Q: Suppose the working-age population of a country is 200 million, the labor force is 120 million, and there are 12 million unemployed workers. What is the unemployment rate?

$$\frac{12}{120} \times 100 = 10\%$$

Q: Suppose the cost of a CPI basket in the base year is $$50, and in the current year it is 70. $$What is the CPI for the current year?

$$\frac{70}{50} \times 100 = 140$$

Question 1

Suppose the working-age population of a country is 200 million, the labor force is 120 million, and there are 12 million unemployed workers. What is the unemployment rate?

Accepted Answer

$$\frac{12}{120} 	imes 100 = 10\%$$

Question 2

Which of the following best describes structural unemployment?

Accepted Answer

Unemployment caused by changes in technology or foreign competition that make certain skills or locations obsolete.

Question 3

If the Consumer Price Index (CPI) was 100 in the base period and is 306 in 2023, what does this indicate about the price level?

Accepted Answer

Prices have increased by 206% since the base period.

Question 4

Which of the following is NOT a reason why inflation is considered harmful to an economy?

Accepted Answer

It encourages people to spend more, boosting economic growth.

Question 5

A country experiences a period where prices are falling, and consumers delay purchases in anticipation of lower prices. What is this phenomenon called, and what is a likely consequence?

Accepted Answer

Deflation; it can lead to a vicious cycle of reduced spending and economic contraction.

Question 6

If the nominal interest rate on a savings account is 8% and the inflation rate is 5%, what is the real interest rate?

Accepted Answer

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

Question 7

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

Accepted Answer

The unemployment rate that exists when the economy is at full employment, including frictional and structural unemployment.

Question 8

Suppose the cost of a CPI basket in the base year is $$50, and in the current year it is 70. $$What is the CPI for the current year?

Accepted Answer

$$\frac{70}{50} 	imes 100 = 140$$

Question 9

Which of the following is a limitation of the Consumer Price Index (CPI) as a measure of inflation?

Accepted Answer

It does not account for substitution towards cheaper goods when prices change.

Question 10

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

Accepted Answer

Cyclical unemployment

Question 11

If the labor force participation rate is calculated as $$\frac{	ext{Labor Force}}{	ext{Working Age Population}}$$, what happens to this rate during a recession?

Accepted Answer

It typically decreases as discouraged workers leave the labor force.

Question 12

Which of the following scenarios best illustrates frictional unemployment?

Accepted Answer

A recent college graduate is searching for their first job.

Question 13

The Phillips Curve suggests a short-run tradeoff between which two macroeconomic variables?

Accepted Answer

Unemployment and inflation

Question 14

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

Accepted Answer

An increase in structural unemployment due to technological change

Question 15

If actual GDP is below potential GDP, what is the output gap and what type of unemployment is likely to be present?

Accepted Answer

Negative output gap; cyclical unemployment

Question 16

Which of the following best explains why policymakers are extremely cautious about deflation?

Accepted Answer

Deflation can lead to delayed spending, lower demand, and a downward economic spiral.

Question 17

A country experiences hyperinflation, with prices rising by over 500% per year. Which of the following is a likely consequence?

Accepted Answer

The value of money collapses, and commerce is disrupted as vendors stop accepting currency.

Question 18

If the CPI basket is kept fixed over time, what bias does this introduce into the measurement of inflation?

Accepted Answer

It overstates inflation because it does not account for substitution towards cheaper goods.

Question 19

Which of the following statements about the Phillips Curve is most accurate based on recent economic history?

Accepted Answer

The inverse relationship between unemployment and inflation was clear in the 1950s-70s, but has become less predictable in recent decades.

Unemployment, Inflation, and the Phillips Curve: Key Macroeconomic Concepts

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