Exercises

What is business cycle?

State the economic variables that can help us identify different phases of business cycle.

State the formula for unemployment rate.

What is underemployment?

What is inflation?

What is nominal interest rate?

What is real interest rate?

What is base year?

What is Consumer Price Index?

What is inflation-linked bond?

What is the difference between employment and underemployment?

What is the difference between GDP deflator and Consumer Price Index (CPI)?

To assess the cost of living in different years, which one, Consumer Price Index (A) or Composite Consumer Price Index, is better? Explain.

Explain under what condition the nominal interest rate would be higher than the real interest rate.

What is the difference between nominal interest rate and real interest rate?

There are 300,000 people in labour force and 7,500 people being unemployed in an economy. Calculate the unemployment rate.

There are 2,925,000 people in employment and 75,000 people being unemployed in an economy. Calculate the unemployment rate.

There are 2,925,000 people in employment and 75,000 jobless population in an economy. Calculate the unemployment rate.

The unemployment rate in an economy is 6% and it has 300,000 labour force. Calculate the number of unemployed population.

The unemployment rate in an economy is 3% and it has 2,400,000 labour force. Calculate the number of unemployed population.

The consumer price index (cpi) is 110, 117, 128 in 2018, 2019 and 2020 respectively. Calculate the inflation rate in 2019 and 2020.

The consumer price index (cpi) is 108 in 2008 and the inflation rate is 2% in 2009. What is the CPI in 2009?

Give an example of people who suffer from loss during an unanticipated inflation.

Give an example of people who suffer from loss during an unanticipated deflation.

Give an example of people who benefit from gain during an unanticipated inflation.

Give an example of people who benefit from gain during an unanticipated deflation.

If the nominal interest rate on an asset is 6% and the expected inflation rate is 2%, the real interest rate is __________.

If the nominal interest rate on an asset is 4.5% and the expected inflation rate is 1%, the real interest rate is __________.

What is the advantage of using CPI instead of GDP deflator to calculate the inflation rate of an economy?

What is the difference between inflation and disinflation?

The unemployment rate in an economy is 6% and it has 300,000 people employed. Calculate the number of unemployed population.

It is typical for individuals to borrow housing mortgage loan from a bank to afford an apartment. Assume the bank offer the loan at a fixed interest rate, explain, whether the individual would gain or lose in times of unexpected inflation.

The Hong Kong government announced the issuance of additional inflation-linked bonds (iBonds) in 2022-23 financial year. Suppose iBonds pays an interest rate of 2% and the investors expect the inflation rate will be 1.4% next year. Will the investors gain or lose? By what percent?

If the nominal interest rate on a one-year bond is 10% and the expected inflation rate is 2%, the nominal rate of return and the expected cost of holding cash are __________ and __________ respectively.

If the nominal interest rate on a one-year bond is 6% and the expected inflation rate is 3%, the nominal rate of return and the expected cost of holding cash are __________ and __________ respectively.

The nominal interest rate of a one-year bond and the expected inflation rate are 8% and 3% respectively. If the actual inflation rate is 6%, then the actual real interest rate is __________ and the actual rate of return of holding cash is __________.

The nominal interest rate of a one-year bond and the expected inflation rate are 6% and 4.5% respectively. If the actual inflation rate is 3%, then the actual real interest rate is __________ and the actual rate of return of holding cash is __________.

If the nominal interest rate is 5% and the expected inflation rate is 3%, the cost of holding money is __________, the nominal return of holding money is __________ and the expected real interest rate is __________.

If the nominal interest rate is 10% and the expected inflation rate is -2%, the cost of holding money is __________, the nominal return of holding money is __________ and the expected real interest rate is __________.

Many first-year university students quit their studies and choose to work instead because they find themselves not suitable to study. Explain why the unemployment rate may increase or decrease.

Under what condition will unemployment rate decrease despite the number of unemployed people increases.

Other than the variables suggested, could you come up with other indicators that also help identify the phases of business cycle? How? Briefly explain.

Hong Kong government gave out consumption vouchers in 2021 to alleviate the economic recession. Explain, how the consumption voucher scheme could lead to inflation.

The fifth wave of pandemic strikes Hong Kong and there is not enough doctors and nurses to take care of the patients. In order to relieve the situation, the Hong Kong government has decided to import healthcare workers from the mainland China. Discuss, how this policy affects the unemployment rate in Hong Kong.