Q: Suppose the working-age population of a country is 200 million, the labor force is 140 million, and 126 million people are employed. What is the unemployment rate?

$$\frac{14}{140} \times 100 = 10\%$$

Q: If the Consumer Price Index (CPI) was 120 last year and 126 this year, what is the inflation rate for this year?

$$\frac{126 - 120}{120} \times 100 = 5\%$$

Q: Suppose a worker receives a wage of $20 per hour in 2010 when the CPI is 100. In 2020, the CPI is 125. What is the worker’s 2010 wage in 2020 dollars?

$$20 \times \frac{125}{100} = \25$

Question 1

Suppose the working-age population of a country is 200 million, the labor force is 140 million, and 126 million people are employed. What is the unemployment rate?

Accepted Answer

$$\frac{14}{140} 	imes 100 = 10\%$$

Question 2

Which of the following best describes structural unemployment?

Accepted Answer

Unemployment that arises from a persistent mismatch between workers' skills and job requirements

Question 3

If the Consumer Price Index (CPI) was 120 last year and 126 this year, what is the inflation rate for this year?

Accepted Answer

$$\frac{126 - 120}{120} 	imes 100 = 5\%$$

Question 4

A country’s real GDP per capita grows at a constant rate of 2% per year. According to the Rule of 70, how many years will it take for real GDP per capita to double?

Accepted Answer

$$\frac{70}{2} = 35$$ years

Question 5

Which of the following is NOT a problem associated with the Consumer Price Index (CPI)?

Accepted Answer

It overstates the Producer Price Index (PPI)

Question 6

If the nominal interest rate on a loan is 8% and the inflation rate is 3%, what is the real interest rate?

Accepted Answer

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

Question 7

Which of the following best explains why deflation is considered more dangerous for an economy than inflation?

Accepted Answer

Deflation can lead to delays in purchasing, reducing overall demand and economic activity

Question 8

Suppose a worker receives a wage of $20 per hour in 2010 when the CPI is 100. In 2020, the CPI is 125. What is the worker’s 2010 wage in 2020 dollars?

Accepted Answer

$$20 	imes \frac{125}{100} = \25$

Question 9

Which of the following is an example of frictional unemployment?

Accepted Answer

A recent college graduate searching for their first job

Question 10

If the government increases its purchases without increasing taxes or reducing other spending, what is the likely effect on the market for loanable funds?

Accepted Answer

Private investment is crowded out due to higher interest rates

Question 11

Which of the following is NOT a key service provided by the financial system?

Accepted Answer

Price fixing

Question 12

A country has the following data: $$Y = 1000$$, $$C = 600$$, $$G = 200$$, $$TR = 50$$, $$T = 250. $$What is private saving?

Accepted Answer

$$S_{Private} = Y + TR - C - T = 1000 + 50 - 600 - 250 = 200$$

Question 13

During which phase of the business cycle are firm profits most likely to fall due to rising wages outpacing other prices?

Accepted Answer

Near the end of an expansion

Question 14

Which of the following would be classified as 'not in the labor force' according to government statistics?

Accepted Answer

A retired person who is not seeking work

Question 15

If the real interest rate is negative, which of the following is true?

Accepted Answer

The inflation rate is greater than the nominal interest rate

Question 16

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

Accepted Answer

The sum of frictional and structural unemployment

Question 17

A firm pays an above-market wage to increase worker productivity. This is an example of:

Accepted Answer

An efficiency wage

Question 18

Which of the following is a likely effect of unpredictable inflation?

Accepted Answer

It makes borrowing and lending more risky

Question 19

If a country’s real GDP increased from $$500$$ billion to $$525$$ billion in one year, what is the growth rate of real GDP?

Accepted Answer

$$\frac{525 - 500}{500} 	imes 100 = 5\%$$

Question 20

Which of the following is a function of financial intermediaries in the financial system?

Accepted Answer

They borrow funds from savers and lend them to borrowers

Unemployment, Inflation, Economic Growth, and the Financial System: Study Guide

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