Econ 102: Fall 2007 Discussion Section Handout #5 Exercise 1: Labor Force Indicate whether the following people are employed, unemployed, or out of the labor force. If they are unemployed indicate whether their unemployment is structural, cyclical, frictional, or seasonal if possible. a) A full-time student who does not work If the student is not looking for work, then she is not in the labor force. If she is looking for work, she is unemployed. b) An auto assembly-line worker who was laid-off when his plant was closed for production changes and has not been looking for work. Even though he is not looking for work, because he plans to return to work after the production plant’s change-over, he is considered unemployed. c) A stay-at-home mother Assuming she is not looking for work or self-employed, she is not in the labor force. d) A retired aero-space engineer that bags groceries part time Employed. e) Katie looses her life guarding job at the end of the summer, just before returning to school Katie is seasonally unemployed if she is looking for new work. Otherwise, she is not in the labor force. f) After a tariff on steel is repealed, American steel manufacturers lay-off some workers If the steel workers are looking for new jobs they are structurally unemployed. g) Due to generally decreasing retail sales, many retail workers loose their jobs Because the layoffs are the result of generally poor economic conditions, these people are cyclically unemployed. h) John leaves his position at McDonalds to look for a new job John is frictionally unemployed. i) Mary is working a part time job while she looks for a permanent position Mary is employed. Exercise 2: Unemployment The following is employment information about the country Badger Land. Entire Population 800 People under the age of 16 75 Retired people 200 Number of people with full time job 250 Number of people with part time job 175 Number of people without a job but looking for one 75 Number of people without a job and not looking for one 25 a. What is the unemployment rate of Badger Land? 75/500 = 15% b. What is the labor force participation rate in Badger Land? 500/750 = 68.97%Econ 102: Fall 2007 Discussion Section Handout #5 Exercise 3: Price Indexes In Fast Foodland the market basket of goods is 2 hotdogs and 1 cheeseburger. Fill in the table below, using 2007 as the base year. Hotdogs Cheeseburgers GDP Year Price Quantity Price Quantity CPI Nominal Real Deflator 2005 $2.00 400 $3.50 200 2*2+3.5=7.5 7.5/10 *100 = 75 2*400 + 3.5*200 = 1500 3*400 + 4*200 = 2000 1500/2000 *100 = 75 2006 $2.50 300 $3.00 250 2.5*2+3 = 8 8/10*100 = 80 2.5*300 + 3*250 = 1500 3*300 + 4*250 = 1900 1500/1900 *100 = 78.95 2007 $3.00 310 $4.00 150 3*2+4 = 10 10/10*100 = 100 3*310 + 4*150 = 1530 3*310 + 4*150 = 1530 1530/1530 *100 =100 Exercise 4: Inflation Using the information above, calculate the rate of change in prices of hotdogs and cheeseburgers , the inflation rate, and the growth rate of nominal and real GDP from 2005 to 2006 and 2006 to 2007. Is there anything that is counter intuitive? Year Hotdog Prices Cheeseburger Prices CPI Nominal GDP Real GDP 2005 to 2006 (2.5 – 2)/2 *100 = 25% (3.5 – 3)/3.5 *100 = - 14.3% (80 – 75)/75 *100 = 6.67% (1500 – 1500)/ 1500 *100 = 0% (1900– 2000)/ 2000 *100 = -10% 2006 to 2007 (3 – 2.5)/2.5 *100 = 20% (4 – 3)/3 *100 = 33.3% (100 – 80)/80 *100 = 25% (1530 – 1500)/ 1500 *100 = 2% (1530– 1900)/ 1900 *100 = -19.47% Exercise 5: Real versus Nominal Variables Fill in the table below. Year CPI Nominal Wage Real Wage 1980 100 $6/hour $6/hour 1990 125 $10/hour $8/hour 2000 150 $10.5/hour $7/hour Exercise 6: Use the information above to calculate the CPI in 2000 with 1990 as the base year. 150 / 125 * 100 =
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