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ECON1102 Macroeconomics: Money and Finance Semester 1, 2016 Tutorial 2 (Week 4)

Questions:

1. Fill in the table below, which gives historical data for the United States.

Year

Total

Unemployment

Labour Force

Working-Age

Employment

Rate(%)

Participation

Population

(millions)

Rate (%)

(millions)

1955

   

4.4 59.3

109.7

1965

71.1

 

4.5 58.9

 

1975

85.8

 

61.2

153.1

2. The table shows the demand for and supply of skilled labour at different real hourly wages of a fictitious economy.

Demand for Labour

Supply of Labour

Wage/Hour

Quantity

Wage/Hour

Quantity

$12

75

$12

47

14

68

14

54

16

61

16

61

18

54

18

68

20

47

20

75

22

40

22

82

a) Draw the supply and demand curves for labour.

b) What are the wage and quantity of labour at equilibrium?

c) Suppose a law is passed forbidding employers to pay wages less than $20 per hour. What will be the new quantity of labour in the market? Who gains and who loses from this law?

3. An economy with no foreign trade produces jumpers and dresses. There are 14 workers in the jumper industry and 26 workers in the dress industry. The marginal product of workers in the jumper industry, measured in jumpers produced per day, is determined by the following equation: MP = 20 - NS, where NS is the number of workers employed in the jumper industry. The marginal product of workers in the dress industry, measured in dresses produced per day is determined by the following equation, MP = 30 - ND, where ND is the number of workers employed in the dress industry.

a) Initially, jumpers sell for $40 each and dresses are $60 each. Find the equilibrium wage in each industry.

b) The economy opens up to trade. Foreign demand for domestically produced jumpers is strong, raising the price of jumpers to $50 each. But foreign competition reduces demand for domestically produced dresses so that they now sell for $50 each. Assuming that workers cannot move between industries, what are the wages in each industry now? Who has been hurt and who has been helped by opening up to trade?

Group Discussion Question Read the article “Why long-term unemployment in the euro area is so high” from The Economist, http://www.economist.com/blogs/economist-explains/2015/08/economist-

explains?zid=293&ah=e50f636873b42369614615ba3c16df4a.

Compared to the U.S. and other advanced economies, why is it so tough for Europeans to go back to work?

Additional Questions (Solutions to be provided on LMS)

1. For each of the following scenarios, state whether the unemployment is frictional,

structural, or cyclical. Justify your answer.

a) Ted lost his job when the steel mill closed down. He lacks the skills to work in another industry and so has been unemployed over a year.

b) Alice was laid off from her job at the auto plant because the recession reduced the demand for cars. She expects to get her job back when the economy picks up.

c) Lance is an unskilled worker who works for local moving companies during their busy seasons. The rest of the year he is unemployed.

d) Tao looked for a job for six weeks after finishing college. He turned down a couple of offers because they didn’t let him use the skills he had acquired in university, but now he has a job in the area that he trained for.

e) Karen, a software engineer, lost her job when the start-up company she was working for went bankrupt. She interviewed at five companies before accepting a new job in another firm in the same industry.

2. How would each of the following factors be likely to affect the economy-wide supply of labour?

a) The compulsory retirement age is increased

b) Increased productivity causes real wages to rise.

c) War preparations lead to the institution of a national draft, and many young people are called up.

d) More people decide to have children (consider both short-run and long-run effects).

e) Social security benefits are made more generous.

ECON1102 Macroeconomics: Money and Finance Semester 1, 2016 Tutorial 2 (Week 4)

Questions:

1. Fill in the table below, which gives historical data for the United States.

Year

Total

Unemployment

Labour Force

Working-Age

Employment

Rate(%)

Participation

Population

(millions)

Rate (%)

(millions)

1955

   

4.4 59.3

109.7

1965

71.1

 

4.5 58.9

 

1975

85.8

 

61.2

153.1

2. The table shows the demand for and supply of skilled labour at different real hourly wages of a fictitious economy.

Demand for Labour

Supply of Labour

Wage/Hour

Quantity

Wage/Hour

Quantity

$12

75

$12

47

14

68

14

54

16

61

16

61

18

54

18

68

20

47

20

75

22

40

22

82

a) Draw the supply and demand curves for labour.

b) What are the wage and quantity of labour at equilibrium?

c) Suppose a law is passed forbidding employers to pay wages less than $20 per hour. What will be the new quantity of labour in the market? Who gains and who loses from this law?

