 5

If nominal GDP in 2022 is $$5,000 billion and real GDP in 2022 (using 2015 as the base year) is 4$$,000 billion, what is the GDP deflator for 2022?

Accepted Answer

$$\frac{5,000}{4,000} 	imes 100 = 125$$

Question 6

A bank has $$200 million in deposits and the required reserve ratio is 10%. If the bank currently holds 30 $$million in reserves, how much can it lend out as new loans?

Accepted Answer

$$30	ext{ million} - (0.10 	imes 200	ext{ million}) = 10	ext{ million}$$

Question 7

If the nominal wage is $20 per hour and the CPI is 125 (base year = 100), what is the real wage in base year dollars?

Accepted Answer

$$\frac{20}{1.25} = 16$$

Question 8

Which of the following is included in M2 but NOT in M1?

Accepted Answer

Savings deposits

Question 9

Suppose the nominal interest rate on a loan is 8% and the inflation rate is 5%. What is the real interest rate?

Accepted Answer

$$8\% - 5\% = 3\%$$

Question 10

During a recession, which of the following typically occurs?

Accepted Answer

Real GDP falls below potential GDP and the unemployment rate rises above the natural rate.

Question 11

Which of the following is NOT considered money in today's economy?

Accepted Answer

A credit card

Question 12

If the government runs a budget deficit, what is the likely effect on national saving and investment, assuming all else equal?

Accepted Answer

National saving decreases, which can reduce investment due to higher interest rates (crowding out).

Question 13

Which of the following best describes the function of money as a unit of account?

Accepted Answer

Money provides a common measure for valuing goods and services.

Question 14

A person is not working, has looked for a job in the past 12 months, but not in the last 4 weeks. How are they classified?

Accepted Answer

Marginally attached worker

Question 15

If the CPI in 2010 is 110 and in 2020 is 150, and a movie ticket cost $10 in 2010, what is the equivalent price in 2020 dollars?

Accepted Answer

$$10 	imes \frac{150}{110} = 13.64$$

Question 16

Which of the following is an asset for a commercial bank?

Accepted Answer

Loans made to customers

Question 17

Which of the following would increase household saving?

Accepted Answer

An increase in the real interest rate

Question 18

If the Federal Reserve increases the interest rate on reserve balances (IORB), what is the likely effect on bank lending?

Accepted Answer

Banks are more likely to hold reserves and less likely to make loans.

Question 19

Which of the following is true about the relationship between full employment, potential GDP, and the natural rate of unemployment?

Accepted Answer

At full employment, real GDP equals potential GDP and unemployment equals the natural rate.

Question 20

A firm is considering an investment project. Which of the following would most likely increase the firm's willingness to invest?

Accepted Answer

A decrease in the real interest rate

Macroeconomics Midterm 2 Study Notes: Unemployment, Inflation, Savings & Investment, and Money

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