Q: Suppose the working-age population in 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: A country’s real GDP per capita was $$40,000 last year and 42$$,000 this year. What is the growth rate of real GDP per capita?

$$\frac{42,000 - 40,000}{40,000} \times 100 = 5\%$$

Q: If the Consumer Price Index (CPI) was 220 last year and 242 this year, what is the inflation rate?

$$\frac{242 - 220}{220} \times 100 = 10\%$$

Q: If the CPI in 1990 was 130 and the CPI in 2020 was 260, what is the value in 2020 dollars of a $10,000 salary from 1990?

$$10,000 \times \frac{260}{130} = 20$$,000$

Question 1

Suppose the working-age population in 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

Question 3

A country’s real GDP per capita was $$40,000 last year and 42$$,000 this year. What is the growth rate of real GDP per capita?

Accepted Answer

$$\frac{42,000 - 40,000}{40,000} 	imes 100 = 5\%$$

Question 4

If the Consumer Price Index (CPI) was 220 last year and 242 this year, what is the inflation rate?

Accepted Answer

$$\frac{242 - 220}{220} 	imes 100 = 10\%$$

Question 5

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

Accepted Answer

It does not include producer prices

Question 6

A firm pays an efficiency wage. What is the most likely effect on the labor market?

Accepted Answer

Workers become more productive, but unemployment may increase

Question 7

If the nominal interest rate is 6% and the inflation rate is 2%, what is the real interest rate?

Accepted Answer

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

Question 8

Which of the following is an example of frictional unemployment?

Accepted Answer

A recent college graduate searching for their first job

Question 9

Suppose the government increases its purchases by $100 billion in a closed economy. If the increase is financed by borrowing, what is the most likely effect?

Accepted Answer

Private investment will decrease due to crowding out

Question 10

If the CPI in 1990 was 130 and the CPI in 2020 was 260, what is the value in 2020 dollars of a $10,000 salary from 1990?

Accepted Answer

$$10,000 	imes \frac{260}{130} = 20$$,000$

Question 11

Which of the following is a service provided by the financial system that helps investors diversify their portfolios?

Accepted Answer

Risk sharing

Question 12

During a recession, which of the following typically occurs?

Accepted Answer

Firms decrease investment spending and households consume less

Question 13

If the real GDP per capita grows at 2% per year, how many years will it take to double according to the Rule of 70?

Accepted Answer

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

Question 14

Which of the following is most likely to cause cyclical unemployment?

Accepted Answer

A decrease in consumer spending during a recession

Question 15

Which equation correctly represents private savings in a closed economy?

Accepted Answer

$$S_{Private} = Y + TR - C - T$$

Question 16

Which of the following is a plausible consequence of unpredictable inflation?

Accepted Answer

Borrowing and lending become riskier

Question 17

If the government runs a budget deficit, what is the effect on public savings?

Accepted Answer

Public savings becomes negative

Question 18

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

Accepted Answer

Deflation can lead to delays in purchasing, reducing economic activity

Question 19

Which of the following is NOT a reason for the Great Moderation in business cycles since the mid-1980s?

Accepted Answer

A decrease in technological change

Question 20

A country has a labor force participation rate of 75% and a working-age population of 40 million. What is the size of the labor force?

Accepted Answer

$$40,000,000 	imes 0.75 = 30,000,000$$

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

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