Exam 1 Review Session

Chapters 1, 2, 3, 6, 7, 8, 9

Click “Generate New Numbers” in any section for a fresh version of that problem, work it out on paper, then click “Show solution” to check your answer. You can regenerate and retry as many times as you want. Topics are in the same order as the Study Guide.

randInt = (min, max) => Math.floor(Math.random() * (max - min + 1)) + min

Chapter 1: The Budget Line, the PPF, and Factors of Production

viewof seedBL = Inputs.button("Generate New Numbers", {value: 0, reduce: x => x + 1})

paramsBL = {
  seedBL;
  const Px = randInt(4, 12);
  const Py = randInt(4, 12);
  const maxX = randInt(10, 30);
  const I = Px * maxX;
  const maxY = Math.round((I / Py) * 10) / 10;
  const slope = Math.round((-Px / Py) * 100) / 100;
  const xTest = randInt(2, maxX - 1);
  const yTest = randInt(2, Math.max(Math.round(maxY) - 1, 2));
  const costTest = Px * xTest + Py * yTest;
  return { Px, Py, maxX, I, maxY, slope, xTest, yTest, costTest };
}

md`A consumer has $${paramsBL.I} to spend on two goods: X (price $${paramsBL.Px} each) and Y
(price $${paramsBL.Py} each).

**a)** If the consumer spends everything on X, how many units of X can they buy?

<details><summary>Show solution</summary>

$${paramsBL.I} / $${paramsBL.Px} = ${paramsBL.maxX} units of X.

</details>

**b)** If the consumer spends everything on Y instead, how many units of Y can they buy?

<details><summary>Show solution</summary>

$${paramsBL.I} / $${paramsBL.Py} ≈ ${paramsBL.maxY} units of Y.

</details>

**c)** What is the slope of this consumer's budget line, and what does it represent
economically?

<details><summary>Show solution</summary>

Slope = −Px/Py = −${paramsBL.Px}/${paramsBL.Py} ≈ ${paramsBL.slope}. It represents the
rate at which the consumer must give up Y to get one more unit of X, the opportunity cost of X
in terms of Y, given these prices.

</details>

**d)** Can this consumer afford ${paramsBL.xTest} units of X and ${paramsBL.yTest} units of Y at
the same time?

<details><summary>Show solution</summary>

Cost = ${paramsBL.Px}(${paramsBL.xTest}) + ${paramsBL.Py}(${paramsBL.yTest}) =
$${paramsBL.costTest}. ${
  paramsBL.costTest < paramsBL.I
    ? `Since this is less than $${paramsBL.I}, the bundle is **attainable**, with money left over.`
    : paramsBL.costTest === paramsBL.I
      ? `Since this equals exactly $${paramsBL.I}, the bundle sits **exactly on the budget line**.`
      : `Since this exceeds $${paramsBL.I}, the bundle is **unattainable**.`
}

</details>`

viewof seedPPF = Inputs.button("Generate New Numbers", {value: 0, reduce: x => x + 1})

paramsPPF = {
  seedPPF;
  const step = randInt(4, 10);
  const c1 = randInt(1, 4);
  const c2 = c1 + randInt(1, 4);
  const B0 = randInt(30, 60);
  const B1 = B0 - c1;
  const B2 = B1 - c2;
  return { step, c1, c2, B0, B1, B2 };
}

md`A country can produce Tents or Canoes. Its PPF passes through these points:

| Point | Tents | Canoes |
|---|---:|---:|
| A | 0 | ${paramsPPF.B0} |
| B | ${paramsPPF.step} | ${paramsPPF.B1} |
| C | ${paramsPPF.step * 2} | ${paramsPPF.B2} |

**a)** Moving from point A to point B, how many Canoes does the country give up in order to make
${paramsPPF.step} more Tents?

<details><summary>Show solution</summary>

${paramsPPF.B0} − ${paramsPPF.B1} = ${paramsPPF.c1} Canoes.

</details>

**b)** Moving from point B to point C, how many Canoes does the country give up this time?

<details><summary>Show solution</summary>

${paramsPPF.B1} − ${paramsPPF.B2} = ${paramsPPF.c2} Canoes.

