Question

Exam Version B 27. The consumer price index was 225 in 2006 and 236 in 2017. The nominal interest rate during this period was 6.5 percent. What was the (approximate) real interest rate during this period? 24. When the prevailing wage in a labor market is held above the equilibrium wage, for whatever reason, A. it means the labor market will function more efficiently than it otherwise would. B. there will be a shortage of labor. C. the quantity of labor supplied will exceed the quantity of labor demanded. D. job search will be the primary explanation for any unemployment produced. A. 4.5 percent B. 1.6 percent C. 4.9 percent D. 11.4 percent 28. As long as prices are rising over time, A. the nominal interest rate exceeds the real interest rate. 25. If the CPI was 95 in 1955 and is 475 today. then $100 today purchases the same amount of goods and services as the real interest rate exceeds the nominal interest rate. B. A. S4.75 purchased in 1955. B. $20.00 purchased in 1955 C. $95.00 purchased in 1955. D. $500 purchased in 1955 C. the real interest rate is positive. D. the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time. 26. While shopping. you notice that a pair of jeans costs $200 and that a shirt costs $100. You compute the price ofjeans relative to shirts A. The dollar price of jeans and the relative price of jeans are both nominal variables. B. The dollar price of jeans and the relative price of jeans are both real variables C. The dollar price of jeans is a nominal variable; the relative price of jeans is a real variable. D. The dollar price of jeans is a real variable; the relative price of jeans is a nominal variable. 29. Ralph pays someone to mow his lawn, while Mike mows his own. Regarding these two practices, which of the following statements is correct? A. Only Ralph's payments are included in GDP B. Ralph's payments as well as the estimated value of Mike's mowing services are included in GDP. C. Neither Ralph's payments nor the estimated value of Mike's mowing services is included in GDP. D. Ralph's payments are definitely included in GDP, while the estimated value of Mike's mowing services is included in GDP only if Mike voluntarily provides his estimate of that value to the government.

Answer 1

24: C

As the market price is above the equilibrium price, the quantity supplied would be higher than the quantity demanded. Therefore, the supply of labour is higher than the demand of labour.

This creates inefficiencies in the market, high rates of unemployment. There is an oversupply of labour and not a shortage.

25: B

Calculation procedure:

СРin1955 95 100 20 * атоиnt СPltoday 475

26: C

The dollar price of jeans is a nominal variable because it simply shows the amount of money to be paid. It is a monetary value.

However, the relative price is a real variable because here we do not look at the monetary value of jeans. Instead the value of jeans is determined in terms of the number of shirts that it can exchanged for.

Hence, dollar price: Nominal

Relative price: Real

27: B

Inflation over the period = (236 - 225)/225 = 0.04888

Inflation in % = 0.0488 * 100 = 4.89

Real interest rate = Nominal interest rate - inflation = 6.5 - 4.88 =1.6

28: A

Rising prices implies that inflation is positive

Nominal interest rate = Real interest rate + inflation

As inflation is positve, it means that nominal interest rate > real interest rate

29. B

Raph's payments accounted for whereas for Mike, the imputed value of his own labor has to be calculated and then added to the GDP