M2s08ans

# M2s08ans - Economics 502.02 Professor McCafferty S...

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Professor S. McCafferty Economics 502.02 Midterm Examination II Spring,2008 Name: At.)S rnZ,p-S Directions: Answer all questions. l) Consider an economy with a labor force of 1,000 workers. Initially, 900 workers are employed and 100 workers are unemployed. a) Calculate the unemployment rate in this economy. (2 points) * -* -\'o, D toD/o tpaQ Now suppose that in each period 2o/o of the employed workers lose their jobs and 38% of the unemployed workers find new jobs. b) At the end of one period, how many workers will be employed and how many workers will be unemployed? What will be the new unemployment rate? Show all of your work. (3 points) 4"u, J, \-^/-/-1'v{)'|-'yet''+ * (r"rn"\ = lff €tt- c,-* '6f""-*ek \ *n# = i,:S(ta\$"" 3\$- t\$zrr+ t^ " A g v-t*'e-1a^ I L\^r{ = [o o1 16:Y . gD \)-y\ pr:r', o&il q*'?q L./'-{- ? lgo uq^- *()t1 ,/. .,-* r"t ry "'^vt toTse= /o c) Assume that in each period ,2o/o of the employed workers continue to lose their and 38% of the unemployed workers continue to find new jobs. Calculate the equilibrium number of employed workers, the equilibrium number of unemployed workers, and the equilibrium unemployment rate. Show all of your work. (3 points) T'l* --' ,4- ala 4<+ 2 {/" z:Lr3gZ E q "r,', \: \df" 4,t t *'eL *p (1w*k .(&lr"'\ =5-b €gt*:,LU:'i^^,a- 'q4R"fi- 4" *^P c*1 w*uk <,:i*

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2 2) Consider an economy in which production is governed by Y =VRx rt. Total factor productivity, A , is equal to 0.5, and the capital stock, K is fixed at 27 . Ir the current period, total factor productivity and the capital stock are both fixed, and so the aggregate production function is given by: n ./ 171 =;t" Assume that the labor market is perfectly competitive, so that firms are price takers in the goods and labor markets. a) Derive the labor demand function for this economy in the current period. Labor demand should be a function of the real wage, w. That is, derive ti = ti (0 . (5 points) /z *Vt e:^ t n,tlt -L /, "\ a^, \-J J!= d \$-Lep: *,C)lk) L= ; l-q,\ ut {6a ,F4t K .J 1L' \\ I ,'km(
3 Suppose that the aggregate labor demand function for this economy in the current period is given by: E =l6xw b) Calculate the equilibrium wage, the equilibrium amount of employment, and the equilibrium level of real GDP in this economy. (5 points) Qn a-?l w, |, . 1af ', v'.\t\r' / 4,*^fr* t *'* l'= gf = irP as= f 1, L J- - r.;\ * e N<5'= ! z Lt/ fl = d ar{\= f&rr) Ct",'*) :- ?r f L*) =Y Lbf ?\bi a*rntr* :( t--. . 7 vK- \ "f- \- ,/s (ao €)(# (,

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c) 4 Equilibrium in the labor market may be depicted as in the diagram below. In this diagrarn, the labels, w and L, correspond to your answers to part (b) of this question for the equilibrium real wage and the equilibrium level of employrnent, respectively. In the diagram
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M2s08ans - Economics 502.02 Professor McCafferty S...

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