3 Each of the following statements AE goes best with one sce

3. Each of the following statements (A-E) goes best with one scenario. Match them. 35 points

A) The unemployment rate is overestimated due to the underground economy.

B) The unemployment rate is underestimated due to underemployment.

C) The unemployment rate is fairly accurate.

D) The unemployment rate is overestimated due to government encouraged unemployment.

E) The unemployment rate is underestimated due to the discouraged worker effect.

Corporation X lays off 500 skilled workers when general unemployment is low.

Unemployment benefits and time of eligibility are raised while unemployment is low.

Corporation X reduces the hours for 500 unskilled workers.

Country Y has little ability to track jobs and income, and has high taxes.

Corporation X lays off 500 unskilled workers when unemployment is extremely high.

4. Calculate the real interest rate if nominal interest rate is 12% and inflation 5%. 5 pts

5. Using the information below, find the price index for year 2. 5 pts.

3 chickens @ $.95 each $ 2.85

5 lbs hamburger @ $.39 a lb $ 1.95

2 kilowatts of electricity @ $5.3 a kilowatt $10.60 YEAR 1 (base year)

16 gallons of gasoline @ $.6 a gallon $ 9.60

1 dentist visit @ $15.00 $15.00

3 chickens @ $1.25 each $ 3.75

5 lbs hamburger @ $.79 a lb $ 3.95

2 kilowatts of electricity @ $7.75 a kilowatt $15.50 YEAR 2

16 gallons of gasoline @ $1.05 a gallon $16.80

1 dentist visit @ $20 $20.00

4. Real interest rate = Nominal interest rate - Inflation

Real interest rate = 12% - 5% = 7%

5. Price index for year 2 = Cost of basket in year 2 / Cost of basket in base year x 100

= (3.75 + 3.95 + 15.50 + 16.80 + 20) / (2.85 + 1.95 + 10.60 + 9.60 + 15) x 100

= 60/40 x 100 = 150