CB2402 Macroeconomics

Self-study Exercise - Week 2

Chapter 20 Unemployment and Inflation

Table 20-1

Total population 20,000

Working-age population 15,000

Employment 1,000

Unemployment 100

Consider the data above for a simple economy.

1) Refer to Table 20-1. The unemployment rate for this simple economy equals
A) (100/1,000) × 100.
B) (100/1,100) × 100.
C) (100/15,000) × 100.
D) (100/20,000) × 100.

2) Suppose the labor force stays constant, and the working-age population stays
constant, but a greater number of persons who were unemployed become employed.
The labor force participation rate will
A) increase.
B) decrease.
C) remain constant.
D) not change in a way that can be predicted.

3) In 2015, JP Morgan Chase announced that it was laying off 5,000 employees. The
laid-off employees who were not able to find jobs at another bank due to a permanent
decline in demand in the banking industry would be considered
A) structurally unemployed.
B) frictionally unemployed.
C) seasonally unemployed.
D) cyclically unemployed.
4) Minimum wage laws cause unemployment because the legal minimum wage is set
A) below the market wage, causing labor demand to be greater than labor supply.
B) below the market wage, causing labor demand to be less than labor supply.
C) above the market wage, causing labor demand to be greater than labor supply.
D) above the market wage, causing labor demand to be less than labor supply.
E) too low.

Table 20-3
Base Year (2011) 2016
Product Quantity Price Price
Cokes 100 $0.50 $0.75
Hamburgers 200 2.00 2.50
CDs 10 20.00 21.00

5) Refer to Table 20-3. Assume the market basket for the consumer price index has
three products—Cokes, hamburgers, and CDs—with the following values in 2011 and
2016 for price and quantity: The Consumer Price Index for 2016 equals
A) 75.
B) 93.
C) 108.
D) 121.

6) If the price level rose in three consecutive years from 100 to 120 to 140, then the
annual inflation rate over those years would
A) increase.
B) remain the same.
C) decrease.
D) equal 20%.

7) The real wage equals the nominal wage ________ the CPI, all times 100.
A) divided by
B) times
C) minus
D) plus
8) Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in
1964 and 219 in 2016, then the value of your grandfather's salary in 2016 dollars is
approximately
A) $84,775.
B) $63,830.
C) $37,200.
D) $26,280.

9) Imagine that you borrow $5,000 for one year and at the end of the year you repay
the $5,000 plus $600 of interest. If the inflation rate was 4%, what was the real
interest rate you paid?
A) 16 percent
B) 12 percent
C) 8 percent
D) 6 percent

10) Which of the following describes a situation in which the person is hurt by
inflation?
A) a retiree whose pension is adjusted for inflation
B) a person who borrows money during a period when inflation is under-predicted
C) a person who lends money during a period when inflation is over-predicted
D) a person paid a fixed income during an inflationary period
Answer to Self-study Exercise – Week 2

MCQ Answer

1 B

2 C

3 A

4 D

5 D

6 C

7 A

8 A

9 C

10 D