Mid2ReviewF07

Mid2ReviewF07 - 1 ECN 111 Fall Semester 2007 Review Sheet...

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ECN 111 Fall Semester, 2007 Review Sheet for Midterm 2 Chapters 6-11 1. Calculate the value of the civilian unemployment rate (from data given). Non-institutional population aged 16 years or more ……1000 Armed Forces employment………………………………… 200 Civilian employed…………………………………. .………. . 400 Civilian unemployed………………………………………….200 The civilian unemployment rate is the percentage of the current labor force (E + U) that is unemployed. (U). In this case U /(U + E) = 200 / 600 = 33%. 2. Calculate the labor force participation rate (from data given) In the problem above the potential civilian labor force is 800 and the actual civilian labor force is 600. The labor force participation rate is the percentage of the potential civilian labor force (800) that is currently in the labor force (400 + 200) so the rate is 600/800 = 75%. 3. What are the basic categories of unemployment? Under what conditions would individuals be classified into one of these categories? 4. What does a 6% unemployment rate mean? 5. What is meant by “full” employment for the macroeconomic policy purposes? 6. What are the costs of unemployment: (a) to individuals; and (b) to society? 7. Explain how the labor force (and its “employed” and “unemployed” components) are measured in the Current Population Survey? What factors cause an individual to be classified as: (a) a member of the potential civilian labor force; (b) a member of the current (or actual) civilian labor force; (c) unemployed; (d) employed; (e) a discouraged worker; and (f) out of the current (or actual) labor force? 8. What are the four stages of a business cycle? What are “leading” economic indicators? How do they differ from “coincident” and “lagging” economic indicators? Why, in particular, is the unemployment rate a “lagging” economic indicator? 9. What is inflation? 1

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10.What happens to relative prices as inflation occurs? 11.How is inflation measured in the Consumer Price index? Inflation is measured as a weighted average of the percentage changes in prices of a fixed basket of goods, where the weights are equal to the relative importance of the items in the typical consumer’s budget. Market Basket Quantities 1998 Price 1999 Price 5 X \$2 \$3 2 Y \$15 \$18 6 Z \$10 \$10 1998 expenditures = \$100; 1999 expenditures = 111. Ratio of \$111 to \$100 = 111/100 = 1.11 so the new value of the CPI is 111 if 1998 is the base year. To demonstrate that a price index is the weighted average of the percentage changes in prices we have the following: Percentage changes in prices (50% for A; 20% for B; 0% for C) and the following percentage of the budget spent on the three products as follows (A = 10%; B = 30%; C = 60%.) Weighting the percentages changes in prices by the percentage of the budget spent on each item we have: 50% * 10% + 20% * 30% + 0% * 60% = 5% + 6% = 11%. So if the price index read 100 in 1998, it will read 111 in 1999. 12.
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Mid2ReviewF07 - 1 ECN 111 Fall Semester 2007 Review Sheet...

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