3. An economy with no foreign trade produces jumpers and dresses. There are 14 workers in the jumper industry and 26 workers in the dress industry. The marginal product of workers in the jumper industry, measured in jumpers produced per day, is determined by the following equation: MP = 20 - NS, where NS is the number of workers employed in the jumper industry. The marginal product of workers in the dress industry, measured in dresses produced per day is determined by the following equation, MP = 30 - ND, where ND is the number of workers employed in the dress industry.

a) Initially, jumpers sell for $40 each and dresses are $60 each. Find the equilibrium wage in each industry.

b) The economy opens up to trade. Foreign demand for domestically produced jumpers is strong, raising the price of jumpers to $50 each. But foreign competition reduces demand for domestically produced dresses so that they now sell for $50 each. Assuming that workers cannot move between industries, what are the wages in each industry now? Who has been hurt and who has been helped by opening up to trade?

Group Discussion Question Read the article “Why long-term unemployment in the euro area is so high” from The Economist, http://www.economist.com/blogs/economist-explains/2015/08/economist-

explains?zid=293&ah=e50f636873b42369614615ba3c16df4a.

Compared to the U.S. and other advanced economies, why is it so tough for Europeans to go back to work?

Additional Questions (Solutions to be provided on LMS)

1. For each of the following scenarios, state whether the unemployment is frictional,

structural, or cyclical. Justify your answer.

a) Ted lost his job when the steel mill closed down. He lacks the skills to work in another industry and so has been unemployed over a year.

b) Alice was laid off from her job at the auto plant because the recession reduced the demand for cars. She expects to get her job back when the economy picks up.

c) Lance is an unskilled worker who works for local moving companies during their busy seasons. The rest of the year he is unemployed.

d) Tao looked for a job for six weeks after finishing college. He turned down a couple of offers because they didn’t let him use the skills he had acquired in university, but now he has a job in the area that he trained for.

e) Karen, a software engineer, lost her job when the start-up company she was working for went bankrupt. She interviewed at five companies before accepting a new job in another firm in the same industry.

2. How would each of the following factors be likely to affect the economy-wide supply of labour?

a) The compulsory retirement age is increased

b) Increased productivity causes real wages to rise.

c) War preparations lead to the institution of a national draft, and many young people are called up.

d) More people decide to have children (consider both short-run and long-run effects).

e) Social security benefits are made more generous.

ECON1102 Macroeconomics: Money and Finance Semester 1, 2016 Tutorial 2 (Week 4)

Questions:

1. Fill in the table below, which gives historical data for the United States.

Year

Total

Unemployment

Labour Force

Working-Age

Employment

Rate(%)

Participation

Population

(millions)

Rate (%)

(millions)

1955

   

4.4 59.3

109.7

1965

71.1

 

4.5 58.9

 

1975

85.8

 

61.2

153.1

2. The table shows the demand for and supply of skilled labour at different real hourly wages of a fictitious economy.

Demand for Labour

Supply of Labour

Wage/Hour

Quantity

Wage/Hour

Quantity

$12

75

$12

47

14

68

14

54

16

61

16

61

18

54

18

68

20

47

20

75

22

40

22

82

a) Draw the supply and demand curves for labour.

b) What are the wage and quantity of labour at equilibrium?

c) Suppose a law is passed forbidding employers to pay wages less than $20 per hour. What will be the new quantity of labour in the market? Who gains and who loses from this law?

3. An economy with no foreign trade produces jumpers and dresses. There are 14 workers in the jumper industry and 26 workers in the dress industry. The marginal product of workers in the jumper industry, measured in jumpers produced per day, is determined by the following equation: MP = 20 - NS, where NS is the number of workers employed in the jumper industry. The marginal product of workers in the dress industry, measured in dresses produced per day is determined by the following equation, MP = 30 - ND, where ND is the number of workers employed in the dress industry.

a) Initially, jumpers sell for $40 each and dresses are $60 each. Find the equilibrium wage in each industry.

b) The economy opens up to trade. Foreign demand for domestically produced jumpers is strong, raising the price of jumpers to $50 each. But foreign competition reduces demand for domestically produced dresses so that they now sell for $50 each. Assuming that workers cannot move between industries, what are the wages in each industry now? Who has been hurt and who has been helped by opening up to trade?

