Q: Suppose the labor force in a country is 200 million, and 10 million people are unemployed. What is the unemployment rate?

$$\frac{10}{200} \times 100 = 5\%$$

Q: If the nominal wage is $20 per hour, the CPI is 250, and the base year CPI is 100, what is the real wage in base year dollars?

$$\frac{20}{250} \times 100 = 8$$

Q: Suppose the CPI was 120 last year and 132 this year. What is the inflation rate?

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

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 10 million people are unemployed. What is the unemployment rate?

Accepted Answer

$$\frac{10}{200} 	imes 100 = 5\%$$

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 of the following policies is most likely to reduce frictional unemployment?

Accepted Answer

Providing better information about job openings to job seekers.

Question 6

The Consumer Price Index (CPI) is best described as:

Accepted Answer

A measure of the average of the prices a typical urban family of four pays for the goods and services they purchase.

Question 7

If the nominal wage is $20 per hour, the CPI is 250, and the base year CPI is 100, what is the real wage in base year dollars?

Accepted Answer

$$\frac{20}{250} 	imes 100 = 8$$

Question 8

Which of the following is a cost of unanticipated inflation?

Accepted Answer

It redistributes income between borrowers and lenders.

Question 9

If the nominal interest rate 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 type of unemployment typically increases the most?

Accepted Answer

Cyclical unemployment

Question 11

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

Accepted Answer

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

Question 12

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 13

Suppose the CPI was 120 last year and 132 this year. What is the inflation rate?

Accepted Answer

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

Question 14

Which of the following is NOT a bias that causes the CPI to overstate the true inflation rate?

Accepted Answer

Deflation bias

Question 15

A government increases the minimum wage above the market equilibrium wage. What is the likely effect on unemployment?

Accepted Answer

Unemployment will increase because the quantity of labor supplied will exceed the quantity demanded.

Question 16

Which of the following scenarios best illustrates cyclical unemployment?

Accepted Answer

A worker loses their job due to a recession and is rehired when the economy recovers.

Question 17

If a country’s employment-population ratio falls during a recession, what does this indicate?

Accepted Answer

A smaller fraction of the working-age population is employed.

Question 18

Which of the following is an example of menu costs?

Accepted Answer

The cost to a restaurant of printing new menus when prices change due to inflation.

Unemployment and Inflation: Measurement, Types, and Economic Implications

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