# Week 6 Quiz

Topics: United States dollar, Inflation Pages: 6 (1810 words) Published: April 14, 2013
1.Question :
(TCO F) The size of the labor force in a community is 500, and 400 of these folks are gainfully employed. In this community, 100 people over the age of 16 do not have a job and are not looking for work. In addition, 200 people in the community are under the age of 16. The unemployment rate is ______.

Student Answer: 500 total -400 working = 100 not working. 100/500= 1/5 = 20% unemployment rate of people 16 or over. 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 (500), and you are also told that 400 are employed. Therefore, 100 are unemployed, and the unemployment rate is simply 100/500 or 20%.

2.Question :
TCO F) Suppose nominal GDP in 2005 was \$11 trillion, and in 2006 it was \$14 trillion. The general price index in 2005 was 100, and in 2006 it was 102. Between 2005 and 2006, real GDP rose by what percent?

Student Answer: 2005 GDP= 11 AND 2005 GPI = 100 2006 GDP= 14 AND 2006 GPI = 102 IN 05' 11 Trillion/100= 0.11 x 100= 11 IN 06' 14 Trillion/102= 0.1372 x 100= 13.73 [(13.73-11)/11]x 100 =(2.73/11)x100 =0.248181 x 100 =24.82% percentage the real GDP rose 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 = [\$11 T / Real GDP] x 100
So, Real GDP must equal \$11 T. You could also recognize that Real GDP and nominal GDP are the same in the base year.

For 2006:
102 = [\$14 T / Real GDP] x 100
1.02 = [\$14 T / Real GDP]
Real GDP = \$14 T / 1.02
So, Real GDP must equal \$13.725 T.

The percentage increase in Real GDP will then be [(13.725 - 11) / 11] x 100 = (2.725 / 11) x 100 = 24.77%

Therefore Real GDP increases by 24.77% between 2005 and 2006.

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 ______.

Student Answer: Rate of inflation is the 2nd year CPI - base year CPI, this difference divided by base year. 202.4 - 198.3 = 4.1 (4.1/198.3) x 100 =0.0207 x 100 =2.07% was rate of inflation for 2006. 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%.

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.?

Student Answer: When US dollar appreciates compared to Japanese yen, the US goods in Japan go up in price, as the Japan goods in US decrease in price. China has a big investment in the US. The US purchased alot of goods from China, and also borrowed money from this country. It would be be beneficial for China to pegged there currency to US, to make sure they are getting a better gain in profit. If US dollars appreciated at a greater pace than other countries, it would be harder t sell Chinese goods in other countries due to it being more expensive to purchase than usual. China sells alot because their...