Question

1. If more spouses decide to quit their jobs to stay home with their young children the supply of labor will ______ causing the average wage to _______.

a.) Increase : Decrease

b.) Decrease : Decrease

c.) Decrease : Increase

d.) Increase : Increase

2. All else the same, as the baby boom generation (born 1946 - 1964) begins to retire, the rate of unemployment will decline. T/F

3. The purchasing power of the $20 bill increases over time due to inflation. T/F

4. The inflation rate between the years 2000 and 2001 was 4.12%. Based on this information, a basket of goods that cost $149 in the year 2000 would now cost how much in the year 2001?

Answer 1

(1) (c)

As more women quit the labor force, supply of labor decreases. Labor supply curve shifts leftward, increasing wage rate.

(2) F

The more the number of people retiring, the lower the labor force. So unemployment rate (= Number unemployed / Labor force) will increase.

(3) F

Inflation decreases purchasing power of money over time.

(4) Cost in 2001 = Cost in 2000 x (1 + Inflation rate) = $149 x 1.0412 = $155.14