</details>

**c)** Your answers to (a) and (b) aren't the same. What's going on, economically, and what is
this pattern called?

<details><summary>Show solution</summary>

The cost per step rises (${paramsPPF.c1} Canoes, then ${paramsPPF.c2} Canoes). This is the law
of increasing opportunity cost: resources aren't equally well suited to producing both goods, so
as more resources shift toward Tents, the ones reassigned are progressively less suited to Tents
(and more suited to Canoes), raising the cost of each additional Tent.

</details>

**d)** A new fishing-net material is invented that only helps build Canoes, it does nothing for
Tent-making. Describe what happens to this country's PPF.

<details><summary>Show solution</summary>

The Canoe-axis intercept rises (more Canoes possible if all resources go to Canoes). The
Tent-axis intercept is unchanged, since the new material doesn't touch Tent production. The PPF
pivots outward, anchored at the Tent-axis endpoint.

</details>

**e)** Now instead, imagine a general improvement, better transportation, say, that helps the
country produce *both* Tents and Canoes more efficiently. How would the resulting shift in the
PPF look different from part (d)?

<details><summary>Show solution</summary>

Both axis intercepts would rise together: the entire curve shifts outward, rather than pivoting
from one fixed point. This is the more typical picture of general economic growth, more of
*everything* is attainable, not just more of one good.

</details>`

viewof seedFOP = Inputs.button("Generate New Numbers", {value: 0, reduce: x => x + 1})

paramsFOP = {
  seedFOP;
  const pool = [
    { item: "A delivery truck", cat: "Capital" },
    { item: "A factory assembly line", cat: "Capital" },
    { item: "An accountant's work hours", cat: "Labor" },
    { item: "A plot of farmland", cat: "Land" },
    { item: "An oil deposit", cat: "Land" },
    { item: "An entrepreneur's willingness to risk her savings on a new business", cat: "Entrepreneurial ability" },
    { item: "A barista's shift at a coffee shop", cat: "Labor" },
    { item: "A shipping container", cat: "Capital" },
    { item: "A fishing lake", cat: "Land" },
    { item: "A founder's decision to combine resources into a new company", cat: "Entrepreneurial ability" },
    { item: "A software engineer's coding skills", cat: "Labor" },
    { item: "A patch of forest used for lumber", cat: "Land" },
    { item: "A 3D printer on a factory floor", cat: "Capital" }
  ];
  const chosen = [];
  const used = new Set();
  while (chosen.length < 4) {
    const idx = randInt(0, pool.length - 1);
    if (!used.has(idx)) {
      used.add(idx);
      chosen.push(pool[idx]);
    }
  }
  return { chosen };
}

md`**Factors of production.** Classify each item below as Land, Labor, Capital, or
Entrepreneurial Ability:

${paramsFOP.chosen.map((x, i) => `${i + 1}. ${x.item}`).join("\n")}

<details><summary>Show solution</summary>

${paramsFOP.chosen.map((x, i) => `${i + 1}. ${x.item}, **${x.cat}**`).join("\n")}

</details>`

Chapter 2: Self-Interest and the Least-Cost Production Method

viewof seedSI = Inputs.button("Generate New Numbers", {value: 0, reduce: x => x + 1})

paramsSI = {
  seedSI;
  const goods = ["bubble tea shops", "electric scooter rentals", "artisanal candle makers", "home espresso machines", "pickleball equipment", "meal-kit subscription services"];
  const good = goods[randInt(0, goods.length - 1)];
  const rising = randInt(0, 1) === 0;
  return { good, rising };
}

md`Profits among ${paramsSI.good} have been **${paramsSI.rising ? "rising sharply" : "falling sharply"}** over the past year.

**a)** According to the market system's profit signal, what does this tell us about how
consumers value this good relative to what it costs to produce?

