1David's pay last year was $100,000. His pay this year increased to $115,000. The consumer price index increased from 100 to 115 over the same time period. What has happened to David's real income from last year to this year?

Select one:

a.David's real income is unchanged.

b.David's real income increased.

Incorrect. To figure out what happened to David's real income, you have to find the percentage increase in his nominal income and compare it to the inflation.

c.David's real income decreased.

d.It is impossible to find out what happened to David's real income with the available information.

2Frictional unemployment occurs because in a world of imperfect information, it takes ________ for people to find jobs.

Select one:

a.money

b.resources

Incorrect. While it may take resources to find a job, it is not the definition of frictional unemployment.

c.training

d.time

3Given the table above, what is the price index for 2013, with 2012 as the base year having a price index of 100 (round your answer to the nearest whole number).

Items

Quantity in Basket

2012 Price

2013 Price

Cake

3

$12.00

$13.00

Pie

4

$8.00

$10.00

Cupcake

10

$2.00

$2.50

Select one:

a.116

b.118

c.85

Incorrect. The price index = Cost of the basket in the current year (2013) / Cost of the basket in the base year (2012) x100 - not the reverse

d.186

4 In 2008 the price index was calculated at 165.2 with 2005 as the base year. In 2009 the price index increased to 181.6. What was the inflation from 2008-2009?

Select one:

a.16.4%

b.9.9%

c.9.0%

Incorrect. Make sure you divide by the earlier price index: (2008)

d.81.6%

5 In Fairwind Country, there are only 4 consumer goods or services: tourism, popcorn, carrots, and berries. Using the data in the following table, please calculate the CPI values for 2005 and 2015, using 1985 as a base year. The average family purchased the market basket indicated by the columns "Items" and "Quantity."

Items

Quantity

Year: 1985

Year: 2005

Year: 2015

Price

Amount Spent

Price

Amount Spent

Price

Amount Spent

Tourism

2

$125.00

$150.00

$200.00

Popcorn

25

$4.00

$5.00

$7.00

Carrots

10

$0.75

$2.25

$3.50

Berries

15

$1.50

$2.50

$4.00

Total

2

Select one:

a.2005: 128; 2015: 176

b.2005: 128; 2015: 138

c.2005: 137; 2015: 176

Incorrect. The price index (2005)= Cost of the basket in the current year (05) / Cost of the basket in the base year (1985) x 100 - keep 1985 as the base year for both price index.

d.2005: 216; 2015: 57

6In the far off kingdom of Viracien there is a healthy sized population of citizens over 16 years old. The last census indicated a total adult population of 5 million people. This year a recession hit and 237 thousand people were let go from their jobs and are on the hunt to find new work. Because of the recession many took early retirement and there is now a population of 1.3 million who are not working or looking for various reasons. Because of the unrest, the military of Viracein has increased its ranks and is now grown to a total of 50 thousand citizens serving the country. If Viracein uses the same calculation to find the unemployment rate, what is the country's unemployment rate?

Select one:

a.17.55%

b.6.4%

Incorrect. Don't forget to remove the military.

c.6.5%

d.4.7%

7 In the table below there are three years of a basket of retail goods. From this information calculate the price index of 1990 if the base year in 1980? (Round your answer to the nearest whole number.)

Good

Amount

1980

1985

1990

Tomatoes

25

$0.15

$0.25

$0.55

Milk

5

$1.50

$2.23

$2.95

Eggs

1

$1.00

$1.25

$1.50

Select one:

a.41

Incorrect. The price index = Cost of the basket in the current year (1990) / Cost of the basket in the base year (1980) x100 - not the reverse

b.303

c.152

d.245

8Joseph is an unemployed yard landscaping worker who is trying to find employment as he last had work seven months ago. He is now at a point where he will take any wage even if low to get money to pay the bills. He talks to businesses and landscaping companies on a daily basis but none are hiring due to an ongoing recession. How would you describe his experience with the correct economic term?

Select one:

a.cyclical unemployment

b.out of the labor force

c.labor shortage

Incorrect. There is no labor shortage, rather a surplus.

d.frictional unemployment

9 Some critics of the unemployment rate say that it under-reports the actual unemployment problem by:

Select one:

a.not including stay at home mothers.

b.overlooking people who are working in the informal (underground) economy.

c.including people who are working in the informal (underground) economy.

Incorrect. This would not result in under reporting the unemployment rate.

d.considering discouraged workers to be out of the labor force.

10 The base year for the price index is

Select one:

a.the year with the biggest increase in prices from the previous year.

b.the current year.

c.always the beginning of a decade (2010 for example)

Incorrect. The choice of a base year is arbitrary and not linked to a number choice.

d.an arbitrary year from which to measure price changes.

11 The consequences of unemployment are likely more serious in developing countries because...

Select one:

a.inflation tends to make matters worse

b.greater stigma surrounding unemployment.

c.developing countries are more likely to lack unemployment assistance programs.

d.lower labor force participation rates in developing countries compared to developed ones.

Incorrect. The labor force participation rate does not determine the unemployment rate. You could have low labor force participation and low unemployment and vice versa.