SCENARIO INTRODUCTION

Use the information provided below to complete the questions. Total points = 100.

Suppose that data below corresponds to the small nation of Cruzville with a population of 189 people. Of the 189 residents 57 are under 16 years of age, and 11 are institutionalized adults. People in the last two categories are not considered to be in the labor force. Of the remaining 121 residents, 16 are without jobs and have given up searching for a job, 6 do not have a job, but are actively seeking work, 20 work part time, and the rest work full time. Over the years, the natural rate of unemployment has been found to be 7%. In 2014, the consumer price index (CPI) was 112, and in 2015 the CPI was 130.

CALCULATING INFLATION & UNEMPLOYMENT

5. Cruzville economists have been using 2013 as their base year to calculate inflation.

a) What is the CPI during the base year (2013)? b) What is the CPI for 2014? c) What is the CPI for 2015?(3points)

6. Calculate the rate of inflation for Cruzville between the base year (2013) and 2014? In other words, what was the rate by which prices increased between those years. Round the percentage to one decimal place; that is, 4.36% is 4.4%.(8points)

7. Calculate the rate of inflation for Cruzville between 2014 and 2015? In other words, what was the rate by which prices increased between those years. Round the percentage to one decimal place; that is, 4.36% is 4.4%.(8points)

8. How many discouraged workers does Cruzville currently have? Is this group considered to be in the Labor Force? Why or why not?(8points)

9. Calculate the unemployment rate for Cruzville. Round the percentage to one decimal place; that is, 4.36% is 4.4%.(8points)

10. Once you have calculated the current unemployment rate in Cruzville, what is the corresponding "employment rate". In other words, which proportion of the labor force is considered employed?(8points)

11. When an economy is experiencing an unemployment rate equal to the natural rate of unemployment, it is said to be at full employment. If in Cruzville, the natural rate of unemployment is 7%, what is the "full employment rate" or ratio. In other words, which proportion of the labor force is "fully employed"?(8points)

12. According to the data, is the economy of Cruzville of performing at, above or below full employment? Explain.(7points)