1 1. The unemployment rate is the percentage of the population that does not have paid employment, but is immediately available and actively looking for work. 12. Almost all of the people who are unemployed are so because they have involuntarily lost their jobs. 13. Structural unemployment arises because people's skills, experience, education, or Chapter 8 - Employment and Unemployment 2 location do not match what employers need. 14. The peak level of unemployment following the 1981-1982 recession was higher than the peak level of unemployment following the Great Recession of 2007-2009. 15. Jake is applying for jobs in medical research, while also working as a bartender few times a week. The BLS counts him as being underemployed. Short Answer 16. Why is high unemployment considered a bad thing? 17. Describe the two surveys the BLS uses to gather unemployment data. 18. How does the BLS classify people who are "not in the labor force," and what people are often in this category? 19. Why is it often said that the official unemployment rate tends to underestimate the true extent of unemployment in the economy? 20. What are the three major types of unemployment? Which of these three types of unemployment tends to be spread broadly throughout the entire economy, as occurs as a result of a drop-off in aggregate demand? 21. What is the classical model's explanation for involuntary unemployment? 22. Identify two theories that explain why wages might be "sticky" at a higher than market equilibrium level. 23. Describe Keynes's theory of aggregate demand, as it relates to wage levels and employment. Did Keynes believe that unemployment is caused by "sticky wages"? 24. The chapter describes flexibility in the labor market for the workers and for the employers. Explain these in detail. What kinds of flexibility might workers benefit from?Problems 1. Determine which of the following would be counted in the spending approach of GDP, and which would not be counted. Identify the category under which it would fall (C, I, G, NX, or not counted). a The housecleaning services of a stay-at-home mom. b. The housecleaning services of the "Merry Maids" company. c. The babysitting services of a babysitter whose earnings are kept "off the books" and not reported to the tax authorities. d. A brand new house built and sold this year. e. A new car made by Ford in the U.S., and sold to a household in the U.S. f. A new car made by Ford in the U.S, and sold in Mexico. g. Sale of a 2012 used Ford car. h. 3 shares of Ford Motor Company stock A new car made by Ford in the U.S. but not sold by the end of the year. j. A new car added to the fleet of taxis of Mr. Taxi Company. k. A new bridge to accommodate all the new and used cars and taxis on the road. 2. Use the following table to answer the next question: Stage of Production Stage of production Sales value of material Stage 1 Grapes produced in the 10 vineyard Stage 2 New wine produced at the 15 winery, stored in oak barrels Stage 3 Fermented wine stored in 20 wine bottles Stage 4 Wine bottles distributed by 25 the wholesaler Stage 5 Retail price of bottled wine 30 sold to consumer Chapter 5 - Macroeconomic Measurement: The Current Approach UI a. Assuming that no intermediate inputs are used other than the ones named, what is the value added at each stage of production - Stage 1-5? b. Using the value added approach, what is the total contribution to the GDP of this chain of production? c. Using the expenditure approach, what is total contribution to the GDP of this good? Explain why the number you got in part c is (or is not) the same as that from part b. 3. The small economy of the United States of Sustainability has only three companies: a bicycle manufacturer, a wind energy producer, and an organic cheese company. The only costs these companies have are the cost of their inputs and wages. Assume there are no rents, no depreciation, and no net income payments from the foreign sector. Assume all the output is sold to consumers as final goods. The companies' profits = Value of output (total revenues) - total costs. Bicycle company Wind energy Organic cheese company company Cost of inputs $0 $0 $0 Wages $50 $75 $25 Value of output $100 $150 $50 (total revenues) a Calculate the GDP of the United States of Sustainability using the income approach. b. Calculate the GDP of the United States of Sustainability using the spending O2. According to the results of the 2005 U.S. time use survey, women spent an average of 2.3 hours per day on household activities such as housework, food preparation, yard work, or paying bills, while men spent 1.4 hours per day (when averaged over all responses). Suppose these findings reflect the hours spent in household production for a middle class professional couple, who can each make $20 an hour in paid work. Suppose they can hire someone else to do these household activities for them for $10 an hour. Estimate the daily value of these household production activities (assuming no one else in the household is contributing to household production) using: a) the opportunity cost method b) the replacement cost method Chapter 6 - Macroeconomic Measurement: Environmental