<details><summary>Show solution</summary>

${paramsSI.rising
  ? `Rising profit signals that consumers value this good **more** than it currently costs to produce, a signal pulling more resources into the industry.`
  : `Falling profit signals that consumers value this good **less**, relative to its cost, than other uses for those same resources, a signal pushing resources out of the industry.`
}

</details>

**b)** What would you expect to happen to the number of firms in this industry over the next few
years? Why does *self-interest*, rather than a government directive, drive this outcome?

<details><summary>Show solution</summary>

${paramsSI.rising
  ? `More firms should **enter**, drawn in by the profit opportunity, which expands supply. No one has to order this to happen, firms pursuing their own self-interest respond directly to the price and profit signal.`
  : `Firms should **exit** or scale back, redirecting their resources toward more profitable uses. Again, this happens through self-interest responding to the signal, not because anyone planned it centrally.`
}

</details>`

viewof seedLC = Inputs.button("Generate New Numbers", {value: 0, reduce: x => x + 1})

paramsLC = {
  seedLC;
  const w1 = randInt(2, 4);
  const m1 = randInt(4, 7);
  const w2 = randInt(6, 9);
  const m2 = randInt(1, 3);
  const wageLow = randInt(15, 25);
  const rental = randInt(30, 45);
  const wageHigh = wageLow + randInt(10, 20);
  const cost1Low = w1 * wageLow + m1 * rental;
  const cost2Low = w2 * wageLow + m2 * rental;
  const cost1High = w1 * wageHigh + m1 * rental;
  const cost2High = w2 * wageHigh + m2 * rental;
  const cheapLow = cost1Low < cost2Low ? "Method 1" : "Method 2";
  const cheapHigh = cost1High < cost2High ? "Method 1" : "Method 2";
  return { w1, m1, w2, m2, wageLow, rental, wageHigh, cost1Low, cost2Low, cost1High, cost2High, cheapLow, cheapHigh };
}

md`A firm can build its product with **Method 1** (${paramsLC.w1} workers and ${paramsLC.m1}
machines) or **Method 2** (${paramsLC.w2} workers and ${paramsLC.m2} machines).

**a)** Workers cost $${paramsLC.wageLow} per day and machines rent for
$${paramsLC.rental} per day. Which method costs the firm less overall?

<details><summary>Show solution</summary>

Method 1 = ${paramsLC.w1}(${paramsLC.wageLow}) + ${paramsLC.m1}(${paramsLC.rental}) =
$${paramsLC.cost1Low}. Method 2 = ${paramsLC.w2}(${paramsLC.wageLow}) +
${paramsLC.m2}(${paramsLC.rental}) = $${paramsLC.cost2Low}. **${paramsLC.cheapLow}** is
cheaper.

</details>

**b)** Workers get a raise, now costing $${paramsLC.wageHigh} per day (machine rental is
unchanged). Recheck both methods. Does the cheaper option change, and why would that make sense
given which method uses more workers?

<details><summary>Show solution</summary>

Method 1 = ${paramsLC.w1}(${paramsLC.wageHigh}) + ${paramsLC.m1}(${paramsLC.rental}) =
$${paramsLC.cost1High}. Method 2 = ${paramsLC.w2}(${paramsLC.wageHigh}) +
${paramsLC.m2}(${paramsLC.rental}) = $${paramsLC.cost2High}. **${paramsLC.cheapHigh}** is now
cheaper. Method 2 relies on more workers, so as wages rise relative to machine rental, the more
capital-intensive Method 1 becomes relatively more attractive.

</details>`

Chapter 3: Supply and Demand

md`**Warm-up.** In your own words: why does the law of demand say quantity demanded falls as
price rises? What does the demand curve's downward slope represent?

<details><summary>Show solution</summary>

As a good's price rises, it becomes more expensive relative to substitutes, and buyers'
purchasing power effectively shrinks, so they buy less of it (and more of cheaper alternatives).
The downward-sloping demand curve is a picture of this: price and quantity demanded move in
opposite directions, holding everything else about the market fixed.

