Q: Suppose the labor force in a country is 200 million, and 8 million people are unemployed. What is the unemployment rate?

$$\frac{8}{200} \times 100 = 4\%$$

Q: If the CPI was 100 in the base year, 112.5 in year 2, and 120.8 in year 3, what was the inflation rate from year 2 to year 3?

$$\frac{120.8 - 112.5}{112.5} \times 100 = 7.4\%$$

Q: A worker receives a nominal wage of $27 per hour in 2013 when the CPI is 233, and the same wage in 2018 when the CPI is 260. What is the percentage change in the worker’s real wage?

$$\frac{10.38 - 11.59}{11.59} \times 100 = -10.4\%$$

Question 1

Which of the following best describes the unemployment rate, and how is it calculated?

Accepted Answer

The unemployment rate is the percentage of the labor force that is unemployed, calculated as $$\frac{	ext{Unemployed}}{	ext{Labor force}} 	imes 100$$

Question 2

Suppose the labor force in a country is 200 million, and 8 million people are unemployed. What is the unemployment rate?

Accepted Answer

$$\frac{8}{200} 	imes 100 = 4\%$$

Question 3

Which of the following is an example of structural unemployment?

Accepted Answer

A factory worker whose job was replaced by automation and now needs to retrain for a new industry

Question 4

If the labor force participation rate increases while the working-age population remains constant, what happens to the labor force?

Accepted Answer

The labor force increases

Question 5

Which government policy is most likely to increase the natural rate of unemployment?

Accepted Answer

Increasing the minimum wage above the market equilibrium wage

Question 6

The Consumer Price Index (CPI) is calculated by:

Accepted Answer

Comparing the cost of a fixed market basket of goods and services in the current year to the cost in the base year, then multiplying by 100

Question 7

If the CPI was 100 in the base year, 112.5 in year 2, and 120.8 in year 3, what was the inflation rate from year 2 to year 3?

Accepted Answer

$$\frac{120.8 - 112.5}{112.5} 	imes 100 = 7.4\%$$

Question 8

Which of the following best explains why the employment-population ratio may provide a better summary of the job market than the unemployment rate during a recession?

Accepted Answer

It includes discouraged workers who have stopped looking for work

Question 9

A worker receives a nominal wage of $27 per hour in 2013 when the CPI is 233, and the same wage in 2018 when the CPI is 260. What is the percentage change in the worker’s real wage?

Accepted Answer

$$\frac{10.38 - 11.59}{11.59} 	imes 100 = -10.4\%$$

Question 10

If the nominal interest rate on a loan is 6\% and the inflation rate is 1\%, what is the real interest rate?

Accepted Answer

$$6\% - 1\% = 5\%$$

Question 11

Which of the following is NOT a cost of anticipated inflation?

Accepted Answer

Redistribution of income between borrowers and lenders due to unexpected inflation

Question 12

During a period of unanticipated inflation, who is most likely to benefit?

Accepted Answer

Borrowers with fixed-rate loans

Question 13

Which of the following would cause the measured unemployment rate to understate the true degree of unemployment?

Accepted Answer

Not counting discouraged workers as unemployed

Question 14

Which type of unemployment is most likely to increase during a recession?

Accepted Answer

Cyclical unemployment

Question 15

If the minimum wage is set above the equilibrium wage, what is the likely effect on unemployment?

Accepted Answer

Unemployment increases

Question 16

A country experiences deflation. If the nominal interest rate is 2\% and the inflation rate is -3\%, what is the real interest rate?

Accepted Answer

$$2\% - (-3\%) = 5\%$$

Question 17

Which of the following is a reason why the CPI may overstate the true rate of inflation?

Accepted Answer

Substitution bias

Question 18

If the employment-population ratio for prime-age males (25–54) falls, which of the following is a possible explanation?

Accepted Answer

An increase in the number of men retiring early or leaving the labor force

Question 19

Which of the following best describes an efficiency wage?

Accepted Answer

An above-market wage paid by firms to increase worker productivity

Question 20

If the CPI increases from 200 to 210 in one year, what is the annual inflation rate?

Accepted Answer

$$\frac{210 - 200}{200} 	imes 100 = 5\%$$

Unemployment and Inflation: Measurement, Types, and Economic Impact

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