Reference no: EM1374391

1. Unemployment

a. Suppose that 98 million people work and 5 million seek work. What is the unemployment rate?

b. Now suppose that the economy goes into recession and 3 million people are laid off and seek work while 4 million give up searching for work (discouraged). Refer to part (a) to calculate the new unemployment rate.

c. Go back to part (a). Suppose that 7 million of the employed switch to underground economy jobs (legal or illegal) and half of them report that they don't work and not looking for a job, while the other half reports that  they don't work but looking for a job. Calculate the unemployment rate in this scenario. 

d. Compare, contrast and explain your answers in parts (b) and (c) to part (a). Based on the unemployment rates that you calculated in parts (b) and (c), and if unemployment rates are "key" indicators of macroeconomic performance and growth, is the economy performing better, worse or the same? Are the calculated unemployment rates a reliable measure to assess the country's economic performance? For instance, do these rates accurately reflect economic or job market conditions? Please explain and interpret your results.

2. Taxation and Immigration Policy

Country A follows a 20% tax rate structure on earned income across the board (Proportional).In country B, the taxation policy is progressive. The tax rate is 10% on the first $40Kof income earned and then 40% on income in excess of $40K.

1. Calculate the total tax bill for both low and high income individuals in both countries and fill in the table above with your results. Calculations are perfectly acceptable if hand written in black or blue ink (no pencil). You may also fill in the table above either by typing in or by hand if you are using an ink pen.

2. Assuming all other decision-making factors are the same (i.e. climate, culture, language, etc.), are there any immigration incentives for the 40K or 100K wage earners? If so, how and why? Please explain based on your results from part (a).