1. Assume the following: Employed - 175 million Labor force participation rate -

ID: 1192989 • Letter: 1

Question

1. Assume the following:

Employed - 175 million

Labor force participation rate - 62%

Total population - 338 million

Children, military, institutionalized - 35 million

What is the unemployment rate for this economy?

2. If the money supply grows at 7%, velocity of money grows at 4% and real GDP grows at 3%, what is the inflation rate?

3. If the nominal interest rate is 9% and the inflation rate is -5%, what is the real interest rate (ractual)?

4. If lenders and borrowers expect 4% inflation and lenders require an 8% return, what will the nominal interest rate be?

1. Labor force = employed - unemployed.

labor force = 175million - unemployed.

Working or Adult population = total population - children, military, institutionalised

Adult population = 338million - 35million

adult population = 303 million.

Labor force participation rate = Labor force/adult population

62/100 = (175-unemployed)/303.

187.86 = 175 - unemployed

unemployed = 12.86million

Labor force = 12.86 + 175 = 187.86 million.

Unemployement rate = number of unemployed/labor force.

Unemployment rate = 12.86/187.86 = 6.84%.

2. The equation is (money growth) + (velocity growth) = (inflation) + (growth of real GDP).

Substituting the values, we get,

7% + 4% = inflation + 3%

Inflation = 8%.

3. The equation is Nominal interest rate - inflation = Real rate of interest.

9%-(-5%) = 14% is the real interest rate.

4. Inflation = 4% and real interest rate =8%

Nominal interest rate = Real interest + inflation.

Nominal interest rate = 8% + 4%

Nominal interest rate = 12%.

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.