Reference no: EM13846502

1. The following information is for the US economy in 1998: Find the US labor force, the number unemployed and the unemployment rate for 1998. Numbers are in millions

Hint: start with population and kick out all those not in the labor force.

population 270.2 under 16 or institutionalized 65.0
retired, full time students, and other out of the labor force 67.5
employed 131.5

2. Answer True or False for each of the following.

Most economists want a 0% target for unemployment.
The current natural rate of unemployment is thought to be somewhere around 5%.
If the economy is above full employment it causes higher than normal unemployment.
Inflation can be increased by either an increase in AD or AS.
Cyclical unemployment can be caused by a drop in AD or AS.
The natural rate of unemployment is associated with high inflation.
The core PPI is often used to predict where we are relative to full employment.
In a closed economy, inflation represents a decline in average real income.
Frictional unemployment is permanent for the labor force, temporary for individuals.
It is possible, although unusual, for cyclical unemployment to be negative.

3. There is one scenario where the unemployment rate would probably be underestimated due to the discouraged worker effect. One where the rate would probably be underestimated due to underemployment. One scenario where the rate would probably be overestimated due to the underground economy and one where the rate would probably be overestimated due to government encouraged unemployment. There is also one scenario with none of these errors and the unemployment rate is probably accurate. Identify which for each scenario.

Corporation X lays off 500 skilled workers when general unemployment is low.

Unemployment benefits and time of eligibility are raised while unemployment is low.

Corporation X reduces the hours for 500 unskilled workers.

Country Y has little ability to track jobs and income, and has high taxes.

Corporation X lays off 500 unskilled workers when unemployment is extremely high.

4. Calculate the real interest rate if nominal interest rate is 12% and inflation 5%.

5. Using the information below, find the price index for year.

3 chickens @ $.95 each $ 2.85
5 lbs hamburger @ $.39 a lb $ 1.95
2 kilowatts of electricity @ $5.3 a kilowatt $10.60 YEAR 1 (base year)
16 gallons of gasoline @ $.6 a gallon $ 9.60
1 dentist visit @ $15.00 $15.00

3 chickens @ $1.25 each $ 3.75
5 lbs hamburger @ $.79 a lb $ 3.95
2 kilowatts of electricity @ $7.75 a kilowatt $15.50 YEAR 2
16 gallons of gasoline @ $1.05 a gallon $16.80
1 dentist visit @ $20 $20.00