</details>`

viewof seedSD = Inputs.button("Generate New Numbers", {value: 0, reduce: x => x + 1})

paramsSD = {
  seedSD;
  const Pstar = randInt(8, 40);
  const Qstar = randInt(60, 180);
  const b = randInt(2, 6);
  const d = randInt(2, 6);
  const a = Qstar + b * Pstar;
  const c = Qstar - d * Pstar;
  const testOffset = randInt(2, 8);
  const testBelow = randInt(0, 1) === 0;
  const testP = testBelow ? Pstar - testOffset : Pstar + testOffset;
  const QdTest = a - b * testP;
  const QsTest = c + d * testP;
  const k = randInt(2, 6);
  const cNew = c - (b + d) * k;
  const PnewS = Pstar + k;
  const QnewS = Qstar - b * k;
  const j = randInt(2, 6);
  const aNew = a + (b + d) * j;
  const PnewD = Pstar + j;
  const QnewD = Qstar + d * j;
  const floorOffset = randInt(3, 8);
  const floorP = Pstar + floorOffset;
  const QdFloor = a - b * floorP;
  const QsFloor = c + d * floorP;
  return { Pstar, Qstar, a, b, c, d, testP, QdTest, QsTest, cNew, PnewS, QnewS, aNew, PnewD, QnewD, floorP, QdFloor, QsFloor };
}

md`A market has:

Qd = ${paramsSD.a} − ${paramsSD.b}P

Qs = ${paramsSD.c} + ${paramsSD.d}P

**a)** Find the price and quantity where this market clears, where quantity demanded equals
quantity supplied.

<details><summary>Show solution</summary>

Setting Qd = Qs: ${paramsSD.a} − ${paramsSD.b}P = ${paramsSD.c} + ${paramsSD.d}P, so P =
$${paramsSD.Pstar} and Q = ${paramsSD.Qstar}.

</details>

**b)** If the price were instead stuck at $${paramsSD.testP}, how much would buyers want to
buy and how much would sellers want to sell? Would this leave a shortage or a surplus, and how
big?

<details><summary>Show solution</summary>

Qd = ${paramsSD.QdTest}, Qs = ${paramsSD.QsTest}. ${
  paramsSD.QsTest > paramsSD.QdTest
    ? `Sellers want to sell more than buyers want to buy, a **surplus** of ${paramsSD.QsTest - paramsSD.QdTest} units.`
    : `Buyers want to buy more than sellers want to sell, a **shortage** of ${paramsSD.QdTest - paramsSD.QsTest} units.`
}

</details>

**c)** Production costs rise, changing the supply relationship to Qs = ${paramsSD.cNew} +
${paramsSD.d}P (demand is unaffected). Find the new market-clearing price and quantity. Has the
supply curve shifted, or has the market just moved along it? What about demand?

<details><summary>Show solution</summary>

New equilibrium: P = $${paramsSD.PnewS}, Q = ${paramsSD.QnewS}. The cost increase changes
the supply relationship itself, a **shift of the supply curve**. Demand never changed, only the
price did, so that's a **movement along** the demand curve.

</details>

**d)** Starting over from the *original* supply curve, suppose buyer demand instead changes to
Qd = ${paramsSD.aNew} − ${paramsSD.b}P. Find the new market-clearing price and quantity. Which
curve shifted, and which one just saw a movement along it this time?

<details><summary>Show solution</summary>

New equilibrium: P = $${paramsSD.PnewD}, Q = ${paramsSD.QnewD}. This time it's a **shift
of the demand curve**, while supply is unchanged, so that's a **movement along** the supply
curve.

</details>

**e)** Instead of a cost change, suppose the government sets a *price floor* at
$${paramsSD.floorP} (above the original equilibrium price), using the *original* supply and
demand curves. How much would be demanded and how much would be supplied at that price? Is there
a shortage or a surplus?

<details><summary>Show solution</summary>

Qd = ${paramsSD.QdFloor}, Qs = ${paramsSD.QsFloor}. Since Qs > Qd, there's a
**surplus** of ${paramsSD.QsFloor - paramsSD.QdFloor} units. This is exactly why price floors
(like a minimum wage) tend to create surpluses, unsold goods, or unemployed workers, rather than
shortages.

