1. Suppose you live in a community of 600 people where everyone is able and seeks to work. If 500 people are over 16 years old and 475 of them are employed, what is the

unemployment rate in this community? (please explain formula used in the calculation)

2. How can an increase in the rate of frictional unemployment be a positive sign for the economy?

3. What are the three major types of unemployment? What are its causes?

4. (a) What is the business cycle?

(b). Explain what is happening during each phase of the cycle with:

I. output,

II. employment

III. and inflation

5. Suppose a consumer buys 10 units of good X and 5 units of good Y every year. The following table lists the prices of goods X and Y in the years 2005-2007. Assun that these two goods constitute the typical market basket. Calculate the price indice for these years with 2005 as the base year. Comment on the inflation picture for these years. Year Good X Good Y CPI 2005 $4 $6 2006 6 7 2007 4.5 8.5