Chapter 19 Practice Problems

True, False, or Uncertain

Explain why each of the following statements is True, False, or Uncertain according to
economic principles. Use diagrams where appropriate. Unsupported answers would
receive no marks. It is the explanation that is important.

19-1. An increase in employment leads to a decrease in the measure unemployment rate.

19-2. If the CPI increases from 110 to 121, the inflation rate is 10%. Therefore a nominal interest
rate of 12% implies a real interest rate of 2%.

Chapter 1 Solutions

True, False, or Uncertain

19-1.

False/Uncertain.
The unemployment rate is the number of officially unemployed workers divided by the
labour force, the sum of the employed and unemployed. If the growth rate in the labour
force (from new entrants and discouraged workers returning to the labour force) is
greater than the growth rate in employment, the number of unemployed and the measured
unemployment rate will actually increase, even though employment is rising.

19-2.

True.
Inflation = (121/110) 1 = .10 = 10%. Therefore the real interest rate = 12 10 = 2%.