Group Discussion Question Read the article “Why long-term unemployment in the euro area is so high” from The Economist, http://www.economist.com/blogs/economist-explains/2015/08/economist-

explains?zid=293&ah=e50f636873b42369614615ba3c16df4a.

Compared to the U.S. and other advanced economies, why is it so tough for Europeans to go back to work?

Additional Questions (Solutions to be provided on LMS)

1. For each of the following scenarios, state whether the unemployment is frictional,

structural, or cyclical. Justify your answer.

a) Ted lost his job when the steel mill closed down. He lacks the skills to work in another industry and so has been unemployed over a year.

b) Alice was laid off from her job at the auto plant because the recession reduced the demand for cars. She expects to get her job back when the economy picks up.

c) Lance is an unskilled worker who works for local moving companies during their busy seasons. The rest of the year he is unemployed.

d) Tao looked for a job for six weeks after finishing college. He turned down a couple of offers because they didn’t let him use the skills he had acquired in university, but now he has a job in the area that he trained for.

e) Karen, a software engineer, lost her job when the start-up company she was working for went bankrupt. She interviewed at five companies before accepting a new job in another firm in the same industry.

2. How would each of the following factors be likely to affect the economy-wide supply of labour?

a) The compulsory retirement age is increased

b) Increased productivity causes real wages to rise.

c) War preparations lead to the institution of a national draft, and many young people are called up.

d) More people decide to have children (consider both short-run and long-run effects).

e) Social security benefits are made more generous.

ECON1102 Macroeconomics: Money and Finance Semester 1, 2016 Tutorial 2 (Week 4)

Questions:

1. Fill in the table below, which gives historical data for the United States.

Year

Total

Unemployment

Labour Force

Working-Age

Employment

Rate(%)

Participation

Population

(millions)

Rate (%)

(millions)

1955

   

4.4 59.3

109.7

1965

71.1

 

4.5 58.9

 

1975

85.8

 

61.2

153.1

2. The table shows the demand for and supply of skilled labour at different real hourly wages of a fictitious economy.

Demand for Labour

Supply of Labour

Wage/Hour

Quantity

Wage/Hour

Quantity

$12

75

$12

47

14

68

14

54

16

61

16

61

18

54

18

68

20

47

20

75

22

40

22

82

a) Draw the supply and demand curves for labour.

b) What are the wage and quantity of labour at equilibrium?

c) Suppose a law is passed forbidding employers to pay wages less than $20 per hour. What will be the new quantity of labour in the market? Who gains and who loses from this law?

3. An economy with no foreign trade produces jumpers and dresses. There are 14 workers in the jumper industry and 26 workers in the dress industry. The marginal product of workers in the jumper industry, measured in jumpers produced per day, is determined by the following equation: MP = 20 - NS, where NS is the number of workers employed in the jumper industry. The marginal product of workers in the dress industry, measured in dresses produced per day is determined by the following equation, MP = 30 - ND, where ND is the number of workers employed in the dress industry.

a) Initially, jumpers sell for $40 each and dresses are $60 each. Find the equilibrium wage in each industry.

b) The economy opens up to trade. Foreign demand for domestically produced jumpers is strong, raising the price of jumpers to $50 each. But foreign competition reduces demand for domestically produced dresses so that they now sell for $50 each. Assuming that workers cannot move between industries, what are the wages in each industry now? Who has been hurt and who has been helped by opening up to trade?

Group Discussion Question Read the article “Why long-term unemployment in the euro area is so high” from The Economist, http://www.economist.com/blogs/economist-explains/2015/08/economist-

explains?zid=293&ah=e50f636873b42369614615ba3c16df4a.

Compared to the U.S. and other advanced economies, why is it so tough for Europeans to go back to work?

