Question

Assume you have the following information about an economy:

Labor Force of an Economy

	Number of People (millions)
Population over age 16	248.2
Labor force	156.0
Not in the labor force	92.2
Employed	146.4
Unemployed	9.6

Instructions: Round your answers to 2 decimal places.

a. What is the unemployment rate in this economy?%

b. What is the labor force participation rate? %

c. Assume that 1 million discouraged workers decide to start looking for work again, thereby increasing the number of officially unemployed workers by 1 million. What is the unemployment rate now? %

d. What is the new labor force participation rate?

2. The table below lists the prices from last year and the base year for a college-related basket of goods.

Basket of College-Related Goods

Basket of Goods	Price Base Year (dollars)	Price Last Year (dollars)
Gasoline (per gallon)	$ 2.05	$2.60
Pizza (per pizza)	4.75	8.15
Beer (per 6-pack)	4.25	7.07
Textbook (per book)	102.00	234.00

Instructions: Round your answers to 2 decimal places.

a. What is the total cost for a basket of goods that includes 210 gallons of gas, 55 pizzas, 40 6-packs, and 4 textbooks?

In the base year: $

Last year: $

b. Using this basket of goods, compute the following CPI values:

In the base year:

Last year:

c. Assume that rather than buying textbooks for their courses last year, all students decided to buy online access cards at $95 per textbook. Compute the total cost for this basket of goods and the CPI.

     Total cost of basket: $   

     CPI:

    

Answer 1

a)

Unemployment Rate = (Number of Unemployed / Labor Force) * 100

Labor Force = Number of Employed + Number of Unemployed

Number of unemployed= 9.6 million

Labor force= 156 million

Unemployment rate= (9.6/156) x 100=6.15%.

b) Labor Force Participation Rate (LFPR)

LFPR = Labor Force / Civilian Non-Institutionalized Population

where the Labor Force = Employed + Unemployed.

Labor force= 156 million

Civilian Non-Institutionalized Population =248.2

LFPR= (156/248.2) x 100=62.85%.

c. New unemployed- 9.6+1 million= 10.6 million

New labor force= Number of Employed + Number of Unemployed

= 146.4 million + 10.6 million=157 million

New unemployment rate = (10.6/157) x 100 = 6.75%

d) New LFPR= (157/248.2) x 100= 63.26%