# Suppose you hear of a news report that the economy is at full employment. You have friends who have just...

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1) Suppose you hear of a news report that the economy is at full employment. You have friends who have just finished school and are searching for work, and you know of others who have lost their jobs and have joined retraining programs. Given this information, how can economy be at full employment?

2) What is the official U.S. unemployment rate for the month of September 2015? Assume the natural rate of unemployment is 4%. Compare the unemployment rate in September to the natural rate of unemployment. What accounts for the difference between the two rates?

3) Name and explain two reasons why the unemployment rate could understate the true amount of unemployment in the economy.

4) Suppose you hear nominal GDP has risen since last year. Is this enough information to ascertain whether the economy has grown over this period? Explain.

5) Suppose a market basket contains 25 jars of peanut butter, 10 jars of jelly, 30 loaves of bread, 5 pairs of shoes and 10 articles of clothing. The following table shows the price of each item in the basket in 2012, 2013, and 2014:

 Year: Jar of Peanut Butter Jar of Jelly Loaf of Bread Pair of Shoes Article of Clothing 2006 \$3.25 \$2.00 \$1.50 \$40 \$30 2007 \$3.30 \$1.85 \$1.80 \$40 \$31 2008 \$3.25 \$2.10 \$1.90 \$45 \$32

Suppose 2012 is the base year. What is the CPI in (Show your work!):

2012:

2013:

2014:

Based on your calculations above, determine the rate of inflation from:

2012 to 2013:

2013 to 2014:

6)  “Inflation is very very low. Time to Worry?” is the title of an article from CNN Money on April 19, 2013.

Question: Why worry over “very low” inflation? Explain.

• 9 years ago
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