</details>`

Chapter 6: Loanable Funds

viewof seedLF = Inputs.button("Generate New Numbers", {value: 0, reduce: x => x + 1})

paramsLF = {
  seedLF;
  const Rstar = randInt(2, 8);
  const isBelow = randInt(0, 1) === 0;
  const heldR = isBelow ? Rstar - randInt(1, 3) : Rstar + randInt(1, 3);
  return { Rstar, heldR, isBelow };
}

md`The market for loanable funds clears at a real interest rate of ${paramsLF.Rstar} percent.
Suppose a regulation instead pins the rate at ${paramsLF.heldR} percent.

**a)** Is the regulated rate above or below where the market would naturally settle?

<details><summary>Show solution</summary>

${paramsLF.heldR} percent is **${paramsLF.isBelow ? "below" : "above"}** the market-clearing
rate of ${paramsLF.Rstar} percent.

</details>

**b)** At ${paramsLF.heldR} percent, do savers and borrowers end up with a shortage or a surplus
of funds? If the regulation were lifted, which way would the rate move?

<details><summary>Show solution</summary>

${paramsLF.isBelow
  ? "Below equilibrium, borrowers want more funds than savers are offering, a **shortage**. Freed up, the rate would **rise** back toward equilibrium."
  : "Above equilibrium, savers are offering more funds than borrowers want, a **surplus**. Freed up, the rate would **fall** back toward equilibrium."
}

</details>`

viewof seedINV = Inputs.button("Generate New Numbers", {value: 0, reduce: x => x + 1})

paramsINV = {
  seedINV;
  const pool = [
    { item: "A company builds a new factory", cat: "Economic investment" },
    { item: "An investor buys existing shares of a company's stock on the stock market", cat: "Not economic investment" },
    { item: "A bakery purchases a new industrial oven", cat: "Economic investment" },
    { item: "A family buys a previously-owned house", cat: "Not economic investment" },
    { item: "A city builds a new bridge", cat: "Economic investment" },
    { item: "A retiree buys government bonds", cat: "Not economic investment" },
    { item: "A farmer buys a brand-new tractor", cat: "Economic investment" },
    { item: "A trader buys cryptocurrency", cat: "Not economic investment" },
    { item: "A software company buys new servers", cat: "Economic investment" },
    { item: "A collector buys a rare trading card hoping it appreciates in value", cat: "Not economic investment" }
  ];
  const chosen = [];
  const used = new Set();
  while (chosen.length < 3) {
    const idx = randInt(0, pool.length - 1);
    if (!used.has(idx)) {
      used.add(idx);
      chosen.push(pool[idx]);
    }
  }
  return { chosen };
}

md`**The economist's "investment" vs. the everyday meaning.** For each scenario below, say
whether it counts as *economic investment* (spending on new capital goods) or not (just a
transfer of an asset that already exists):

${paramsINV.chosen.map((x, i) => `${i + 1}. ${x.item}`).join("\n")}

<details><summary>Show solution</summary>

${paramsINV.chosen.map((x, i) => `${i + 1}. ${x.item}, **${x.cat}**`).join("\n")}

</details>`

Chapter 7: GDP, Real GDP, and Per Capita

viewof seedGDP = Inputs.button("Generate New Numbers", {value: 0, reduce: x => x + 1})

paramsGDP = {
  seedGDP;
  const C = randInt(60, 120) * 10;
  const Ig = randInt(10, 25) * 10;
  const G = randInt(15, 30) * 10;
  const X = randInt(6, 15) * 10;
  const M = randInt(8, 18) * 10;
  const Xn = X - M;
  const nominal = C + Ig + G + Xn;
  const indexOptions = [100, 102, 104, 105, 108, 110, 120];
  const index = indexOptions[randInt(0, indexOptions.length - 1)];
  const real = Math.round((nominal / (index / 100)) * 100) / 100;
  const population = randInt(20, 60);
  const perCapita = Math.round((real / population) * 1000) / 1000;
  return { C, Ig, G, X, M, Xn, nominal, index, real, population, perCapita };
}

md`This year, a country's spending adds up to: C = $${paramsGDP.C}B, Ig =
$${paramsGDP.Ig}B, G = $${paramsGDP.G}B, exports of $${paramsGDP.X}B, and imports of
$${paramsGDP.M}B. The GDP price index is ${paramsGDP.index} (base year = 100), and the
population is ${paramsGDP.population} million.

