Answer each question fully. You should strive to (1) explain the concept at hand and (2) answer the question with supporting reasoning.

• Is an increase in the unemployment rate always a bad thing for a nation? Please explain your answer.

• While unemployment is highly negatively correlated with the level of economic activity, in the real world it responds with a lag. In other words, firms do not immediately lay off workers in response to a sales decline. They wait a while before responding. Similarly, firms do not immediately hire workers when sales pick up. What do you think accounts for the lag in response time?

• If inflation rises unexpectedly by 5%, indicate for each of the following whether the economic actor is helped, hurt, or unaffected:

1. A union member with a COLA wage contract
2. Someone with a large stash of cash in a safe deposit box
3. A bank lending money at a fixed rate of interest
4. A person who is not due to receive a pay raise for another 11 months

• Over the last century, during what periods were the U.S. inflation rate highest and lowest?

Mathematical Questions

• Suppose the adult population over the age of 16 is 237.8 million and the labor force is 153.9 million (of whom 139.1 million are employed). How many people are "not in the labor force?" What are the proportions of employed, unemployed, and not in the labor force in the population?Hint: Proportions are percentages.

• Using the above data, what is the unemployment rate?

• The index number representing the price level changes from 110 to 115 in one year, and then from 115 to 120 the next year. Since the index number increases by five each year, is the inflation rate each year also five? Is the inflation rate the same each year? Explain your answer.