Problem Set 4

Fill in the blanks in the following table:

Year	Nominal GDP (in billion $)	GDP Deflator (2000=100)	Real GDP (billions of 2000 $)
1960	526.4	21.04	2,501.8
1970	1,038.5	27.53
1980	2,789.5		5,161.7
1990		81.59	7,112.5
2000	9,817.0

Bureau of Labor Statistics data for 1973 and 2008 indicate that the results reported in the table below would typically have emerged from a survey of adult males and adult females in the civilian noninstitutional population. Use the data to complete the table contrasting the civilian labor force participation and civilian unemployment rates for males and females in 1973 and 2008:

	Males		Females
	1973	2008	1973	2008
Number surveyed	1000	1000	1000	1000
Number employed	755	685	420	562
Number unemployed	33	45	27	33
Labor force participation rate
Unemployment rate

3.	Decide whether each of the following would be counted as an increase (+), a decrease (-) or no change (0) in the unemployment rate, and support your answer:
	a.	An employed worker loses her job and immediately begins looking for another.
	b.	A person previously counted as not in the labor force accepts a job offer.
	c.	An officially unemployed worker gets tired of looking for a job and leaves the labor force.

4.	Classify each of the following unemployed workers as either frictional (F), structural (S), or cyclical (C):
	a.	Joan Smith, a college student, has spent two weeks trying unsuccessfully to find a summer job so she can return to college in the fall.
	b.	Carol Jones has not been able to find a job after completing high school and initially entering the labor force.
	c.	A sharp cutback in the space program has cost Harold Robinson his $40,000-a-year job as an aerospace engineer. Prospects for employment as an engineer are exceedingly dim. Harold has not been able to find a satisfactory job in other lines of work since his termination six weeks ago.
	d.	Sue Blair is re-entering the labor force after having a baby, but has not yet found work.
	e.	Fred Mack is one of 10,000 auto workers laid off because of a sharp decline in GDP during the last six months.
	f.	Hal Freer, a coal miner, can no longer find work as a miner because automation has reduced the demand for mining labor.
	g.	Sue Colson is one of 70 United Airlines pilots laid off after an economic slowdown caused a sharp reduction in the demand for air transportation.

Complete the last column of the following table of information about the minimum wage:

Year	Minimum wage	CPI (1982-84=100)	Minimum wage in 2008 $
1981	$3.35	90.9
1989	$4.25	124.0
1997	$5.15	160.5
2008	$6.55	215.3

Use a supply and demand diagram for unskilled labor (with the real wage in 2008 dollars on the vertical axis) to illustrate how changes in the real minimum wage have affected the unemployment of unskilled workers. (Hint: don't forget that the minimum wage is a price floor.)

7.	Consider each of the following statements about unemployment and inflation. Indicate whether each statement refers primarily to an efficiency effect or an equity effect:
	a.	Laid-off workers often collect unemployment checks paid for by the rest of us.
	b.	Unanticipated inflation hurts creditors and helps debtors.
	c.	The output lost during periods of cyclical unemployment can never be recovered.
	d.	Inflation makes people less willing to enter into otherwise productive long-term contracts.
	e.	Inflation hurt Social Security recipients until their benefits were indexed to keep pace with the CPI.
	f.	During downturns in the economy, cyclical unemployment rises more for nonwhite workers than for white workers.

8.	Briefly explain what erroneous reasoning underlies each of the following statements:
	a.	"Since unemployed workers receive unemployment benefits that make up for most of their lost wages, unemployment is no longer an economic problem."
	b.	"Inflation must be stopped because it robs workers of their purchasing power."

9.	Go to the Economic Indicators: Main Page website at <http://www.gpoaccess.gov/indicators/index.html> and select the most recent year and month listed in the "Browse" section of the website. Then click the "Go" button. Browse through the available data table options, and record the following macroeconomic information (be sure to record the time period reported):
	a.	The unemployment rate.
	b.	(1) Nominal GDP; (2) the GDP Implicit Price Deflator; and (3) real GDP.
	c.	The inflation rate (as measured by the "Changes in consumer prices--all urban consumers"). Note: Be sure that what you report is an annual rate, not a month-to-month rate.

5.	Briefly explain why the "natural rate of unemployment" or "full-employment unemployment rate" is greater than zero.