Question

1. Country A with a civilian non-institutionalized population of 237 mil (all over age 16), has 156 mil employed and 47 mil unemployed persons, of the unemployed 5 mil is frictional and 8 mil structural.

a) What is the size of the labor force? …………………………………………

b) What is the actual unemployment rate? …………………………………….

c) What is the Cyclical unemployment? .................................................

d) What is the Natural Rate of Unemployment (NRU)? ………………………

e) Is this economy in a recession or a boom? .....................................................

f) Explain your answer to part d: .....................................................................   

2. Country A produces two goods: milk and honey. Table 1 shows country A’s output and prices during years 1-3: fill in the blanks.

e 1.	Year 1 (Base year)		Year 2		Year 3
	Price	Quantity	Price	Quantity	Price	Quantity
Milk	$3	11	$3.10	12	$4	13
Honey	$5	140	$5.50	145	$6.50	143
Nominal GDP
Real GDP
% growth in GDP compared to the previous year.

3. Table 2 shows Products X and Y in country A’s typical basket of consumer goods: fill in the blanks:

Table 2.	Year 1	Year 2: Base year	Year 3
12 units of X	Price: $2.00	Price: $1.50	Price: $2.10
50 units of Y	Price: $1.00	Price: $1.00	Price: $1.20
Total $ Value of the basket of consumer goods.
CPI
Inflation rate compared to year 1

4. Suppose your income in 2010 was $33,568.25 when the CPI measured 218.06.

Currently the CPI is 240.17. Convert your 2010 income to the current inflation adjusted dollar value. $______________________   (3 points)

5. Use the following data:

- GDP = $1,701 billion;

- Durable goods = $200 billion; nondurable goods = $350 billion; services = $600 billion; - - -- Investment + inventories + housing = $200 billion;

- Government purchases = $400 billion;

- Exports = $30 billion.

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What does import equal to? Import = $ ________________________________________            (3 points)

Answer 1

1)a) Labour force= Employed+ unemployed=156+47=203 mil

b) Unemployment rate=(unemployed/labour Force)*100=(47/203)*100=23.15%

C) cyclical unemployed=47-5-8=34 mil

Cyclical unemployment rate=(34/203)*100=16.74%

D) Natural unemployment rate= actual unemployment rate- cyclical unemployment rate=23.15-16.74=6.41%

E) because cyclical unemployment rate is positive , means there are people who are unemployed due to fluctuations of the economy. So economy is in recession.

F) Natural unemployment rate is rate of unemployment at which inflation is stable .It is sum of frictional and structural unemployment.It also referred to the average unemployment rate in long run.