solution_hmk2 - 1 Exercise 10, page 107 Initially, there...

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1 Exercise 10, page 107 Initially, there are 2000 workers, of which 1900 are employed. Each works 40 hours per week. The production function is Y = 10 L; where L is measured in hours of labor. (a) Total hours worked per week =1900 workers 40 hours per worker =76,000 hours per week. Total output per week =76,000 total hours per week 10 units of output per hour =760,000 units of output. The unemployment rate is 100 unemployed/2000 labor supply =0.05, or 5%. 1900 =1824. The labor force falls 2000 = 1996. With a labor force of 1996 and employment 40 =39. Total hours per week = 39 hours per worker 1824 workers =71,136. So total hours per every 1% drop in hours, so output falls by 6.4% 1.4 =8.96%. Since output was 760,000, it now falls to 760,000 2 Exercise 6, page 107 Let E denotes total employment, U total unemployment, E + U the labor force, O the people out of the labor force, and E + U + O the working age population. (a) The unemployment rate is: u = U E + U and the employment ratio er = E E + U + O : The answer is yes. We can have u and er go up at the same time. For example, initially, E + U = 100 ; U = 10 ; and O = 50 . Thus: u = 0 : 10 ; er = 0 : 60 : Now, reduce O to 40 and E to 89, while U becomes 11 . You get: u = 0 : 11 ; er = 0 : 64 : (b) The participation rate is pr = E + U E + U + O : It can fall when er rises. Suppose that in the example above O remains at 50, while E + U falls to 95, U falls to 4 and E goes to 91. Then, pr goes from 100 = 150 = 0 : 67 to pr = 95 = 145 = 0 : 65 : The employment rate er goes from 0.60 to 91 = 145 = 0 : 63 : 1
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3 Exercise 7, page 107 Let W denote the hourly wage (in $) and l the number of hours worked by an individual in a year, so that Wl is his/her annual income. The social security tax T for a self-employed
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solution_hmk2 - 1 Exercise 10, page 107 Initially, there...

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