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Econ 201 Module 4 Homework

The document is a homework assignment for an Economics course (Econ 201) that includes various questions related to labor force statistics, unemployment rates, inflation, and economic concepts. It requires calculations and explanations regarding unemployment, inflation rates, and the implications of economic changes. Additionally, it addresses the effects of inflation on wages and the impact of economic conditions on different types of unemployment.

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9 views4 pages

Econ 201 Module 4 Homework

The document is a homework assignment for an Economics course (Econ 201) that includes various questions related to labor force statistics, unemployment rates, inflation, and economic concepts. It requires calculations and explanations regarding unemployment, inflation rates, and the implications of economic changes. Additionally, it addresses the effects of inflation on wages and the impact of economic conditions on different types of unemployment.

Uploaded by

jasmine
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Econ 201

Module 4 Homework

1. Use the table to answer the following questions:


Populatio Labor Employe Unemploy People Not Labor Force Unemployme
n Force d ed in the Participation nt Rate
Persons Persons Labor Rate
Force
500,000 410,0 381,300
00
500,000

a) Find the number unemployed, the labor force participation rate, and
the unemployment rate. Complete the first row of the chart above.
b) Say 10,000 unemployed workers become discouraged. Complete the
second row of the chart above.

2. If the unemployment rate and labor force participation rate are both
falling, why might this economy be doing poorly?

3. What problem might occur if the unemployment rate falls below the
natural rate of unemployment? Why will this problem occur?

4. Economy A and economy B both have 8% unemployment rates. In


economy A, unemployed workers are gaining jobs, while other workers
are losing jobs. In economy B, the same workers remain unemployed
for extremely long periods of time. Does economy B have a bigger
problem, despite the fact that their unemployment rates are the same?
Are there any additional problems caused by long-term
unemployment?

5. State an example of one thing that will cause the unemployment to


rise, but not the natural rate of unemployment. Explain why your
example will not affect the natural rate.

6. State one thing that will cause the natural rate of unemployment to
rise. Explain your answer.

7. Identify each case as an example of structural, cyclical, frictional


unemployment , or not in the labor force.
a. Businesses begin to see significantly reduced sales. Several close
down and workers lose their jobs.
b. A student quits their job after deciding they do not have time to
both work and go to school.
c. A student graduates from college and begins looking for a job.
d. A factory deploys a new computer system and lays off several
employees it no longer needs.
e. A worker leaves his job to relocate where his spouse works.
f. An engineer retires after decades at their job.
g. A financial crisis causes a recession.
h. Good X is an increasingly obsolete technology. Companies that
make good X shut down and workers lose their jobs. These
workers are specialized in making good X and can’t find new jobs
utilizing those skills.
i. A new parent decides to stay at home with their child.
j. A parent re-enters the workforce when her children start school
and begins looking for a job.

8. Use the data below to find the price index and inflation rates. The base
year is not one of the years listed below. Spending on the market
basket in the base year was $3500.

Good Market Year 1 Price Year 1 Spending


Basket
Cookies 200 1
Monkey 75 20
s
Puppets 50 12
Butter 120 4
Basebal 160 7
ls
Total Year 1 Spending

Good Market Y2 Price Year 2 Spending


Basket
Cookies 200 1
Monkey 75 32
s
Puppets 50 11
Butter 120 5
Baseball 160 9
s
Total Year 2 Spending

Year Price Index Inflation


Rate*
1 ----------------
2
*Inflation rate is the percent change in the price index from the
previous year.
9. Complete the table below to answer the following questions:
Year Price Index Nominal Wage Real Wage
2020 220 $50,000
2021 224 $51,000
a. Find the 2021 inflation rate.
b. What, if anything, happened Morgan’s income in 2021 when
adjusted for inflation?
c. How did you determine your answer for (b)?

10. Your friend works at the same job for three years without a raise.
When you suggest that he ask for a raise, he replies, “I shouldn’t
complain. My income has been constant for the last three years.”
Explain what is wrong with your friend’s reasoning.

11. Ford earns $45,000 per year. His salary automatically increases
by the inflation rate (as measured by the CPI) every year. He currently
owes $12,000 in credit card debt at a fixed rate of interest. If the
inflation rate unexpectedly rises from 1.5% to 7% next year, will Ford
be better or worse off? Explain your answer.

12. What is one problem caused by falling prices? Why does this
problem occur?

13. The real interest rate is 5%. The expected inflation rate is 2%.
a. Find the nominal interest rate.
b. If the nominal rate is fixed at 7%, and the inflation rate rises to
4%, find the new real interest rate.
c. Will lenders’ profits over the life of the loan be greater or less
than expected?
d. Will borrowers’ costs over the life of the loan be greater or less
than expected?

14. Based on your answers to the previous question, why might the
4% inflation rate result in higher real GDP in the short run than a 2%
inflation rate?

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