Question 1

The unemployment rate is 6 percent. If the population is 300 million, and the number unemployed is 6 million and the number employed is 94 million, what is the size of the labor force?

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Question 2

Suppose there are 180 million employed people and 20 million unemployed people.
a) What is the unemployment rate?
b) Suppose that 5 million unemployed people give up their search for jobs and become discouraged workers. What is the new official unemployment rate?

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Question 3

Suppose the current unemployment rate is 5 percent, the labor force is 400 million people, the labor force participation rate is 80 percent and the working-age population is 500 million people. What number of people are unemployed?

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Question 4

What is the relationship over the business cycle of potential GDP and real GDP?

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Question 5

Consider the following scenario. Initially the economy has 90 million people working, 10 million people unemployed, and 20 million people not in the labor force. Then prospects for the economy improve. Five million people who previously were not in the labor force now join the 10 million previously unemployed in looking for work. For now, the economy remains with 90 million workers. What happens to the unemployment rate?

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Question 6

Suppose the population is 220 million people, the labor force is 150 million people, the number of people employed is 130 million and the working-age population is 175 million people. What is the unemployment rate?

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Question 7

"The new goods bias puts a downward bias into the CPI and its measure of the inflation rate." Is the previous sentence correct or not? Explain your answer.

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Question 8

List the four sources of bias in the CPI and briefly explain them.

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Question 9

How is the GDP deflator is calculated.

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Question 10

"The bias in the CPI distorts private contracts because a future payment that is linked to the CPI will be raised above the true increase in the price level." Is the previous sentence true or false?

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Question 11

What, if any, is the impact of the CPI bias on government spending?

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Question 12

What are the three stages of constructing the CPI?

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Question 13

What is inflation and how is it measured using the Consumer Price Index?

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Question 14

Assume that after you graduate, you move to a simple economy in which only three goods are produced and consumed: fish, fruit, and meat. Suppose that on January 1, fish sold for $2.50 per pound, meat was $3.00 per pound, and fruit was $1.50 per pound. At the end of the year, you discover that the catch was low and that fish prices had increased to $5.00 per pound, but fruit prices stayed at $1.50 per pound, and meat prices had actually fallen to $2.00. Can you say what happened to the overall CPI, in terms of whether it increased, decreased, or stayed the same? Do you have enough information to calculate the inflation rate? Note, this problem requires no calculation; just state and explain your answers.

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Question 15

What is the commodity substitution bias? What effect does it have on the CPI?

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Question 16

Suppose that the U.S. population is 275 million. Also assume that the labor force is 135 million and that 130 million people are employed. Calculate the unemployment rate.

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Question 17

Is the CPI a biased measure of the inflation rate? Explain your answer.

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Question 18

"The market basket used to calculate the CPI is revised monthly to more accurately depict consumers' choices. The price data for the CPI are collected every month." Are the previous sentences true or false?

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Question 19

Explain the CPI bias and how it can distort private contracts and increase government outlays.

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Question 20

Suppose the working-age population is 150 million, the labor force is 125 million, and employment is 120 million.
a) What is the unemployment rate?
b) Now suppose that 2 million students graduate from college and begin to look for jobs. What is the new unemployment rate if none of the students have found jobs yet?
c) Suppose that all 2 million students find jobs. What is the unemployment rate now?

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Quiz 5: Monitoring Jobs and Inflation