17. DVD players and HDTVs have not been part of the US economy for very long. Bo

Question

17. DVD players and HDTVs have not been part of the US economy for very long. Both goods have been decreasing in price and improving in quality. What problems does this pose for people who are responsible for computing a price index? 18. Suppose US economy is in a deep recession. How does this recession affect the US major trading partners such as Canada, China, Japan, etc? Briefly discuss. Chapter 7 questions 19. (Measuring Unemployment) Determine the impact on each of the following if 2 million formerly unemployed workers decide to return to school full time and stop looking for work: a. The labor force participation rate b. The size of the labor force c. The unemployment rate 20. (Measuring Unemployment) Suppose that the U.S. noninstitutional adult population is 230 million and the labor force participation rate is 67 percent. a. What would be the size of the U.S. labor force? b. If 8 million adults are not working, what is the unemployment rate? 21. (Types of Unemployment) Determine whether each of the following would be considered frictional, structural, seasonal, or cyclical unemployment: a. A UPS employee who was hired for the Christmas season is laid off after Christmas. b. A worker who is laid off due to reduced aggregate demand in the economy. c. A worker in a DVD rental store becomes unemployed as video-on-demand cable service becomes more popular. d. A new college graduate is looking for employment. 22. (Inflation) Here are some recent data on the U.S. consumer price index: Year CPI 1999 166.6 2000 172.2 3.36% 2001 177.1 2.85% disinflation 2002 179.9 1.58% disinflation Compute the inflation rate for each year 1999-2002 and determine which years were years of inflation. In which years did deflation occur? In which years did disinflation occur? Was there hyperinflation in any year? 23. In recent years, how has the U.S. inflation rate compared with rates in other industrial economies? Why should we be careful in comparing inflation rates across countries? The Federal Reserve Bank of St. Louis maintains a Web page devoted to international economic trends. Please go tohttp://research.stlouisfed.org/publications/IETsupplement/iet2inf.pdf choose two countries and compare the countries’ recent inflation experiences.

Explanation / Answer

19) a. The labor force participation rate - Decreases

b. The size of the labor force - Decrease

c. The unemployment rate - Increases

20) a. Labor force participation rate = Labor Force / Adult population

67% = Labor Force / 230 million

Labor Force = 67% X 230 million = $ 154.1 million

b. If 8 million adults are not working, what is the unemployment rate?

Adult population = Labor force + Not in Labor force

230 million = 154.1 million + Not in Labor force

Not in labor force = 75.9 million

Unemployment rate = Unemployed / Labor force X 100 = (85million - 75.9 million)/154.1 million X 100

= 9.1 million/ 154.1 million X 100 = $ 5.91 million

21) a. A UPS employee who was hired for the Christmas season is laid off after Christmas. - Seasonal Unemployment

b. A worker who is laid off due to reduced aggregate demand in the economy. - Cyclical Unemployment

c. A worker in a DVD rental store becomes unemployed as video-on-demand cable service becomes more popular. - Structural Unemployment

d. A new college graduate is looking for employment. - Frictional Unemployment

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