Econ-545 Week 6 Quiz

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 1.| Question: | (TCO F) The size of the labor force in a community is 1,000, and 850 of these folks are gainfully employed. In this community, 50 people over the age of 16 do not have a job and are not looking for work. In addition, 80 people in the community are under the age of 16. The unemployment rate is ______.|

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 | Student Answer:|  | Unemployment rate=unemployed/labor force*100 150/1000*100=15% 1000-850=150 (number of people unemployed) then divided by total labor force divided by 100|  | Instructor Explanation:| The unemployment rate is calculated by dividing the number of unemployed by the labor force.  The labor force is calculated by subtracting three things from the population (# under 16, # of institutionalized adults, and # not looking for work). In this example, you are given the size of the labor force (1,000), and you are also told that 850 are employed.  Therefore, 150 are unemployed, and the unemployment rate is simply 150/1,000 or 15%.  

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 | Points Received:| 15 of 15|
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 2.| Question: | (TCO F) Suppose nominal GDP in 2005 was $15 trillion, and in 2006 it was $16 trillion. The general price index in 2005 was 100, and in 2006 it was 103. Between 2005 and 2006, real GDP rose by what percent?|

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 | Student Answer:|  | Nominal GDP and REAL GDP must be equal in the base year.2005 15tr, price index = 100 since nominal and real GDP must be equal in the base year 15tr/1.03=16.56tr(16.56-16.00)/16.00=4% or 3.5%|  | Instructor Explanation:| You need to make use of the inflation formula for the GDP deflator here and compare results between the two years.For 2005: 100 = [$15 T / Real GDP] x 100

So, Real GDP must equal $15 T.  You could also recognize that Real GDP and nominal GDP are the same in the base year.For 2006: 103 = [$16 T / Real GDP] x 100
1.03 = [$16 T / Real GDP]
Real GDP = $16 T / 1.03
So, Real GDP must equal $15.534 T.The percentage increase in Real GDP will then be [(15.534 - 15) / 15] x 100 = (0.534 / 15) x 100 = 3.56% Therefore Real GDP increases by 3.56% between 2005 and 2006.| |

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 | Points Received:| 19 of 20|
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 3.| Question: | (TCO F) The consumer price index was 198.3 in January of 2006, and it was 202.4 in January of 2007. Therefore, the rate of inflation in 2006 was about ______.|
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 | Student Answer:|  | 202.4-198.3=4.1 4.1/198.3=.02067 or 2.07%|  | Instructor Explanation:| The rate of inflation is the rate of change of the inflation indicator, or more specifically: [(New Price Index - Old Price Index) / (Old Price Index)] x 100 In this case this equals, [(202.4 - 198.3) / 198.3] x 100 = (4.1 / 198.3) x 100 = 2.07% or approximately 2%.  

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 | Points Received:| 15 of 15|
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 4.| Question: | (TCO E) (10 points) As the U.S. dollar appreciates in value relative to the Japanese Yen, what happens to the price of U.S. goods in Japan?  What happens to the price of Japanese goods in the U.S.? (10 points) Why would a country (for example China) choose to keep their currency relatively pegged to the U.S. dollar?  If the U.S. dollar were to appreciate considerably against most currencies, what would be the effect on Chinese exports to countries other than the U.S.?|

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 | Student Answer:|  | the price of goods in Japan start going up. the price Japanese goods in US start going down. China keeps its currency pegged in order to sell their goods for a cheaper price in the US and to make the US market dependent on their product. -If dollar appreciate it will drag China's currency with it,in other words reducing China' export.|  | Instructor Explanation:| When a country's currency appreciates, it becomes more valuable versus the other currency we're comparing against.  So, in this case, it would take fewer dollars to purchase the same amount of Japanese...
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