4. Official unemployment rate statistics may: a. overstate the amount of unemplo

Question

4. Official unemployment rate statistics may:

a. overstate the amount of unemployment by including part-time workers in the labor force calculations.

b. understate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment.

c. overstate the amount of unemployment because of the presence of working age adults who are not willing to work.

d. understate the amount of unemployment by excluding part-time workers from the calculations of labor force.

a. an increase in the price of any good or service

b. high overall price level

c. an increase in the value of the dollar over time

d. an increase in the overall price level

6.What happened to the “real” (relative to prices of other goods) price of subway rides between 2002 and 2012?

                                                            Price per ride      CPI

                                    2002                 $2.25                100

                                    2012                 $2.25                138

a. did not change

b. Increased

c. decreased

d. can not tell without going on a subway ride

7. If inflation is 9% per year and you receive a 5% raise in income, then your:

a. Real income rises, but nominal income falls.

b. Real income falls, but nominal income rises.

c. Real and nominal income both rise.

d. Real and nominal income both fall.

8. If the nominal interest rate is 18% and the inflation rate is 6%, the real interest rate is:          

a. 12%.

b. 24%.

c. 6%.

d. can not be determined

e. 18%.

9.Which of the following individuals will benefit from unanticipated inflation of 10% per year?

a. a retired worker on fixed $30,000 annual income

b. a bank who lent most of its funds to new home owners prior to inflation at nominal interest rate 5%

c. a store manager whose nominal income will grow by 10%

d. a landlord who signed a $1,000/month year lease with tenants prior to inflation

e. a new house owner who signed a mortgage contract prior to inflation at 5% annual nominal interest rate

Explanation / Answer

4)

Official unemployment rate statistics do not include discouraged workers. Hence, true picture is not reflected in official estimates.

Official estimate tends to understate the condition of unemployment level.

Right answer is (b)

5)

Inflation is sustained rise in average price level.

Hence, right answer is (d).

6)

Price is same but inflation rate has increased by 38 %. Hence, real price has decreased.

Right answer is (C)

7)

Right answer is (b)

Real income fall but nominal income rises. Inflation rate is higher than rise in the nominal income. Hence, real income falls.

8)

Real interest rate = Nominal interest rate – inflation rate

         = 18 % - 6 %

          = 12 %

Right answer is (a)

9)

Right answer is (e)

Since owner of home would be paying rate which was prevailing before the rise in inflation rate. Creditor is at loss while debtor finds it profitable.

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