The Unemployment Rate

Number of people employed                   120,500

Number of people unemployed                4,050

Population                                             367,000

Given the above data, compute:

1.      The number of people in the labor force

2.      The labor force participation rate

3.      The unemployment rate

Handout 17-1 (10 Points)

Name the Type of Unemployment

Classify the people described in each of the following scenarios as either frictionally, structurally, or cyclically unemployed.

1.       Phil is currently unemployed because the tire factory where he used to work installed robots, which replaced 500 laborers, including Phil.

2.      Jessica is unemployed because she is in the process of reentering the labor force after taking time off to have a baby.

3.       Mary is unemployed because she lost her job at McDonald’s after the state increased the minimum wage.

4.       Barry is unemployed because he was laid off by the automobile factory when the economy entered a severe, prolonged recession.

5.       Sandy left her former job at an accounting firm a month ago. She is in the process of interviewing for a similar position at six different accounting firms, although she has not yet accepted a job.

All About the Natural Rate of Unemployment

Answer the following questions.

1.      What do economists mean by the natural rate of unemployment?

2.      Describe three factors that can affect the natural rate of unemployment and indicate the impact of each on the value of the natural rate of unemployment in an economy.

3.      What can you deduce if the actual rate of unemployment exceeds the natural rate of unemployment?

Handout 18-1 (5 Points)

Real and Nominal Interest Rates

Compute the answers to the following questions.

1.      Samantha invested $2,500 of her savings in a certificate of deposit that pays an annual 4.25% rate of interest. The current annual inflation rate is 5%. Has Samantha made a wise investment from an economic perspective?

2.      William wants to earn a real annual interest rate on his investment of at least 7%. If the annual rate of inflation is 4%, what  is the minimum nominal rate of interest William would be willing to accept on his investment?

Handout 19-1 (10 Points)

Which One?

Determine the most appropriate price index to use in each of the following situations and provide justification for each answer.

1.      Chris is writing a research paper on the automobile industry. She needs to include a discussion of how higher costs of production have affected U.S. auto producers. What price index should she use?

2.      Charles works as an economist for the United Mine Workers. He is developing the justification for the pay raise the union  is seeking from management in its new contract. What price index should he use?

3.      William is a television reporter. He is preparing a documentary on the status of the U.S. economy. His documentary will focus on all sectors of the economy. What price index should he use?

4.      In  November,  Lucy volunteered  to  compute the value  of her grandmother’s Social Security payments for the following year. What price index should she use?