The current unemployment rate is 6 percent. If the natural rate of unemployment is 5.5 percent,...

The current unemployment rate is 6 percent. If the natural rate of unemployment is
5.5 percent, then
A. the economy is at full employment.
B. there is cyclical unemployment equal to 0.5 percent of the labor force.
C. there is frictional and structural unemployment equal to 0.5 percent of the labor
force.
D. there is cyclical unemployment equal to 5 percent of the labor force.

Which of the following groups will have their real income reduced if inflation is
greater than anticipated?
A. Borrowers who incurred debts at the beginning of the year at a nominal interest rate
based on the anticipated rate of inflation.
B. Workers whose wages were set at the beginning of the year based on the
anticipated rate of inflation.
C. Social Security pension recipients whose pensions are adjusted each year
according to the actual rate of inflation.
D. Employers who signed contracts granting workers raises for a one year period at
the beginning of the year based on the anticipated rate of inflation.

The Consumer Price Index (CPI) is currently 210 with a 1983 base year. Using the
CPI to deflate current dollars to base year dollars, the purchasing power of a
$60,000 annual income measured in base year dollars is
A. $28,571
B. $40,000
C. $60,000
D. $126,000

Expert Solution

B. there is cyclical unemployment equal to 0.5 percent of the labor force.

When the economy is below full employment, the unemployment rate is greater than the natural unemployment rate and real GDP is less than potential. Cyclical unemployment is unemployment that results when the overall demand for goods and services in an economy cannot support full employment. It occurs during periods of slow economic growth or during periods of economic contraction.

B. Workers whose wages were set at the beginning of the year based on the anticipated rate of inflation.

Whole wage is based on anticipated rate of inflation in the beginning of the year while all other benefits are part of the salary which is affected less than a person's whole wage.

D. $126,000

CPI = [Cost of Basket in t time/Cost of Basket in base year ]*100

210/100 = Cost of Basket in t time/60,000

Cost of Basket in t time = D. $126,000

Rahul Sunny answered 7 months ago

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