Subject: Economics    / Accounting
Question

Late submissions and e-mail submissions will not be accepted. 1. In December 2005, the BLS estimated there were 7.4 million unemployed, 142.8 million employed
(including 2.8 million involuntary part-time workers), 451,000 discouraged workers and 4.8 million
people (including discouraged workers) who were marginally attached to the labor force.
a. Calculate the headline (U-3) unemployment rate for December 2005.
b. Calculate the unemployment rate for December 2005 if it had included among the
unemployed all officially discouraged workers.
c. Calculate the unemployment rate if it had included all those who were marginally
attached to the labor force?
d. Calculate the unemployment rate if it had included all those who were marginally
attached to the labor force plus involuntary part-time workers. 2. Acme Widget Co. has the following production function: Number of Labor Hours
1
2
3
4
5
6
7 Number of Widgets
25
45
60
70
75
78
80 MPL a) Calculate the marginal product of labor (MPL).
b) Suppose the price of widgets is $2. How many hours of labor will Acme hire at W=$10?
At W= $20? Why?
c) Graph the relationship between Acme’s labor demand and the real wage.
d) Suppose that the price of widgets rose to $5 and the wage rate rises to $25/hr.
How many labor hours will Acme hire? 3. Consider a closed economy described by the following equations:
(1) Y = C + I + G
(2) Y = 5(K)0.5(L)0.5
(3) K = 1600
(4) L = 1600
(5) G = 2500
(6) T = 2000
(7) C = 1000 + 2/3 (Y – T)
(8) I = 1200 – 100r, where r is the real interest rate. a) What is the equilibrium level of income? And, why? b) Solve for the equilibrium interest rate (r) and the level of investment (I). The interest rate will be a
whole number. c) How much income goes to labor (L). And, why? d) Suppose G increases by 500 to 3000.
i.) What happens to Y? And, why? ii.) Solve for the new equilibrium interest rate. iii.) What happens to I? And, why?

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