**a)** Find net exports, then use the expenditure approach to find nominal GDP.

<details><summary>Show solution</summary>

Net exports = ${paramsGDP.X} − ${paramsGDP.M} = $${paramsGDP.Xn}B. Nominal GDP =
${paramsGDP.C} + ${paramsGDP.Ig} + ${paramsGDP.G} + (${paramsGDP.Xn}) =
$${paramsGDP.nominal}B.

</details>

**b)** Strip out the effect of rising prices to find real GDP.

<details><summary>Show solution</summary>

Real GDP = ${paramsGDP.nominal} / (${paramsGDP.index}/100) ≈ $${paramsGDP.real}B.

</details>

**c)** Spread that real output across the population. What's real GDP per person?

<details><summary>Show solution</summary>

Real GDP per capita = ${paramsGDP.real}/${paramsGDP.population} ≈
$${paramsGDP.perCapita} thousand per person.

</details>

**d)** Next year, total real GDP doesn't change at all, but the population grows. What happens
to real GDP per capita, and why?

<details><summary>Show solution</summary>

It **falls**: the same total output now has to stretch across more people. This is exactly why
total growth and per-capita growth can tell different stories.

</details>`

Chapter 8: The Rule of 70

viewof seedR70 = Inputs.button("Generate New Numbers", {value: 0, reduce: x => x + 1})

paramsR70 = {
  seedR70;
  const rateA = randInt(10, 50) / 10;
  const rateB = randInt(10, 50) / 10;
  const yearsA = Math.round((70 / rateA) * 10) / 10;
  const yearsB = Math.round((70 / rateB) * 10) / 10;
  return { rateA, rateB, yearsA, yearsB };
}

md`**a)** If a country's income per person grows at ${paramsR70.rateA} percent every year,
roughly how long until it doubles? (Use the Rule of 70 shortcut.)

<details><summary>Show solution</summary>

70 / ${paramsR70.rateA} ≈ ${paramsR70.yearsA} years.

</details>

**b)** A neighboring country grows more slowly, at just ${paramsR70.rateB} percent a year.
Roughly how long for its income per person to double?

<details><summary>Show solution</summary>

70 / ${paramsR70.rateB} ≈ ${paramsR70.yearsB} years.

</details>`

viewof seedGA = Inputs.button("Generate New Numbers", {value: 0, reduce: x => x + 1})

paramsGA = {
  seedGA;
  const hours = Math.round(randInt(-10, 20)) / 10;
  const productivity = Math.round(randInt(5, 35)) / 10;
  const growth = Math.round((hours + productivity) * 100) / 100;
  return { hours, productivity, growth };
}

md`**Growth accounting.** In a given year, total hours worked in an economy change by
${paramsGA.hours} percent, and labor productivity (output per hour) grows by
${paramsGA.productivity} percent.

**a)** Approximately what is the growth rate of real GDP this year?

<details><summary>Show solution</summary>

Real GDP growth ≈ growth in hours worked + growth in productivity =
${paramsGA.hours} + ${paramsGA.productivity} = ${paramsGA.growth} percent.

</details>

**b)** ${paramsGA.hours < 0
  ? `Hours worked actually *fell* here. What does that tell you about what's really driving this economy's growth?`
  : `Suppose hours worked had instead been exactly zero, with productivity growth unchanged. Would real GDP growth be higher, lower, or the same as what you found in part (a)?`
}

<details><summary>Show solution</summary>

${paramsGA.hours < 0
  ? `Since hours worked actually fell, hours are *subtracting* from growth, not adding to it. Any real GDP growth here is coming entirely from rising productivity (output per hour), and then some, just to offset the drop in hours.`
  : `It would be **${paramsGA.hours > 0 ? "lower" : "the same"}**, since hours worked contributed ${paramsGA.hours} percentage points to the growth rate found in part (a).`
}

