Q: Suppose the working-age population of a country is 250 million. Of these, 160 million are employed, 10 million are unemployed, and the rest are not in the labor force. What is the labor force participation rate?

$$ \frac{170}{250} \times 100 = 68\% $$

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: Suppose the CPI in 1990 was 130 and in 2020 it was 260. If your mother earned $20,000 in 1990, what is the equivalent amount in 2020 dollars?

$$ 20,000 \times \frac{260}{130} = 40,000 $$

Question 1

Suppose the working-age population of a country is 250 million. Of these, 160 million are employed, 10 million are unemployed, and the rest are not in the labor force. What is the labor force participation rate?

Accepted Answer

$$ \frac{170}{250} 	imes 100 = 68\% $$

Question 2

Which of the following best describes structural unemployment?

Accepted Answer

Unemployment that arises from a persistent mismatch between the skills of workers and the requirements of jobs.

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

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

Accepted Answer

It does not include the prices of producer goods.

Question 5

A worker who has given up looking for a job because they believe no jobs are available for them is classified as:

Accepted Answer

A discouraged worker

Question 6

If the nominal interest rate is 6% and the inflation rate is 4%, what is the real interest rate?

Accepted Answer

$$ 6\% - 4\% = 2\% $$

Question 7

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

Accepted Answer

Increasing the duration and generosity of unemployment insurance

Question 8

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

Accepted Answer

Cyclical unemployment

Question 9

Suppose a worker is laid off from a factory because the factory is moving production overseas. What type of unemployment is this worker experiencing?

Accepted Answer

Structural unemployment

Question 10

If all prices and wages in an economy double overnight, but not at the same rate, which of the following is most likely to occur?

Accepted Answer

Some people will see their real wage increase, while others will see it decrease.

Question 11

A firm pays an above-market wage to motivate its workers to be more productive. This is an example of:

Accepted Answer

An efficiency wage

Question 12

Which of the following best explains why the Producer Price Index (PPI) can give early warning of future movements in consumer prices?

Accepted Answer

Producer prices often change before consumer prices, as they reflect costs at earlier stages of production.

Question 13

Suppose the CPI in 1990 was 130 and in 2020 it was 260. If your mother earned $20,000 in 1990, what is the equivalent amount in 2020 dollars?

Accepted Answer

$$ 20,000 	imes \frac{260}{130} = 40,000 $$

Question 14

Which of the following is a cost of anticipated inflation?

Accepted Answer

Menu costs for firms

Question 15

During the COVID-19 pandemic, why did the BLS face challenges in measuring unemployment accurately?

Accepted Answer

It was difficult to classify people as unemployed or employed but absent from work due to business closures.

Question 16

Which of the following statements about labor unions in the United States is correct?

Accepted Answer

Labor unions are not a significant cause of unemployment because only a small percentage of private sector workers are unionized.

Question 17

If a country has a natural rate of unemployment of 4.5%, which types of unemployment are present at this rate?

Accepted Answer

Frictional and structural unemployment

Question 18

A new technology makes some workers' skills obsolete, and they are unable to find new jobs without retraining. This is an example of:

Accepted Answer

Structural unemployment

Question 19

Which of the following would most likely reduce frictional unemployment?

Accepted Answer

A government program that subsidizes new hires

Question 20

If the official unemployment rate is 4%, but many discouraged workers are not counted as unemployed, what is the likely effect on the true level of unemployment?

Accepted Answer

The true level of unemployment is higher than the official rate.

Ch 9. Unemployment and Inflation: Key Concepts and Measures in Macroeconomics

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