Economics 110a spring 2015 dr maria cândido 5 part

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Economics 110A Spring 2015 Dr. Maria Cândido 5 PART II: Problems (76 points total) 1. (8 points) The following is a report from a not-very efficient BLS survey taker: “In this small town of 650 people, 100 of them are children under 16; 250 people have full-time jobs, and 50 have part-time jobs. There are 5 people in jail, 100 retirees, 50-full time homemakers, 50 full-time students over the age 16, and 9 disabled people who cannot work. The remaining people do not have jobs, but all said they would like to have one. Seven of these had not actively looked for a job in the previous six weeks.” Show all your work when answering the following questions: a. What is the size of the working-age population in this small town? b. How many people in this small town are employed? c. How many people in this small town are unemployed? d. What is the size of the labor force? 2. (6 points) The Bureau of Labor Statistics released the May labor market statistics in June 5, 2015. One of the good news was that hiring was up, with the economy adding 280,000 jobs in May. a. One of the news headlines read the following: “ Hiring Ticks Up In May — But Unemployment Rate Does, Too”. Explain what must have happened so that both hiring and unemployment rate increase. b. Assuming that the population remained constant from April to May, what do you think happened to the Labor Force Participation Rate in May? Explain your answer.
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Economics 110A Spring 2015 Dr. Maria Cândido 6 3. (9 points) Suppose a college education increases a person’s annual salary from $45,000 to $70,000. Assume that the interest rate is constant at 3%. a. You are a high school senior deciding whether or not to go to college. What is the present discounted value of your labor income if you forgo college and start working immediately? Assume you receive your first payment immediately and that you work for the next 43 years (you receive 44 labor income payments). (Note: to receive any credit in this question you have to write down the expression that represents the present discounted value in this case. Just stating the present discounted number itself will not grant you any credit). To solve, use the following mathematical proposition: 1 + a + a 2 + a 3 + …. + a n = 1 a n + 1 1 a . b. You are a high school senior deciding whether or not to go to college. If you go to college, your labor income will be higher ($70,000 per year). However, you start receiving those payments only after you graduate. Assuming that you spend four years in college, write down the expression for the present discounted value of your labor income if you go to college and receive your first payment four years from now and for the following 39 years (you receive 40 labor income payments).
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