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Econ 104 Chapter 7

by: Jieun Son

Econ 104 Chapter 7 Econ 104

Jieun Son
GPA 3.4

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About this Document

These notes cover the materials in chapter 7 and the answers of Myeconlab questions.
Introduction to Macroeconomics
Mehrene Larude
Class Notes
Introduction to Macroeconomics, Econ104, MyEconLab
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This 4 page Class Notes was uploaded by Jieun Son on Tuesday September 27, 2016. The Class Notes belongs to Econ 104 at University of Massachusetts taught by Mehrene Larude in Fall 2016. Since its upload, it has received 65 views. For similar materials see Introduction to Macroeconomics in Macro Economics at University of Massachusetts.


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Date Created: 09/27/16
ECON 104 CHAPTER 7 Unemployment Measuring Unemployment 1.  Employed a.   16 years old or older worked 1 hour or more for pay. b.   Who works without pay for 15 or more hours per week. c.   Who has a job but has been temporarily absent without or with pay. 2.  Unemployed a.   16 years old or older who is not working b.   Made specific efforts to find work during the previous 4 weeks 3.  Not in the labor force a.   Who is not looking for work because a person does not want a job or has given up looking b.   Formula: Population = Labor force + Not in labor force 4.  Labor force a.   Number of people employed plus the number of unemployed b.   Formula: Employed + Unemployed 5.  Unemployment rate a.   Ratio of the number of people unemployed to the total number of people in the labor force. b.   Formula: Unemployed/ Employed + Unemployed 6.  Labor force participation rate a.   Ratio of the labor force to the total population 16 years old or older. b.   Formula: Labor force/ Population 7.  Discouraged­ Worker effect a.   The decline in the measured unemployment rate that results when people who want to work but  can’t find jobs grow discouraged and stop looking, thus dropping out of the ranks of the unemployed  and the labor force. b.   An unemployment rate of 10/100 = 0.10, or 10% to demonstrate it lowers the unemployment rate.   The cost of Unemployment 1.     Frictional unemployment: a.     AS jobs become more differentiated and the number of required skills  increases, matching skills and jobs becomes more complex and the frictional  unemployment rate may rise. b.     It never can be zero. c.     Due to the “normal turnover in the labor market.” 2.     Structural unemployment: a.     Denotes longer­run adjustment problems – those that tend to last for years. b.     People who lose their jobs because their skills are obsolete might  experience structural unemployment. 3.     Cyclical unemployment: unemployment that is above frictional plus structural  unemployment.   ECON 104 CHAPTER 7 Inflation Inflation is defined as an increase in the overall price level, while deflation is a decrease in the overall price level.   The Consumer Price Index 1.     Consumer Price Index (CPI): price index computed each month by the Bureau of  Labor Statistics using a bundle that is meant to represent the “market basket”  purchased monthly by the typical urban consumer. 2.     Producer Price Indexes (PPIs): measure of prices that producers receive for  products at various stages in the production process. a.     Also called wholesale price indexes.   Chapter 7 Problems 1. Consider the table below and the changes that have taken place in the workforce. Employed, Unemployed, and the Labor Force, 1950­2009 YEAR POPULATION LABOR EMPLOYED UNEMPLOYED LABOR FORCE UNEMPLOYMENT 16 YEARS FORCE (MILLIONS) (MILLIONS) PARTICIPATION RATE OLD OR OVER (MILLIONS)    RATE 1950 105.0 62.2 58.9 3.3 59.2 5.3 1960 117.2 69.6 65.8 3.9 59.4 5.5 1970 137.1 82.8 78.7 4.1 60.4 4.9 1980 167.7 106.9 99.3 7.6 63.8 7.1 1990 189.2 125.8 118.8 7.0 66.5 5.6 2000 212.6 142.6 136.9 5.7 67.1 4.0 2009 235.8 154.1 139.9 14.3 65.4 9.3 Based on the data above, it can be stated that the labor force participation rate has = D. increased steadily over time, and this can be largely attributed to increased participation of women in the labor force. 2. Consider the following statements: a. More people are employed in Tappania now than at any time in the past 50 years. b. The unemployment rate is higher now than it has been in 50 years. = C. Both these statements can be correct of the labor force grows at a faster rate than the rate of growth of employment.     3. Suppose the number of employed people in an economy is 121,793,819. The  unemployment rate in this economy is 11.3% or 0.113, and the labor force  participation rate is 74% or 0.74. a. The size of the labor force is 137,309,830 persons. ECON 104 CHAPTER 7 b. The number of people unemployed is 15,516,011 persons. c. The working-age population is 185,553,824 persons.  Labor force in the economy is: Labor force = employed + unemployed = 121,793,819 / 88.7 = 137,309,830  Number of people unemployed is: = Size of labor force – number of employed people = 137,309,830 – 121,793,819 = 15,516,011 Unemployment rate = Unemployed / employed + unemployed  Labor force participation rate: = Labor force / population = 137,309,830 / 0.74 = 185,553,824 4. Taylor loses his job as a welder due to the introduction of robotic welding machines. =Taylor is structurally unemployed. 5. Recession is a period during which = D. Real GDP declines for at least two consecutive quarters. 6. The total labor force in an economy is = A. the number of people employed plus the number of unemployed. 7. In the economy of Macroland 62.5% of the population is employed, while the unemployment rate is 8.0% Calculate the labor force participation rate.  = Labor Force Participation Rate = 67.8%  Unemployment rate (u)= 0.08 = number of unemployed / Labor Force. u = Labor force – Employed / Labor force u = 1 – (Employed / Labor force). Thus, (E / L) = 1 – 0.08 = 0.92 Employment-Population ration = (E / P) = 0.625 Therefore, labor force participation rate, (L / P) = [(E/P) / (E/L)] x 100 = (0.625)/(0.92) x 100 = 67.8% 8. The following information is available for the country of Tappania: ECON 104 CHAPTER 7 2000 2010 Labor Force 140.0140.0 151.2151.2 million million Employment 119.0119.0 123.8123.8 million million Calculate the unemployment rates for 2000 and 2010. a. Unemployment Rate for 2000 = 15%. b. Unemployment Rate for 2010 = 18%. The number of unemployed, U = L – E Unemployment rate = (U / L) x 100 Unemployment rate for 2000 = (21.0/140.0) x 100 = 15% Unemployment rate for 2010 = ((151.2 – 123.8)/123.8) x 100 = 18%


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