Question

1. A movie star was paid $1 million in 1960 to do a movie. The CPI was 29.3 in 1960 and the CPI in 2005 was 195. Approximately how much did the movie star earn in 2005 dollars?
   1. $0.87 million
   2. $5.25 million
   3. $0.16 million
   4. $6.66 million
   5. None of the above
2. Suppose that the frictional unemployment rate is 3%, the natural unemployment rate is 6.5% and the cyclical unemployment rate is 2.4%. Therefore, the structural unemployment rate is _____ and the actual (current) unemployment rate is ____.
   1. 3%, 8.9%
   2. 3.5%, 8.9%
   3. 3.5%, 9.5%
   4. 5.4%, 2.4%
   5. None of the above
3. If the cyclical unemployment rate is negative, then the…
   1. Natural unemployment rate is less than the actual (current) unemployment rate in the economy.
   2. Natural unemployment rate is greater than the actual (current) unemployment rate in the economy.
   3. Structural unemployment is greater than the frictional unemployment rate.
   4. Structural unemployment is less than the frictional unemployment rate.
   5. Both a and d.
4. Suppose that the total population is 230 million, employed persons = 80 million, unemployed persons = 8 million. The unemployment rate is approximately ____ and the employment rate _____.
   1. 9.1%, Can not be determined.
   2. 10%, 90%
   3. 8.2%, 34%
   4. 11%, 38%
   5. 9.1%, 90.9%
5. A dynamic, changing economy will always
   1. Experience frictional and structural unemployment.
   2. Experience only cyclical unemployment.
   3. Have zero unemployment.
   4. Have no natural unemployment.
6. A market basket is made up of three goods: 10X, 12Y and 18Z. The prices in the base year are $1.20, $2.10, and $3.25 respectively. The prices in the current year are $1.44, $2.23, and $3.88. What is the CPI in the current year?
   1. 103
   2. 111
   3. 116
   4. 110
   5. 96

Answer 1

1. $6.66 million

Explanation: The % change in the CPI from 1960 to 2005 = (195 - 29.3)/29.3 * 100 = 165.7/29.3 * 100 = 5.66 * 100 = 566% So, the income of the movie star should also increase by 565% in the given period. So, the income should increase by 566% of $1 million = 566/100 * 1 million = $5.66 million.

So, the income in 2005 = $1 million + $5.66 = $6.66 million.

2. 3.5%, 8.9%

Explanation: Structural unemployment = natural unemployment - frictional unemployment = 6.5% - 3% = 3.5%

Actual (current) unemployment rate is = natural unemployment + cyclical unemployment = 6.5% + 2.4% = 8.9%

3. Natural unemployment rate is greater than the actual (current) unemployment rate in the economy.

Explanation: If the cyclical unemployment rate is negative, there an inflationary pressure in the economy and the economy is over employed.

4. 9.1%, 90.9%

Explanation: The unemployment rate = unemployed/labor force * 100 = unemployed / (employed + unemployed) * 100 = 8/(80 +8) * 100 = 8/88 * 100 = 1/11 * 100 = 9.1% approximately.

Employment rate = 1 - unemployment rate = 1-9.1% = 90.9%