Problem Set 2

1) A country with a civilian population of 90,000 (all over age 16) has 70,000 employed and 10,000 unemployed persons. Of the

unemployed, 5,000 are frictionally unemployed and another 3,000 are structurally unemployed. On the basis of this data, answer the

following questions: (show your work for credit)

a. What is the size of the labor force?

b. What is the unemployment rate?

c. What is the natural rate of unemployment for this country?

d. Is this economy in recession or expansion? Explain.

2) Visit and search through the tables on unemployment to answer the following questions:

a. What is the current national unemployment rate for the United States?

b. What is the current national unemployment rate for teenagers?

c. What is the current unemployment rate for adult women?

3) Consider a country with 300 million residents, a labor force of 150 million, and 10 million unemployed. Answer the following

questions: (show your work for credit)

a. What is the labor force participation rate?

b. What is the unemployment rate?

c. If 5 million of the unemployed become discouraged and stop looking for work, what is the new unemployment rate?

d. Suppose instead that 30 million jobs are created and this attracts 20 million new people into the labor force. What would be the

new rates for labor force participation and unemployment?

4) In 1991, the Barenaked Ladies released their hit song “If I had a Million Dollars.” How much money would the group need in 2012

to have the same amount of real purchasing power in 2012? Note that the consumer price index in 1991 was 136.2 and in 2012 it was 230.

Show your work for credit.

5) While rooting through the attic you discover a box of old tax forms. You find that your grandmother made $75 working part-time

during December 1964 when the CPI was 31.3. How much would you need to have earned in in January of 2013 to have at least as much real

income as your grandmother did in 1964? To determine the CPI for January of 2013 you can visit the Bureau of Labor Statistic website

( Show your work for credit.


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