Q: Suppose the working-age population is 250 million, the labor force is 160 million, and 150 million people are employed. What is the unemployment rate?

$$\frac{160 - 150}{160} \times 100 = 6.25\%$$

Q: If the Consumer Price Index (CPI) was 250 last year and 260 this year, what is the inflation rate?

$$\frac{260 - 250}{250} \times 100 = 4\%$$

Q: Suppose the CPI in the base year is 100, and the cost of the market basket in the current year is $$400 while it was 200 in $$the base year. What is the CPI for the current year?

$$\frac{400}{200} \times 100 = 200$$

Question 1

Which of the following best describes the 'natural rate of unemployment'?

Accepted Answer

The unemployment rate when cyclical unemployment is zero, consisting only of frictional and structural unemployment.

Question 2

Suppose the working-age population is 250 million, the labor force is 160 million, and 150 million people are employed. What is the unemployment rate?

Accepted Answer

$$\frac{160 - 150}{160} 	imes 100 = 6.25\%$$

Question 3

Which of the following is NOT included in the official (U-3) unemployment rate?

Accepted Answer

Discouraged workers who have stopped looking for work.

Question 4

If the Consumer Price Index (CPI) was 250 last year and 260 this year, what is the inflation rate?

Accepted Answer

$$\frac{260 - 250}{250} 	imes 100 = 4\%$$

Question 5

Which of the following best explains why unexpected inflation can hurt lenders?

Accepted Answer

Loans are repaid with money that has less purchasing power than expected.

Question 6

A worker who has stopped looking for a job after repeated failures but wants to work is classified as:

Accepted Answer

A discouraged worker.

Question 7

If actual GDP is less than potential GDP, which of the following is true?

Accepted Answer

The output gap is negative and unemployment is above the natural rate.

Question 8

Which of the following is a source of bias in the Consumer Price Index (CPI)?

Accepted Answer

Quality change bias.

Question 9

Which type of unemployment increases during a recession?

Accepted Answer

Cyclical unemployment.

Question 10

If the labor force participation rate falls while the employment-to-population ratio remains constant, what must be happening?

Accepted Answer

The number of people in the labor force is decreasing relative to the working-age population.

Question 11

Suppose the CPI in the base year is 100, and the cost of the market basket in the current year is $$400 while it was 200 in $$the base year. What is the CPI for the current year?

Accepted Answer

$$\frac{400}{200} 	imes 100 = 200$$

Question 12

Which of the following is true about the GDP deflator?

Accepted Answer

It measures the price level of all final goods and services produced in the economy.

Question 13

A country experiences a period where the inflation rate is positive but decreasing. This is best described as:

Accepted Answer

Disinflation.

Question 14

Which of the following would cause the official unemployment rate (U-3) to understate the true level of unemployment?

Accepted Answer

An increase in discouraged workers.

Question 15

If the CPI overstates inflation by 1.1% per year, what is a likely consequence for government programs indexed to the CPI?

Accepted Answer

Benefits will increase faster than the actual cost of living.

Question 16

Which of the following best describes 'headline' inflation?

Accepted Answer

It includes all prices in the index, including food and fuel.

Question 17

A person who is working part-time but wants a full-time job is classified as:

Accepted Answer

Underemployed and included in the U-6 measure.

Question 18

Which of the following would most likely increase the natural rate of unemployment?

Accepted Answer

An increase in the scale of structural change in the economy.

Question 19

If inflation is higher than expected, which of the following is a likely short-term effect on firms and workers?

Accepted Answer

Firms enjoy higher profits and workers experience lower real wages.

Question 20

Which of the following best explains why the CPI may not accurately reflect changes in the cost of living?

Accepted Answer

It does not fully account for substitution between goods, quality changes, or new goods.

Monitoring Jobs and Inflation: Key Concepts in Macroeconomics

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