Economics Quiz

1. The size of the labor force in a community is 1,000, and 850 of these folks are gainfully employed. In this community, 50 people over the age of 16 do not have a job, and are not looking for work. In addition, 80 people in the community are under the age of 16. The unemployment rate is: 

Unemployment only considers those of working age who are actively looking for work. Therefore, of the 150 people not working, 130 of them would not be counted. The remaining 20 would be unemployed. Out of the workforce of 870, therefore, the unemployment rate would be 20/870 = 2.3% 

2. Suppose nominal GDP in 2005 was $12 trillion and in 2006 it was $14 trillion.  The general price index in 2005 was 100 and in 2006 it was 104.  Between 2005 and 2006 real GDP rose by what percent? 

Since we're using 2005 as a basis year, the nominal and real GDP are the same for that year. A price index calculated as the ratio nominal gross domestic product to real gross domestic product. Therefore we have for 2006, 14 trillion = 1.04 x real GDP. We an solve for real GDP: 

14 trillion/1.04 = 13.46 trillion 

This enables us to calculate the real GDP growth rate which would be (13.46 trillion - $12 trillion)/$12 trillion= 12.2%. 

3. The consumer price index was 190.7 in January of 2005, and it was 198.3 in January of 2006.  Therefore, the rate of inflation in 2005 was about: 

We subtract the first year's CPI from the second year's, and divide by the first year's to find the percent change:

198.3-190.7/ 190.7 = 3.99% 

4  Part a. As the U.S. dollar appreciates in value relative to the Japanese Yen, what happens to the price of U.S. goods in Japan?  What happens to the price of Japanese goods in the U.S.? 

When the dollar appreciates, it takes more yen to buy one dollar. The price of US goods therefore increases in Japan. The price of Japanese goods declines in the US. 

Part b. Why would a country (for example China) choose to keep their currency relatively pegged to the...