Sherisse’ Woodley
C. Williams
Macroeconomics
23 July 2013
Homework Set 10

1. List the four categories of unemployment. * Fictional * Structural * Cyclical * Seasonal

2. What measurement tool constructed by the Bureau of Labor Statistics is used to measure changes in the level of prices of goods and services?
Consumer Price Index (CPI)

3. Who would benefit from unanticipated inflation –lenders or borrowers? Why? Who would benefits from anticipated inflation –lenders, borrowers, or neither? Why?
Lenders will benefit from unanticipated inflation because they can rise interest and make more money. Bowers will benefit from anticipated inflation because they had time to plan.

4. If there were 1.5
Decreased. Willing to accept 4 lowest interest rate.

10. If GDP and the rate of inflation increased and the unemployment rate decreased, what phase of the business cycle would we assume the economy is in?
Recession

Answer Key
Below are the correct answers to the mod 2 hw set for you to compare to your own:

1. The four categories of unemployment are frictional, structural, seasonal, and cyclical.
2. The consumer price index (CPI) is the measurement tool used to measure changes in price levels.
3. Borrowers would benefit from unanticipated inflation because the nominal interest rates for their loans would be too low to account for the actual level of inflation. As a result the real interest rate that borrowers would be forced to pay would decrease. No one would benefit from anticipated inflation because both lenders and borrowers could agree to a nominal interest rate that would account for the level of inflation.
4. The unemployment rate would be 8.8% and the labor force participation rate would be 85%.
5. The rate of inflation in the medical industry was 4.3% in the year 2000. In comparison, the rate of inflation across the economy was 3.4%.
6. The real interest rate will be 3.4%.
7. Cutbacks in these programs would cause an increase in the labor force participation rate and a decrease in the unemployment rate. However, such cutbacks would cause an increase in the level of income inequality. It