Question

Suppose the total number of people who are unemployed increases while the unemployment rate decreases. How is this possible?

A. This is not possible.

B. The unemployment rate will always fall as employment falls.

C. It is possible if labor force participation rates also fall.

D. It is possible provided those that lost their jobs immediately begin seeking new jobs.

In calculating the consumer price index for the​ year, Statistics Canada uses the quantities in the basket of goods and services rather than the quantities purchased during the current year. This gives a rise to:

A. quality bias.

B. substitution bias.

C. outlet bias.

D. new product bias.

Answer 1

1. This is not possible.

Unemployment = number of unemployed/ labor force.

Number of unemployed and unemployment rate are positively related. Higher the number of unemployed, higher will be the unemployment rate.

2. Substitution bias

While measuring the index, often the basket of goods and services is included rather than the actual quantities of goods purchased for consumption. For example: if prices of oranges skyrocketed, people will switch to apples who price remains constant. But this switching of products is not included while measuring the index.