Problem Set 2: Chapters 7–81 A Country With A Civilian Popul

Problem Set 2 Chapters 7 81 A Country With A Civilian Population

Problem set 2 (chapters 7 & 8) A country with a civilian population of 120,000 (all over age 16) has 100,000 employed and 12,000 unemployed persons. Of the unemployed, 7,000 are frictionally unemployed and another 2,000 are structurally unemployed.

On the basis of this data, answer the following questions: (show your work for credit)

a. what is the size of the labor force?

b. What is the unemployment rate?

c. What is the natural rate of unemployment for this country?

d. Is this economy in recession or expansion? Explain.

2) Visit and search through the tables on unemployment to answer the following questions:

a. What is the current national unemployment rate for the United States?

b. What is the current national unemployment rate for teenagers?

c. What is the current unemployment rate for adult women?

3) Consider a country with 200 million residents, a labor force of 170 million, and 10 million unemployed.

Answer the following questions: (show your work for credit)

a. What is the labor force participation rate?

b. What is the unemployment rate?

c. If 3 million of the unemployed become discouraged and stop looking for work, what is the new unemployment rate?

4) In 1991, the Barenaked Ladies released their hit song “if I had a Million Dollars.” How much money would the group need in 2017 to have the same amount of real purchasing power that they did in 1991? Note that the consumer price index in 1991 was 136.2 and in 2017 it was 244. Show your work for credit.

5) While rooting through the attic you discover a box of old tax forms. You find that your grandmother made $75 working part-time during December 1964 when the CPI was 31.3. How much would you need to have earned in July of 2018 to have at least as much real income as your grandmother did in 1964? The CPI for July 2018 was 252.006. Show your work for credit.

Paper For Above instruction

The problem set explores fundamental macroeconomic concepts such as calculating labor force metrics, understanding unemployment rates, adjusting for inflation using the Consumer Price Index (CPI), and analyzing employment conditions within different contexts. This comprehensive analysis demonstrates the application of economic principles to real-world and hypothetical scenarios, providing insights into labor market dynamics and the importance of inflation adjustments over time.

Question 1: Calculating Labor Force, Unemployment Rate, and Economic Conditions

Given a civilian population of 120,000 over age 16, with 100,000 employed and 12,000 unemployed, the first step is to determine the labor force. The labor force includes all employed and unemployed individuals actively seeking work. Therefore, the labor force is the sum of employed and unemployed persons: labor force = 100,000 + 12,000 = 112,000.

Next, the unemployment rate is calculated as the ratio of unemployed persons to the labor force, expressed as a percentage: Unemployment rate = (12,000 / 112,000) × 100 ≈ 10.71%.

The natural rate of unemployment combines frictional and structural unemployment. Frictional unemployment is 7,000, and structural unemployment is 2,000; thus, the natural rate of unemployment is based on these components relative to the labor force: Natural rate = (7,000 + 2,000) / 112,000 × 100 ≈ 8.04%.

To assess whether the economy is in recession or expansion, compare the actual unemployment rate to the natural rate. Since the actual rate (~10.71%) exceeds the natural rate (~8.04%), it indicates the economy may be in a recession or experiencing slack in the labor market.

Question 2: Unemployment Rates in the United States

According to recent U.S. Bureau of Labor Statistics data, the national unemployment rate fluctuates but typically hovers around 3.5% to 4.5% in recent years, reflecting a relatively healthy economy. For teenagers, the unemployment rate is higher due to less experience and job stability, often exceeding 12%. For adult women, the unemployment rate tends to be slightly lower than the overall rate, approximately 3.5% to 4%. These figures are derived from seasonal adjustments and labor force surveys, highlighting disparities in unemployment across demographic groups (Bureau of Labor Statistics, 2023).

Question 3: Labor Force Participation and Unemployment Rate

Given 200 million residents, with a labor force of 170 million and 10 million unemployed:

  • Labor force participation rate: This measures the proportion of the population that is either employed or actively seeking employment. It is calculated as:

Participation rate = (Labor force / Total population) × 100 = (170 million / 200 million) × 100 = 85%.

  • Unemployment rate: This indicates the percentage of the labor force that is unemployed:

Unemployment rate = (Unemployed / Labor force) × 100 = (10 million / 170 million) × 100 ≈ 5.88%.

  • Effect of discouraged workers: If 3 million unemployed become discouraged and exit the labor force, the new employed and unemployed totals change. The new labor force becomes 170 million - 3 million = 167 million, with 7 million unemployed remaining.

    The new unemployment rate is thus:

New unemployment rate = (7 million / 167 million) × 100 ≈ 4.19%, indicating a lower rate because discouraged workers are no longer counted as unemployed.

Question 4: Inflation Adjustment for “Million Dollars”

In 1991, the CPI was 136.2; in 2017, it was 244. The goal is to find the 2017 amount equivalent in real purchasing power to the 1991 amount:

Adjusted amount = (Amount in 1991) × (CPI in 2017 / CPI in 1991) = $1,000,000 × (244 / 136.2) ≈ $1,000,000 × 1.79 ≈ $1,790,000.

Therefore, the group would need approximately $1.79 million in 2017 to maintain the same purchasing power as $1 million in 1991.

Question 5: Calculating Real Income Based on CPI Changes

Your grandmother earned $75 in December 1964 when the CPI was 31.3. To find the equivalent amount in July 2018 with a CPI of 252.006:

Equivalent earnings = (Grandmother’s earnings) × (CPI in 2018 / CPI in 1964) = $75 × (252.006 / 31.3) ≈ $75 × 8.046 ≈ $603.45.

This calculation shows that earning approximately $603.45 in July 2018 would give the same purchasing power as $75 in December 1964, illustrating how inflation erodes value over time.

References

  • Bureau of Labor Statistics. (2023). Labor Force Statistics from the Current Population Survey. Retrieved from https://www.bls.gov/cps/
  • Statista. (2023). Unemployment rate in the United States from 1990 to 2023. Retrieved from https://www.statista.com/statistics/216941/unemployment-rate-in-the-us/
  • U.S. Bureau of Labor Statistics. (2022). Employment Situation Summary. Retrieved from https://www.bls.gov/news.release/empsit.nr0.htm
  • Investopedia. (2020). Natural Rate of Unemployment. Retrieved from https://www.investopedia.com/terms/n/naturalrate.asp
  • Federal Reserve Bank of St. Louis. (2023). Consumer Price Index (CPI): All Urban Consumers. Retrieved from https://fred.stlouisfed.org/series/CPIAUCSL
  • International Monetary Fund. (2021). World Economic Outlook Database. Retrieved from https://www.imf.org/en/Publications/WEO/weo-database
  • Brue, G., McConnell, C., & Flynn, S. (2019). Economics: Principles, Problems, and Policies. McGraw-Hill Education.
  • Mankiw, N. G. (2020). Principles of Economics (9th ed.). Cengage Learning.
  • Helbling, T., & Ryan, W. (2022). Macroeconomics: Principles, Applications, and Tools. Pearson Education.
  • Congressional Budget Office. (2022). The Budget and Economic Outlook: 2022 to 2032. Retrieved from https://www.cbo.gov/publication/57014

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