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ans2154a - Econ 154b Spring 2005 Suggested Solutions to...

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Econ 154b Spring 2005 Suggested Solutions to Problem Set 2 Question 1 The graphs for total factor productivity (TFP), TFP growth, and the unemployment rate are as follows: TFP 15.80 16.00 16.20 16.40 16.60 16.80 17.00 17.20 17.40 1960 1965 1970 1975 1980 1985 1990 1995 Year TFP TFP
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TFP Growth -5.00 -4.00 -3.00 -2.00 -1.00 0.00 1.00 2.00 3.00 4.00 1960 1965 1970 1975 1980 1985 1990 1995 Year TFP growth TFP Growth Unemployment Rate 0 2 4 6 8 10 12 1960 1970 1980 1990 2000 Year Unemployment Rate Unemployment Rate Fromthe graphs above we can see that: - TFP growth was highest in 1984, and lowest in 1974.
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- High levels of unemployment tend to be accompanied by low levels of productivity growth. - During recessions, productivity growth is low. As the economy starts recovering, productivity growth rises fast. - During the oil shocks, total factor productivity growth was negative. - There are some important differences in productivity growth relative to the values in Table 3.1 in the textbook. Most notably, in 1986 and 1987 we obtain negative productivity growth, whereas Table 3.1 displays positive growth. Similarly, in 1992 we obtain positive growth, while in Table 3.1 productivity growth is negative. Question 2 (a) At any date, 25 people are unemployed: 5 who have lost their jobs at the start of the month and 20 who have lost their jobs either on January 1 or July 1. The unemployment rate is 25/500 0.05, or 5%. (b) Each month, 5 people have one-month spells. Every six months, 20 people have six-month spells. The total number of spells during the year is 5 12 20 2 100. Sixty of the spells (60% of all spells) last one month, while 40 of the spells (40% of all spells) last six months. (c) The average duration of a spell is 0.60 1 month 0.40 6 months 3 months . (d) On any given date, there are 25 people unemployed. Twenty of them (80%) have long spells of unemployment, while 5 of them (20%) have short spells. Question 3 (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%. (b) Employment falls 4% from 1900 to: 1 0.04 1900 1824. The labor force falls 0.2% from 2000 to: 1 0.002 2000 1996. With a labor force of 1996 and employment of 1824, unemployment is 1996 1824 172. The unemployment rate is 172/1996 0.086, or 8.6%. Hours worked per employed worker falls 2.5% from 40 to: 1 0.025 40 39. Total hours per week 39 hours per worker 1824 workers 71,136. So total hours per week falls by 76,000 71,136 /76,000 0.064, or 6.4%. Total output per week falls 1.4% for 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 1
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This note was uploaded on 04/06/2008 for the course ECON 154 taught by Professor Bjoernbruegemann during the Spring '07 term at Yale.

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ans2154a - Econ 154b Spring 2005 Suggested Solutions to...

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