Problem:

Recent data for the U.S. reveal the following (all figures in millions).

Use the data to find the following:

1. The size of the labor force.
2. The number classified as "not in the labor force."
3. The unemployment rate.

Answer:

1. The labor force consists of all those either employed or unemployed. The labor force in this period was 146.3 + 7.6 = 153.9 million people.
2. Those classified as "not in the labor force" are those individuals age 16 or older and not institutionalized who are neither employed nor unemployed. For the period given, this amounted to 304.2 – 71.1 – 146.3 – 7.6 = 79.2 million people.
3. The unemployment rate is found as the proportion of the labor force that is classified as unemployed. For this period, the unemployment rate was 7.6/153.9 = .049, or 4.9%.

Problem:

Recent figures showed the CPI at 210.7, while one year earlier it was 202.2.

1. What was the rate of inflation over the previous year?
2. At this rate of inflation, approximately how long will it take for the price level to double?
3. Suppose Janice's nominal income rose by 5% in the given year while Jeff's increased by only 3%. By what percentage did each of their real incomes change?

Answer:

1. The rate of inflation is measured by the percentage increase in the value of the CPI. In this case, the rate of inflation was [(210.7 – 202.2)/202.2] x 100 = 4.2%
2. Using the rule of 70, the price level will double in 70/4.2 = 16.67 years.
3. The percentage change in real income can be approximated as the difference between the percentage change in nominal income and the percentage change in the price level. For Janice, this was 5% – 4.2% = 0.8%, while Jeff's real income fell by 3.0% – 4.2% = -1.2%.