Question 1 - 4 points

1. Please draw a normal business cycle and identify the peak, trough, expansion and contractions in the graph. Please make sure to label the axes (2)
2. What does the peak in the business cycle represent? (1)
3. What does the trough in the business cycle represent? (1)

Question 2 - 4 points

1. Currently, the inflation rate is at 140% in Uruguay. How long will it take the prices of goods and services to double in the country? (1)
2. In 2017, you had a full time job and your annual income was $35,000. Your wife was a housewife at that time. In 2018, you were laid off from your job but your wife started a new job. Her new job had an annual income of $40,000. Assuming 2017 as the base year and the inflation rate is 7%, did your purchasing power go up? (2)
3. What is the main difference between demand pull and cost push inflation? (1)

Question 3 - 7 points

1. Jonathan took a business loan from Chase Bank in 2016. The loan amount was $150,000 and had an interest rate of 6.75%. In 2017, the cost to buy goods and services went up by 1.25%. Please calculate the real interest rate to Chase bank. (1)
2. Define natural rate of unemployment (1)
3. In 2018, Bangladesh had a GDP loss/gap of 6.25% due to an unemployment rate of 9.5%. What is the natural unemployment rate in Bangladesh? (2)
4. Identify three different groups that are not employed but willing to do jobs yet they are not classified as unemployed. (3)