</details>`

Chapter 9: Unemployment and Inflation

Unemployment

viewof seedUE = Inputs.button("Generate New Numbers", {value: 0, reduce: x => x + 1})

paramsUE = {
  seedUE;
  const employed = randInt(40, 70) * 1000;
  const unemployed = randInt(2, 6) * 1000;
  const notInLF = randInt(15, 30) * 1000;
  const laborForce = employed + unemployed;
  const population = laborForce + notInLF;
  const urRate = Math.round((unemployed / laborForce) * 10000) / 100;
  const lfpr = Math.round((laborForce / population) * 10000) / 100;
  return { employed, unemployed, notInLF, laborForce, population, urRate, lfpr };
}

md`A region has ${paramsUE.population.toLocaleString()} adults: ${paramsUE.employed.toLocaleString()}
have jobs, ${paramsUE.unemployed.toLocaleString()} don't have a job but are actively looking, and
${paramsUE.notInLF.toLocaleString()} are retired, in school, or otherwise not looking for work.

**a)** How many of these adults actually count as part of the labor force?

<details><summary>Show solution</summary>

Labor force = ${paramsUE.employed.toLocaleString()} + ${paramsUE.unemployed.toLocaleString()} =
${paramsUE.laborForce.toLocaleString()}.

</details>

**b)** What share of the labor force is unemployed?

<details><summary>Show solution</summary>

Unemployment rate = ${paramsUE.unemployed.toLocaleString()}/${paramsUE.laborForce.toLocaleString()}
≈ ${paramsUE.urRate} percent.

</details>

**c)** What share of all adults is in the labor force at all?

<details><summary>Show solution</summary>

Participation rate = ${paramsUE.laborForce.toLocaleString()}/${paramsUE.population.toLocaleString()}
≈ ${paramsUE.lfpr} percent.

</details>

**d)** Suppose a batch of people who weren't in the labor force get hired directly into jobs,
without ever spending time "unemployed" first. What happens to the unemployment rate and the
participation rate? Why?

<details><summary>Show solution</summary>

Both the employed count and the labor force **rise**, while the unemployed count never changes,
so the unemployment rate **falls** and the participation rate **rises**, even though not one
unemployed person actually found a job.

</details>`

Inflation

viewof seedINF = Inputs.button("Generate New Numbers", {value: 0, reduce: x => x + 1})

paramsINF = {
  seedINF;
  const CPI1 = [150, 200, 250][randInt(0, 2)];
  const rate = [2, 4, 6, 8, 10][randInt(0, 4)];
  const CPI2 = Math.round(CPI1 * (100 + rate) / 100);
  const inflationRate = Math.round(((CPI2 - CPI1) / CPI1) * 10000) / 100;
  const nominalRate = randInt(3, 12);
  const realRate = Math.round((nominalRate - inflationRate) * 100) / 100;
  return { CPI1, CPI2, inflationRate, nominalRate, realRate };
}

md`The CPI rises from ${paramsINF.CPI1} to ${paramsINF.CPI2} over the year.

**a)** What was the inflation rate this year?

<details><summary>Show solution</summary>

Inflation rate = (${paramsINF.CPI2} − ${paramsINF.CPI1})/${paramsINF.CPI1} × 100 ≈
${paramsINF.inflationRate} percent.

</details>

**b)** A saver's account pays a nominal interest rate of ${paramsINF.nominalRate} percent this
same year. Using the inflation rate from part (a), what's the real interest rate? Did this
saver's purchasing power rise or fall?

<details><summary>Show solution</summary>

Real interest rate = ${paramsINF.nominalRate} − ${paramsINF.inflationRate} ≈
${paramsINF.realRate} percent. ${
  paramsINF.realRate > 0
    ? "Since the real rate is positive, the saver's purchasing power **rose**."
    : paramsINF.realRate < 0
      ? "Since the real rate is negative, the saver's purchasing power **fell**, even though the account balance grew in dollar terms."
      : "The real rate is exactly zero, the saver's purchasing power stayed **unchanged**."
}

</details>`