S. Payesteh ECO 203

PROBLEM SET #3

1. When the CPI is based on 2000 prices, a consumer price index of 265 in year 2002 means:

a. prices of consumer goods have gone up by 2.65 times

b. what cost $100 in 2000 cost $265 in 2002

c. prices of consumer goods have more than doubled

d. all of the above

e. none of the above

2. Deflation refers to declines in the:

a. rate of inflation

b. price level

c. unemployment rate

d. real GDP

3. The unemployment rate is calculated as a ratio of the number of unemployed workers to:

a. total employment

b. the total population

c. labor force

Please answer questions 4-6 based on the following data:

Consider a simple economy producing only three goods - beer, pretzels and tomatoes. The price and output data are as below:

2000 2002

P Q P Q

Beer 1 100 3 100

Pretzels 3 300 2 400

Tomatoes 3 200 5 300

4. What is real GDP in 2000, if 2000 is the base year?

a. 2600 d. 1600

b. 1800 e. none of the above

c. 2200

5. What is the inflation rate in 2002 using the CPI concept? (2000 = base year)

a. 10.75% c. 28.75%

b. 18.75% d. none of the above

6. What is the inflation rate in 2002 using the GDP deflator concept?

(2000 = base year)

a. 10.18% d. 18.75%

b. 15.18% e. none of the above

c. 18.18%

7. In the first quarter of 1983, nominal GDP was $3,311 billion and real GDP was $1,535 billion, according to preliminary estimates. These estimates suggest that in the first quarter of 1983, the value of the:

a. CPI was 215 c. GDP deflator was 215

b. CPI was 93 d. GDP deflator was 93

8. A worker loses his job due to automation because his skills are no longer in demand. This is referred to as:

a. frictional unemployment c. cyclical unemployment

b. structural unemployment d. disguised unemployment

9. Eric Smith is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Smith will be considered as:

a. employed

b. secularly unemployed

c. frictionally unemployed

d. cyclically unemployed