Economics Questionnaire - Unemployment & Inflation

Name:___________ Date Due:__August 01, 2011_______

Chapter 8: Unemployment and Inflation

1. What does the unemployment rate measure? ___________________________________________________
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2. What does the labor force participation rate measure? ___________________________________________
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3. If the total population (age 16 and over) is 40 million, 1 million are unemployed, and 24 million currently hold jobs, how big is the labor force? _____________________________ what is the unemployment rate? _________________________ the labor force participation rate? _______________________________
4. If the total population (age 16 and over) is 48 million; of this total, 4 million are unemployed and 36 million currently hold jobs. What is the rate of unemployment? __________________________ the labor force participation rate? __________________________
5. How would the BLS classify each of the following people? a) an administrator who has been working as a teacher one day per week while looking for a full-time job _______________________________ b) a mathematician who returned to graduate school after failing to find a job during the last four months _______________________________
c. c) a former steel worker who would like to work but has given up actively searching for employment
d. _______________________________
d) a former auto worker who is currently looking for work in the computer industry _______________________________
6. What is the natural rate of unemployment? ___________________________________________________
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7. What is cyclical unemployment? ___________________________________________________________
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8. What are discouraged workers? ____________________________________________________________

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9. What are some reasons the reported rate of unemployment may not accurately reflect the true rate of unemployment?____________________________________________________________

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10. What is frictional unemployment? __________________________________________________________
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11. What is structural unemployment? __________________________________________________________
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12. What does offering higher unemployment benefits do to search time for the unemployed? ______________
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13. The Bureau of Labor Statistics uses a basket of fixed weights when constructing the CPI. Use the information below to construct a CPI. SHOW ALL YOUR WORK.
Consumers Spend:
50% of their income on Pizza; 30% of their income on Shirts; 20% of their income on Soda
| |P of Pizza |P of Shirts |P of Soda |
|1998 |$ 10 |$ 35 |$ 1 |
|1999 |$ 11 |$ 40 |$ 2 |
|2000 |$ 12 |$ 42 |$ 2 |

Price of basket each year

1998:____________________________________________________________

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1999:____________________________________________________________

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2000:____________________________________________________________

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Construct CPI (Base year 1998)
1998:____________________________________________________________

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1999:____________________________________________________________

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2000:____________________________________________________________

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What is the Rate of Inflation?

1998-1999:____________________________________________________________

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1999-2000:____________________________________________________________

_______________ 14. What are the three problems associated with the Consumer Price Index?
a.__________________________ b.___________________________ c. _________________________
15. Does the CPI tend to over or under estimate inflation?______________ By how much?____________

16. Jack graduated from school and took his first job in 1972, which paid $7,000. What is his salary worth in 1999 dollars? The CPI in 1972 = 41.8 and in 1999 = 166.

In 1999, Jill is earning $32,000 doing the same job. Is Jill’s standard of living higher or lower than Jack’s standard of living when he had the job?________________________________________________

17. If your savings account earns a nominal interest rate of 2% and inflation is 1% for the year, what is the real interest rate you are earning?________________ What if inflation is 3% per year?_______________