Question

13) suppose that Sally's nominal wage rises from $1,000 per week to $1,400 per week. If at the same time average prices rise 40%, how much will her real income increase? A) $400 per week B) 40%. C) $200 per week. D) 0%. 14) Suppose nominal GDP increases from $400 billion to $800 billion. If at the same time average prices double, then how much did real GDP increase? A) $0 B) $200 billion. C) $400 billion. D) $800 billion. 15) If Samantha is unemployed because a robot has replaced her job in a factory, this would be an example of A) underemployment. B) cyclical unemployment. C) frictional unemployment. D) structural unemployment. 16) if Sam is out of work for 6 months and then decides to stop looking for work and return to school, A) the size of the labor force rises. B) cyclical unemployment rises. C) frictional unemployment rises. D) the size of the labor force falls. 17) if the CPI moves from 200 to 220, then inflation is A) 0% B) 5% C) 10% D) 15% 18) Higher than anticipated inflation tends to hurt A) governments B) lenders (at fixed rates) C) everyone D) borrowers (at fixed rates) 19) According to Okun's Law, if the unemployment rate rises to 12% and the natural rate of unemployment is 4%, A) GDP will fall 24% below potential B) GDP will fall 8% below potential C) GDP will fall 16% below potential D) GDP will fall 4% below potential

Answer 1

13) Solution: 0%

Working: Rise in nominal wages: (1400-1000) / 1000 = 40%

Rise in price level = 40%

Real interest rate = Nominal interest rate - Inflation rate = 0%

　

14) Solution: $400 billion

Working: Rise in nominal wages: (800-400) / 400 = 100%

Rise in price level = 200%

Real interest rate = $800 * 100%/200% = $400 billion

　

15) Solution: structural unemployment

Explanation: The technological change causes structural unemployment

　

16) Solution: The size of the labor force would fall

Explanation: Those who stop looking for job will not be considered unemployed and no longer be part of the labor force. Consequently percentage of the labor force will decline

　

17) Solution: 10%

Working: (220 - 200) / 200 * 100 = 10%