Q: Suppose the working-age population of a country is 200 million, the labor force is 120 million, and 110 million people are employed. What is the unemployment rate?

$$\frac{10}{120} \times 100 = 8.33\%$$

Q: If the Consumer Price Index (CPI) was 120 last year and 132 this year, what is the inflation rate?

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

Q: If the cost of a basket of goods was $$100 in the base year and 110 in $$the current year, but your income remains unchanged, what is the percentage decrease in your purchasing power?

$$\frac{110 - 100}{100} \times 100 = 10\%$$

Question 1

Suppose the working-age population of a country is 200 million, the labor force is 120 million, and 110 million people are employed. What is the unemployment rate?

Accepted Answer

$$\frac{10}{120} 	imes 100 = 8.33\%$$

Question 2

Which of the following best describes structural unemployment?

Accepted Answer

Unemployment caused by a mismatch between workers' skills and job requirements, often requiring retraining or education.

Question 3

If the Consumer Price Index (CPI) was 120 last year and 132 this year, what is the inflation rate?

Accepted Answer

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

Question 4

A worker loses her job at a DVD rental store because streaming services have replaced physical rentals. She is actively seeking new work but lacks the skills for most available jobs. What type of unemployment is this?

Accepted Answer

Structural unemployment

Question 5

If nominal income increases by 5% and the CPI increases by 3%, what is the percentage change in real income?

Accepted Answer

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

Question 6

Which of the following is a weakness of the official unemployment rate (U-3) as measured by the BLS?

Accepted Answer

It does not include discouraged workers who have stopped looking for work.

Question 7

If the government runs a budget deficit, what is the likely effect on the loanable funds market?

Accepted Answer

Supply of loanable funds decreases, real interest rate rises, and investment falls (crowding out).

Question 8

A country’s real GDP per capita grows at an average annual rate of 2%. 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 9

Which of the following would most likely increase a country’s potential GDP?

Accepted Answer

An increase in the labor force, capital stock, or technological progress

Question 10

If the cost of a basket of goods was $$100 in the base year and 110 in $$the current year, but your income remains unchanged, what is the percentage decrease in your purchasing power?

Accepted Answer

$$\frac{110 - 100}{100} 	imes 100 = 10\%$$

Question 11

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

Accepted Answer

It excludes all goods and services purchased by businesses.

Question 12

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 13

Which of the following best explains why unanticipated inflation hurts creditors?

Accepted Answer

The money repaid to creditors has less purchasing power than expected.

Question 14

During a recession, which of the following typically occurs?

Accepted Answer

Investment and consumption decrease, and unemployment rises.

Question 15

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

Accepted Answer

They channel funds from savers to borrowers, facilitating investment and economic growth.

Question 16

If a country’s 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 17

Which of the following policies would most likely reduce structural unemployment?

Accepted Answer

Government-funded job training programs for displaced workers

Question 18

Suppose the government increases taxes on interest income from savings. What is the likely effect in the loanable funds market?

Accepted Answer

Supply of loanable funds decreases, real interest rate rises, and investment falls.

Question 19

Which of the following best describes the effect of efficiency wages on unemployment?

Accepted Answer

Efficiency wages increase unemployment by raising wages above the equilibrium level, creating a surplus of labor.

Question 20

A country’s real GDP grew by 3% in year 1, 2% in year 2, and 1% in year 3. What is the average annual real GDP growth rate over these three years?

Accepted Answer

$$\frac{3\% + 2\% + 1\%}{3} = 2\%$$

Unemployment, Inflation, and Economic Growth: Key Concepts and Measures

Study Guide - Practice Questions

Study Guide - Flashcards