Question

1. With a nominal interest rate of 10%, the present discounted value of $200 to be received in one year isA) $90.91.B) $165.29.C) $181.82.D) $190.00.E) $220.00.

2. Suppose the Phillips curve is represented by the following equation: πt - πt-1 = 20 - 2ut. Given this information, we know that the natural rate of unemployment in this economy is
A) 10%.B) 20%.C) 6.5%.D) 5%.

3. If the nominal interest rate is 20% per year, how much money can an individual borrow today if she wants to repay $100 in one year? A) $80.00B) $83.33C) $120.00D) $78.00

4. Suppose the non-institutional civilian population is 250 million, of which 100 million are employed and 10 million are unemployed.40) Based on the information above, the unemployment rate isA) 4%.B) 6.6%.C) 9.1%.D) 10%.E) 11.1%.

b. Based on the information above, the labor force participation rate isA) 36%.B) 40%.C) 44%.D) 90.1%.E) 66%.

Answer 1

Answer 1: c

Future value = 200

Interest rate = 10%

Present value = Future Value(1+interest rate) = 200/(1+10%) = 200(1+0.1) = 181.82

Answer 2: a

The natural rate of unemployment is where πt = πt-1. Hence we have,

0 = 20 - 2ut

ut = 0.1 = 10%

Answer 3: b

Interest rate = 20%

Present value of 100 = 100(1+interest rate) = 100/(1+0.2) = 83.33

Thus she should borrow 83.33.

Answer 4: c

Unemployment rate = unemployed/(employed+unmeployed) = 10/(100+10) = 10/110 = 0.091 = 9.1%

Answer 5: c

Labour force participation rate = employed+unemployed/non civilian population = (10+100)/250 = 110/250 = 44%

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