Question

11. Which of the following statements correctly describes the relationship between the interest rate and money demand? A. When the interest rate increases, money demand increases because interest-paying bonds become more attractive than the money balance. B. When the interest rate increases, money demand increases because interest-paying bonds become less attractive than the money balance. c. When the interest rate increases, money demand decreases because interest-paying bonds become more attractive than the money balance. D. When the interest rate increases, money demand decreases because interest-paying bonds become less attractive than the money balance. E. None of the above. 12. Suppose the number of unemployed people increases and the number of people who have jobs remains unchanged. What happens to the unemployment rate? A. The unemployment rate must decrease. B. The unemployment rate must increase. C. The unemployment rate must stay the same. D. We do not have enough information to know. 13. Suppose we only have information that the number of employed people decreased. We do not know how the number of unemployed people changed. What happens to the unemployment rate? A. The unemployment rate must increase. B. The unemployment rate must decrease. C. The unemployment rate must stay the same. D. We do not have enough information to know. Use the following information to answer questions (14)-(15). Suppose the economy consists of 100 people, 60 people are non-institutionalized civilian population where 20 people are employed, 10 are unemployed but they have stopped looking for jobs more than 4 weeks. 14. What is the labor force participation rate? A. 0.33 or 33.3% B. 0.5 or 50% C. 0.6 or 60% D. 0.66 or 66.6% E. 0.83 or 83.3% 15. What is the unemployment rate? A. 0.33 or 33.3% B. 0.5 or 50% C. 0.6 or 60% D. 0.66 or 66.6% E. 0.83 or 83.3% o

Answer 1

1 - Option D

When interest rate increases , money demand decrease . This is because the interest paying bonds become less attractive than the money balance

Money demand has inverse relation with interest rates. Hence option D will only be correct and not others.

2 - Option B

The unemployment rate must increase

This is because the number of people unemployed is increasing. Rate will decrease when unemployed people will decrease.

3 - Option D

We do not have enough information to know

For the decision to be made , it is important to know that the people who are not employed now , are in labor force or not. This cannot be seen from the statement. Hence option D will be correct

4 - Option B

0.5 or 50 percent

Labor force = 50

Total population = 100

LFPR = 50/100*100

= 50 %

People who have stopped looking for jobs will not be in labor force

5 - Option C

0.6 or 60 %

Unemployed persons = 50-20

= 30

Labor force = 50

Unemployment rate = 30/50 * 100

= 60 %