Question 11(3 points)

Assume nominal GDP is the total value of transactions in the economy, and equals $1200.The nominal money supply equals $300.Velocity equals

a

$300

b

$400

c

$900'

d

$1500

e

4

Question 12(3 points)

Over the long run, real GDP grows 3% per year and the nominal money supply grows 4% per year.According to the quantity theory of money, the inflation rate over the long run will equal

a

-1%

b

0%

c

1%

d

3%

e

4%

f

7%

Question 13(3 points)

In the quantity theory of money, a nation's central bank can achieve a zero inflation rate by:

a

setting the growth rate of real GDP to the rate of technological progress.

b

setting the growth rate of the money supply to zero.

c

setting the real interest rate to zero.

d

setting the growth rate of the money supply to the growth rate of real GDP.

Question 14(3 points)

Suppose the long-run average growth rate of real GDP decreases from 3% to 2%, a decrease of one percentage point.

According to the quantity theory of money, and assuming the central bank does not change monetary policy, what will happen to the long-run average inflation rate?

a

It will also decrease by one percentage point.

b

It will increase by one percentage point.

c

It will not change, because the rate of money growth has not changed.

d

The price level is constant because of the sticky price assumption.

Use this information to answer the following three questions:

The labor force consists of 2000 workers, and this number does not change over time.

Every month,

• 1% (or 0.01) of employed workers lose their jobs
• 9% (or 0.09) of unemployed workers find jobs.

On January 1, 2022, 1500 workers have jobs.

Question 15(3 points)

How many workers are unemployed on January 1, 2022?Give your answer and show your work.

Your answer:

Question 16(3 points)

How many of the workers who are employed January 1, 2022 will lose their jobs that month?Give your answer and show your work.

Your answer:

Question 17(6 points)

On February 1, 2022, how many workers will be unemployed?Give your answer and show your work.

Your answer:

The next two questions are short-answer questions and they go together.

Question 18(6 points)

The market for auto mechanics in Kenosha is perfectly competitive, with many employers and many workers.None of them have enough market share to influence wages.

The equilbrium wage is $40 per hour.

You own and manage one of these businesses.Explain two reasons why you might pay your workers $45 instead of $40 per hour.(Your answer should be in the context of material covered in this course)

Your answer:

Question 19(4 points)

(continued from previous question)

If the owners of the other auto repair shops think the way you do, then all of them will also pay their workers $45 instead of $40.In this scenario, is there unemployment?Why or why not?

Your answer:

The next two questions are short-answer questions and they go together.

Question 20(5 points)

In your own words, summarize the textbook's explanation of how labor unions contribute to the natural rate of unemployment.

Your answer: