Homework 3-
Question 1 - Unemployment. In 2007, there were 2,500,000 adults in China. 1,800,000 of the adults were employed; 500,000 were unemployed; 100,000 were discouraged workers; and 100,000 were not working or seeking jobs in 2007. Among the unemployed, 390,000 were engaged in job search, and 100,000 were in the labor markets where the number of people seeking jobs is more than the number of jobs available.
a. What are the labor force and unemployment rates in 2007?
b. What is the frictional, structural, and cyclical unemployment in 2007? What is the natural rate of unemployment in 2007?
c. Which of the following diagrams is more appropriate to describe labor markets where the number of people seeking jobs is more than the number of job available? Explain your answer.
Question 2 - CPI and inflation. In a country, the price index is based upon a market basket consisting of 3 units of rice, 2 units of vegetable, and 1 unit of meat. The prices of these three items in 2005, 2006, and 2007 are presented in the following table.
|
Year
|
Price per unit of rice
|
Price per unit of vegetable
|
Price per unit of meat
|
|
2005
|
$0.5
|
$2
|
$3
|
|
2006
|
$0.6
|
$1.5
|
$2.8
|
|
2007
|
$0.65
|
$2
|
$2.5
|
a. Use year 2004 as the base year to calculate the price indices for the three years.
b. What was the inflation rate from 2005 to 2006 and the inflation rate from 2006 to 2007?
c. If we use 2006 as the base year, will the inflation rates that you calculated in b change?
Question 3 - Growth. Suppose the aggregate production function of an economy is Y/L = √(K/L ),
where Y is the real GDP, K is the quantity of physical capital, and L is the number of labor employed. Note this production function measures output per worker, Y/L, and not just output, Y. K/L is the capital to labor ratio.
a. Fill in the following table and plot the aggregate production function in a graph. Measure K/L on the horizontal axis and Y/L on the vertical axis.
|
K/L
|
0
|
1
|
4
|
9
|
16
|
25
|
36
|
49
|
64
|
81
|
|
Y/L
|
|
|
|
|
|
|
|
|
|
|
b. Does the aggregate production function exhibit diminishing returns to physical capital?
c. Suppose there is an increase in the total factor productivity, which of the following functions would represent such an increase?
Y/L = 2√(K/L)
Y/L = 1/2√(K/L)
Use the function that you choose to fill in the following table and plot the aggregate production function in a graph. Does the new aggregate production function exhibit diminishing returns to physical capital?
|
K/L
|
0
|
1
|
4
|
9
|
16
|
25
|
36
|
49
|
64
|
81
|
|
Y/L
|
|
|
|
|
|
|
|
|
|
|