Question

1. There was a recession and the construction industry has been badly affected. As a result, Henry lost his job as a construction worker. He will be considered as part of:
   1. structural unemployment
   2. cyclical unemployment
   3. seasonal unemployment
   4. frictional unemployment
      
2. When the economy is at full employment, it means:
   1. no one is unemployed.
   2. there is no cyclical unemployment.
   3. there is cyclical or frictional unemployment.
   4. there is no structural or frictional unemployment.

3. When more labor is unemployed than the amount at the natural unemployment rate, then real GDP ________ potential GDP.
   1. is equal to
   2. is less than
   3. is greater than
   4. cannot be compared to
      
4. Which of the following describe the consumer price index (CPI)? It:

1. compares the cost of the typical basket of goods consumed in period 1 to the cost of a basket of goods typically consumed in period 2.
2. compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.
3. measures the increase in the prices of the goods included in GDP.
4. is the ratio of the average price of a typical basket of goods to the cost of producing those goods.

Table 15.0

Base Year (2006)                    2013
Product	Quantity	Price	Price
Milk	50	$1.20	$1.50
Bread	100	1.00	1.10

5. Refer to Table 10. Assume the market basket for the consumer price index has two products — bread and milk — with the following values in 2006 and 2013 for price and quantity: The Consumer Price Index for 2013 equals:
   1. 118.
   2. 116.
   3. 86.
   4. 85.

6. Suppose the CPI last year is 121 and the CPI this year is 137. The CORRECT method to calculate the inflation rate is:
   1. (137 - 121)/100 = 0.16.
   2. 137 × 121 = 258.
   3. [(137 - 121)/121] × 100 = 13.2.
   4. (137/121) × 100 = 113.2.
      
7. Which of the following describe the substitution bias that exists in the calculation of CPI? It:
   1. takes into account the substitution of goods by consumers when relative prices change.
   2. takes no account of the substitution of goods by consumers when relative prices change.
   3. substitutes quality changes whenever they occur without taking account of the cost of the quality changes.
   4. substitutes relative prices for absolute prices of goods.

Answer 1

1) When there is a recession and the construction industry has been badly affected. And if Henry lost his job as a construction worker. He will be considered as part of cyclical unemployment. Cyclical unemployment occurs due to economic downfall. Structural unemployment occurs due to mismatch between the skills of workers and jobs available. Frictional unemployment occurs when individual's are in the process of searching for job. Season unemployment occurs due changes in harvest season etc. The answer is option (b).

2) When the economy is at full employment, it means that there is no cyclical unemployment. The economy will still have the natural rate of unemployment which includes structural and frictional unemployment. The answer is option (b).

3)When more labor is unemployed than the amount at the natural unemployment rate, then it means that there is cyclical and seasonal unemployment and thus real GDP will be less than the potential GDP. The answer is option (b).