Multiple choice questions (2 points each)
(a) Hector has a mortgage with a fixed nominal interest rate of 6% that he took out five years ago. Over the years, the inflation rate has crept up unexpectedly to its present level of 7%.
i. Hector is worse off as inflation increases, and the lender of his mortgage is better off.
ii. Hector is better off as inflation increases, and the lender of his mortgage is worse off.
iii. Both Hector and the lender are better off
iv. Both are worse off
(b) Due to the current slump, Melanie has been laid off from her programming job. Melanie’s unemployment can be characterized as
i. Cyclical unemployment
ii. Seasonal unemployment
iii. Frictional unemployment
iv. Structural unemployment
(c) You have just been awarded a cost-of-living increase tied to the CPI. The CPI has gone from 100 to 112 . If your salary is $20,000 per year before the increase, what will it be after the CPI increase is factored in?
i. $22,400
ii. $30,000
iii. $20,000
iv. $21,200
(d) Which of the following statements about inflation is true?
i. Inflation is a general fall in the level of prices
ii. Inflation discourages people from holding onto cash because cash loses value over time.
iii. Price stability is the situation when the overall level of prices changes rapidly
iv. When the economy is growing, inflation tends to decrease
(e) Adult population: 200 million Labor force: 150 million Employed persons: 138.75 million The unemployment rate is , and the labor force participation rate is,
i. 7%; 60.4%
ii. 0.7%; 99.3%
iii. 5.6%; 69.4%
iv. 7.5%; 75%
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