1. Bill lends Joann $1,000 for a year at a nominal interest rate of 5 %. If both
ID: 1145702 • Letter: 1
Question
1. Bill lends Joann $1,000 for a year at a nominal interest rate of 5 %. If both Bill and Joann expect the inflation rate to be 3 % next year, then the real rate of interest is
A. 15 %.
B. 8 %.
C. 2 %.
D. 2 %.
2. The following table contains information for the U.S. for 2004.
U.S. Economy:
20042004
Thousands of Persons
Civilian labor force
147,390
Civilian employment
139,248
Civilian working-age population
223,318
Compute the unemployment rate and the labor force participation rate.
A.Unemployment rate = 9.45 percent; Labor force participation rate = 66.0 percent.
B. Unemployment rate = 5.52 percent; Labor force participation rate = 66.0 percent.
C. Unemployment rate = 5.52 percent ; Labor force participation rate = 94.48 percent.
D. Unemployment rate = 3.65 percent; Labor force participation rate = 48.8 percent.
U.S. Economy:
20042004
Thousands of Persons
Civilian labor force
147,390
Civilian employment
139,248
Civilian working-age population
223,318
Explanation / Answer
1. Here we use the Fishers equation. Thus the real interest rate is 2%. The correct answer is D.
2. The correct answer is B. The labour force are all people willing and able to work. The correct answer is B.