and Social Dimension 4 3. Counting the GPI Suppose the economists in the country Greenland have been counting the GPI and currently have estimated Personal Consumption Expenditures to be $1,000. They still need to account for the following entries. Finish the task for them, identifying whether the entries would be added or subtracted (or simply excluded) when measuring the GPI. Personal Consumption Expenditures = $1,000 Added (+) Subtracted (-) National defense $100 Spending on new bridges $25 borrowing $75 Damage from crime $50 Volunteer work in community $50 centers Oil tanker accident $30 Loss of wetlands $20 Helping kids with homework $40 Cooking of meals at home $30 Cost of commuting $15 Services of household washing $10 machines You clean your own house $50 Working overtime on Saturdays $25 (in your paid job) Value of higher education $40 Column Totals: Total GPI: Chapter 6 - Macroeconomic Measurement: Environmental and Social Dimension 5 Self Test 1. According to the textbook, subjective well-being (SWB) tends to... a. increase as GDP per capita decreases. b. increases as GDP per capita increases, but at a diminishing rate. does not show any relationship with regard to GDP per capita. and dose er OActive Review Fill! in the Blank 1. The US. agency that collects data on employment and unemployment is the 2. Joe performed 15 hours of unpaid work on his family farm. He would be considered to be an person, according to the BLS. 3. Bill lost his job as an airline mechanic, and has been sending out his resume to other potential employers. He would be willing to start working in a new job immediately. Bill would be counted as an person, according to the BIS. 4. Rachael says she wants to work and is available for work. She has recently looked for work but is currently not doing so. The BIS would call Rachael a worker. If she gives as her reason that she is no longer looking for work because thereare no jobs for her, she won be considered a worker. 5. The unemployment that arises due to transitions betwemjobs is called unemployment, whereas the unemployment that arises due to skills mismatches or geographic mismatches is called unemployment. e The theories developed by Keynesian-oriented economists explaining why wages may remain above equilibrium even when llrere's a surplus of labor are called theories. T. People working at jobs that underutilize their abilities, as well as those who work fewer hours than they wish to, are said to be 8. Paying your workers higher than the market wage rate in order to improve productivity is an example of _ theory. 9. is unemployment due to macroeconomic uctuations. sector of goodjobs, o; secondary sector where workers are lalten on an "as needed\" basis. True or F afre 11.The unemployment rate is the percentage of the population that does not have paid employment, but is immediately available and actively looking for work. 12. Almost all of the people who are unemployed are so because they have involuntarily lost their jobs. 13. Structural unemployment arises because people's skills, experience, education, or Chapter 8 Employment and Unemployment location do not match what employers need. 14. The peak level of unemployment following the 1981-1982 recession was higher than the peak level of unemployment following the Great Recession of 2007-21109. 15. Jake is applying for jobs in medical research, while also working as a bartender few times a umk. The BIS counts him as being underemployed. Show! Answer 16. Why is high unemployment considered a bad thing? 1?. Describe the two surveys the BIS uses to gather unemployment data. 18. How does the BIS classify people who are \"not in the labor force," and what peopleare often in this category? 19. Why isit often said that the official unemployment rate tends to underestimate the true extent of unemployment in the economy? 20. What are the three major types of unemployment? Which of these three types of unemployment tends to be spread broadly throughout the entire economy, as occurs as a result of a drop-off in aggregate demand? 21. What is the classical model's explanation for involuntary unemployment? Problems 1. Given this graph of real GDP for the U.S. in the years 1960 - 2015: U.S. Real GDP 18000 15000 12000 USD GDP (Billions of Constant 2010 9000 6000 3000 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: www.bea.gov Identify approximately what years the economy went into a recession. 2. Use the graph below to answer the following questions: B GDP Y * Year a. Label the phases of the "stylized" business cycle graph. A: B: D: Chapter 9 - Aggregate Demand and Economic Fluctuations 5 b. What does Y* refer to? 3. Use the table below (for a simple economy with no foreign sector or government) to answer the questions that follow. (3) (4) (1) (2) Income Intended Consumption Aggregate Expenditure Investment AE = C+ 1 (n) (C) (1i) = column (2) + column (3) 0 30 (a 50 300 300 20 (b) 400 (c) 20 410 500 480 20 500 600 (d 20 (e) Fill in the missing numbers in the spaces marked (a)-(c). Determine the consumption function, and use the result to fill in the remaining missing numbers (d)-(e). (f) Determine the equilibrium output level. O