Question

1. Using the information in this chapter, label each of the following statements true, false, or uncertain. Explain briefly. a. U.S.GDPwas32timeshigherin2014thanitwasin1960. b. When the unemployment rate is high, the participation rate is also likely to be high. c. The rate of unemployment tends to fall during expansions and rise during recessions. d. IftheJapaneseCPIiscurrentlyat108andtheU.S.CPIisat 104, then the Japanese rate of inflation is higher than the U.S. rate of inflation. e. The rate of inflation computed using the CPI is a better index of inflation than the rate of inflation computed using the GDP deflator. f. Okun’s law shows that when output growth is lower than normal, the unemployment rate tends to rise. g. Periods of negative GDP growth are called recessions. h. Whentheeconomyisfunctioningnormally,theunemploy- ment rate is zero. i. The Phillips curve is a relation between the level of prices and the level of unemployment.

Answer 1

1. True

Explanation: U.S. GDP in 1960 was $0.542 billion. In 2014, it was $17.522.

17.522/ 0.54 = 32.

Hence,

U.S. GDP was 32 times higher in 2014 than it was in 1960.

2. True

Explanation: Labour force participate rate is number of people who are either employed or are actively seeking employment. And unemployment rate is the no. Of people who are unemployed and are actively seeking job . Thus there is a positive relationship between participation rate and unemployment rate. Hence, high unemployment rate means high participation rate.

3. True

During recession, production level declines so less labour is required hence unemployment rate increases. And in case of expansion, production level increases so need for labour increases. Hence unemployment rate decline.

4. True

CPI index tells about the price level in an economy.  

Inflation rate is = (CPI(current year) - CPI (base year) )/(CPi(base year).

If say base year is 100 in both the countries, then inflation rate of USA is 4% and Japan is 8%. So Japan has higher inflation rate than the USA.