An Introduction to Macroeconomics

Homework #1 Problem #1 Q: Use the supply and demand framework in the labor market to explain why employment has grown rapidly in the United States in recent decades while at the same time there has been a slowdown in real-wage growth. A: With the growth of both supply and demand in the US, we can see that the quantity of labor needed has increased. In the same time the wages have not increased that much, because if we have an increase in both supply and demand we will have a shift to the right of the equilibrium, which basically shows an increase in quantity of labor but not wages paid.Problem #2 Q: In a small town of 100 people, there are 10 children under 16, 10 retired people, 60 people with full-time jobs, 3 people with part-time jobs, 3 full-time students over 16, and 4 full-time homemakers. The remaining people did not have jobs, but wanted jobs. All but one of these had actively looked for a job in the previous four weeks. What is the unemployment rate in this town? Show your work.A: 100 (total number of people) – 10 (children under 16) – 10 (retired) – 4 (homemakers who are not part of the labor force) – 3 (fulltime students) – 1 (not searching for job) = 72 people labor force 72 (labor force) – 60 (full time jobs) – 3 (part-time jobs) = 9 (unemployed but seeking jobs) Employment rate = employed/labor force = (labor force – unemployed)/ labor force = 63/72 = 0. 875 = 87. 5% Unemployment rate = unemployed/labor force = 9/72 = 0. 125 = 12. 5% Problem #3 Q: High Tech, Inc. produces plastic chairs that sell for $12 each. The following table provides information about how many plastic chairs can be produced per hour.Assume that apart from labor there are additional production cost of $2 per chair. How many workers will be hired if the hourly wage for workers is $70? A: # of Workers| Chairs Produced| Income| Prod. Cost| Wage| Net Income| 1| 10| 120| 20| 70| 30| 2| 18| 216| 36| 140| 40| 3| 24| 288| 48| 21 0| 30| 4| 28| 336| 56| 280| 0| 5| 30| 360| 60| 350| -50| There will be hired only 2 workers, because after one hour of production and paying for the work, with 2 workers the company will have the highest net income equal to $40. Problem #4 Q: A report indicated that the average real wage in manufacturing declined by 2% between 1990 and 2000.If the CPI equaled 1. 30 in 1990, 1. 69 in 2000, and the average nominal wage in manufacturing was $35 in 2000, what was the average nominal wage in manufacturing in 1990? A: Year| CPI| Nominal Salary| Real Salary| 1990| 1. 30| $x| $(y+2%)| 2000| 1. 69| $35| $y| Y=35/1. 69=20. 71 (Real Salary for 2000) Y+2%= 20. 71 + 20. 71*0. 02=21. 1242 (Real Salary for 1990) X= 21. 1242*1. 30=27. 4614 (Nominal Salary for 1990) Problem #5 Q: A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract and by another 3 percent in the third year.The CPI is 1. 00 in the first year, 1. 07 in the second year, and 1. 15 in the third year. What dollar wage must be paid in the third year? A: Year| CPI| Nominal Salary| Real Salary| 1| 1. 00| 10| Y1=10| 2| 1. 07| X1| Y2=(Y1+3%)| 3| 1. 15| X2| Y3=(Y2+3%)| Y2 = 10+10*0. 03 = 10. 3 (Real Salary Second Year) Y3 = 10. 3 + 10. 3*0. 03 = 10. 609 (Real Salary Third Year) X1 = 10. 3*1. 07 = 11. 021 (Nominal Salary Second Year) X2 = 10. 609*1. 15 = 12. 20 (Nominal Salary Third Year)