Economics

Problem Set 1

Complete all questions listed below. Clearly label your answers.

1. The receipts and year of release of the five movies with the largest nominal box office revenues, along with the CPI data of each year are presented below. Assuming that the receipts for each of the movies were derived during their year of release, convert the receipts for each to real dollars for the year 2010 (2010 CPI 218.1). Put the movies in order from largest to smallest real box office receipts.

Movies	Nominal Box Office Receipts (millions)	Year Released	CPI in Year Released.
Avatar	$760.50	2009	214.5
Titanic	600.8	1997	160.5
Star Wars	461	1977	60.5
Shrek 2	437.2	2004	188.9
E.T. The Extra-Terrestrial	399.9	1982	96.5

FORMULA: Original value * CPI of 2010 (218.1) / CPI of Original year

ANSWERS:

Star Wars 461 * 218.1 / 60.5 = 1661.89 million dollars

E.T. The Extra-Terrestrial 399.9 * 218.1 / 96.5 = 903.82 million dollars

Titanic 600.8 * 218.1 / 160.5 = 816.41 million dollars

Avatar 760.50 * 218.1 / 214.5 = 773.26 million dollars

Sherk 2 437.2 * 218.1 / 188.9 = 504.78 million dollars

2. Classify each of the following as employed, unemployed, or not in the labor force.

a. Beth is not working; she applied for a job at Wal-Mart last week and is awaiting the result of her application.

b. Juan is vacationing in Florida during a layoff at General Motors plant due to a model changeover, but he expects to be recalled in a couple of weeks.

c. Bob was laid off as a carpenter when a construction project was completed. He is looking for work but has been unable to find anything except a $10 per hour job which he turned down.

d. Jade works 70 hours per week as a homemaker for her family of 6.

e. Carson, a 17-year-old, works six hours per week as a delivery person for the local newspaper.

f. Brady works three hours in the mornings at the clinic and for the last two weeks has spent the afternoons looking for a full-time job.

· Employed – a person (16 years old or over) who is

· working for pay at least one hour per week,

· self employed, or,

· working 15 hours or more each week without pay in a family-operated enterprise.

· Unemployed – a person not currently employed who is either

· actively seeking a job, or,

· waiting to begin or return to a job.

· Not in the labor force – persons (16 years and older) who are neither employed nor unemployed (like retirees, students, homemakers, or disabled persons).

ANSWERS:

a. UNEMPLOYED

b. UNMPLOYED

c. UNEMPLOYED

d. NOT IN LABOR FORCE

e. EMPLOYED

f. EMPLOYED

3. Use the following data to calculate (a) the labor force participation rate, (b) the unemployment rate, and (c) the employment/population ratio.

Population age 16 and over	15,000
Labor force	7,300
Not currently working	4,500
Employed Full-time	5,000
Employed Part-time	1,100
Unemployed.	1,200

Employed = Employed Full time and Part time

ANSWERS:

a. Labor force participation rate = Labor force / Working age population,

Labor force participation rate = 7300 / 15000 = 48.7% (answer)

b. Unemployment Rate = Unemployed / Labor Force

Unemployment Rate = 1200 / 7300 = 16.4% (answer)

c. Employment/Population Ratio = Number of Employed / Population age 16 and over

Employment / Population Ratio = 5000+1100 / 15000 = 40.7% (answer)

4. Consider an economy with the following aggregate demand (AD) and short-run aggregate supply (SRAS) schedules. Decision-makers have previously made decisions anticipating that the price level during the current period will be P105.

a. Indicate the quantity of GDP that will be produced during the period.

b. Is it a long-run equilibrium level of GDP? Why or why not?

c. How will the unemployment rate during the current period compare with the natural rate of unemployment?

d. Will the current rate of GDP be sustainable into the future? Why or why not?

AD 105	Price Level	SRAS 105
6300	90	4500
6000	95	4800
5700	100	5100
5400	105	5400
5100	110	5700
4800	115	6000

ANSWERS:

a. The quantity of the GDP = 5400 (this takes place at Price Level 105 where both the AD and SRAS reach the equilibrium point)

b. YES, it is a long-run equilibrium level of the GDP. Why? The LRAS curve us vertical and passes through the intersection point of AD and SRAS curves.

c. The actual unemployment rate will be equal to natural rate since the aggregate demand is equal to the aggregate supply the two unemployment rates are equal.

d. No the current rate of GDP will not be sustainable in the future because there are going to be more supply (SRAS) than there is demand (AD). It is no longer going to be in equilibrium.