Looking for Quiz 7 :
Measuring and Describing the Aggregate Economy
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The Bureau of Labor Statistics reported that in April 2009 the total labor force was 154,731,000 of a possible 235,272,000 working-age adults. The total number of unemployed was 13,724,000. From this information, calculate the following:
a. Labor force participation rate.
b. Unemployment rate.
c. Employment-population ratio.
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a. Labor force participation rate is the labor force as percentage of population with at least 16 years of age. 
b. Unemployment rate is calculated as total number of unemployed individuals divided by number of people in the labor force. 
c. Employment-population ratio is as number of people who are working as percentage of people available for work. It measures the country's working age population that is employed.
Number of individual in working age = 235,272,000
Number of employed people = 154,731,000 
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Does the unemployment rate underestimate or overestimate the unemployment problem? Explain.
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Unemployment rate is the percentage of people in economy who are willing able to work but who are not working.
Official unemployment rate underestimate the problem of unemployment because of following reasons:
1. It does not include discouraged workers
2. It does not include underemployed workers
Discouraged workers are those workers who have stoppedUnderemployed workers are those workers who are underutilized. Underutilized means they are employed in a work which do not fully utilizes their productive potential. Underutilized workers include part time workers who would prefer full employment.
Official numbers understates the actual unemployment because sizeable numbers of officially unemployed are actually working. A construction worker for example, who is unemployed, may be playing in the band in the night. He may not officially report his activity because he or she wants to avoid paying taxes on his or her earnings as musician. Many officially unemployed have alternative source of income.
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In 1991, Japanese workers' average tenure with a firm was 10.9 years; in 1991 in the United States the average tenure of workers was 6.7 years.
a. What are two possible explanations for these differences?
b. Which system is better?
c. In the mid-1990s, Japan experienced a recession while the United States' economy grew. What effect did this likely have on these ratios?
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Unemployment rate is the percentage of total number of unemployed people who are activelya.The tenure of jobs in two countries basically depended upon the culture of the countries. The people of country J tend to be moreb.If the changes in jobs is due to career upgradation then system in country U is better but if it is due to effect of business cycles or economic instability, then it can be said that country J's system is better. Therefore, without additional information there is no way to tell which system is better.
c.When there was recession in country J but not in country U, then most probably the tenure of jobs in country J will decline and as the economy of country U is rising so the tenure of jobs will increase.
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The index of leading indicators has predicted all past recessions. Nonetheless it's not especially useful for predicting recessions. Explain.
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In H. G. Wells's Time Machine, a late-Victorian time traveler arrives in England some time in the future to find a new race of people, the Eloi, in their idleness. Their idleness is, however, supported by another race, the Morlocks, underground slaves who produce the output. If technology were such that the Elois' lifestyle could be sustained by machines, not slaves, is it a lifestyle that would be desirable? What implications does the above discussion have for unemployment?
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Since the Great Depression, the United States has been able to avoid severe economic downturns.
a. What macroeconomic policies do you think have allowed us to avoid another Great Depression?
b. Would you classify those policies as being Classical or Keynesian?
c. Are such policies still relevant today? (Post-Keynesian)
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Studies have shown that women tend to pay more than men for things such as auto repairs, haircuts, and dry cleaning.
a. Why do you think this is?
b. How does this fact affect the usefulness of aggregate statistics such as the consumer price index (CPI)? (Feminist)
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The text presents the target rate of unemployment as being about 5 percent. William Vickrey, a Nobel Prize- winning economist, argued that the target unemployment rate should be seen as being between 1 percent and 2 percent. Only an unemployment rate thata. What is the appropriate target unemployment rate?
b. Explain your position.
c. What policies would you recommend to counteract the human tragedy of unemployment? (Radical)
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If unemployment fell to 1.2 percent in World War II, why couldn't it be reduced to 1.2 percent today?
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How does the U.S. per capita growth rate since 1950 compare to growth rates in other areas around the world?
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It is unfair, but true, that bad things happen. Unfortunately, to attempt to prevent unavoidable bad things can actually make things worse, not better. How might the above ideas be relevant to how society deals with business cycles? (Austrian)
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If unemployment rises by 2 percentage points, what will likely happen to output in the United States? (Use Okun's rule of thumb.)
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Wesley Mitchell, a founder of Institutional economics, said that to understand the business cycle, a distinction must be made between making goods and making money. All societies make goods. In the modern money economy, those who control the production and distribution of goods will only allow economic activity to occur if they can "make money." He used this line of reasoning to conclude that what drives the business cycle are business expectations; production, and thus increased employment today, will only be allowed if business expects to sell those goods at a profit tomorrow. Is his proposition reasonable? Explain. (Institutionalist)
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