Additional Questions (Solutions to be provided on LMS)

1. For each of the following scenarios, state whether the unemployment is frictional,

structural, or cyclical. Justify your answer.

a) Ted lost his job when the steel mill closed down. He lacks the skills to work in another industry and so has been unemployed over a year.

b) Alice was laid off from her job at the auto plant because the recession reduced the demand for cars. She expects to get her job back when the economy picks up.

c) Lance is an unskilled worker who works for local moving companies during their busy seasons. The rest of the year he is unemployed.

d) Tao looked for a job for six weeks after finishing college. He turned down a couple of offers because they didn’t let him use the skills he had acquired in university, but now he has a job in the area that he trained for.

e) Karen, a software engineer, lost her job when the start-up company she was working for went bankrupt. She interviewed at five companies before accepting a new job in another firm in the same industry.

2. How would each of the following factors be likely to affect the economy-wide supply of labour?

a) The compulsory retirement age is increased

b) Increased productivity causes real wages to rise.

c) War preparations lead to the institution of a national draft, and many young people are called up.

d) More people decide to have children (consider both short-run and long-run effects).

e) Social security benefits are made more generous.

ECON1102 Macroeconomics: Money and Finance Semester 1, 2016 Tutorial 2 (Week 4)

Questions:

1. Fill in the table below, which gives historical data for the United States.

Year

Total

Unemployment

Labour Force

Working-Age

Employment

Rate(%)

Participation

Population

(millions)

Rate (%)

(millions)

1955

   

4.4 59.3

109.7

1965

71.1

 

4.5 58.9

 

1975

85.8

 

61.2

153.1

2. The table shows the demand for and supply of skilled labour at different real hourly wages of a fictitious economy.

Demand for Labour

Supply of Labour

Wage/Hour

Quantity

Wage/Hour

Quantity

$12

75

$12

47

14

68

14

54

16

61

16

61

18

54

18

68

20

47

20

75

22

40

22

82

a) Draw the supply and demand curves for labour.

b) What are the wage and quantity of labour at equilibrium?

c) Suppose a law is passed forbidding employers to pay wages less than $20 per hour. What will be the new quantity of labour in the market? Who gains and who loses from this law?

3. An economy with no foreign trade produces jumpers and dresses. There are 14 workers in the jumper industry and 26 workers in the dress industry. The marginal product of workers in the jumper industry, measured in jumpers produced per day, is determined by the following equation: MP = 20 - NS, where NS is the number of workers employed in the jumper industry. The marginal product of workers in the dress industry, measured in dresses produced per day is determined by the following equation, MP = 30 - ND, where ND is the number of workers employed in the dress industry.

a) Initially, jumpers sell for $40 each and dresses are $60 each. Find the equilibrium wage in each industry.

b) The economy opens up to trade. Foreign demand for domestically produced jumpers is strong, raising the price of jumpers to $50 each. But foreign competition reduces demand for domestically produced dresses so that they now sell for $50 each. Assuming that workers cannot move between industries, what are the wages in each industry now? Who has been hurt and who has been helped by opening up to trade?

Group Discussion Question Read the article “Why long-term unemployment in the euro area is so high” from The Economist, http://www.economist.com/blogs/economist-explains/2015/08/economist-

explains?zid=293&ah=e50f636873b42369614615ba3c16df4a.

Compared to the U.S. and other advanced economies, why is it so tough for Europeans to go back to work?

Additional Questions (Solutions to be provided on LMS)

1. For each of the following scenarios, state whether the unemployment is frictional,

structural, or cyclical. Justify your answer.

a) Ted lost his job when the steel mill closed down. He lacks the skills to work in another industry and so has been unemployed over a year.

b) Alice was laid off from her job at the auto plant because the recession reduced the demand for cars. She expects to get her job back when the economy picks up.

c) Lance is an unskilled worker who works for local moving companies during their busy seasons. The rest of the year he is unemployed.

d) Tao looked for a job for six weeks after finishing college. He turned down a couple of offers because they didn’t let him use the skills he had acquired in university, but now he has a job in the area that he trained for.

e) Karen, a software engineer, lost her job when the start-up company she was working for went bankrupt. She interviewed at five companies before accepting a new job in another firm in the same industry.

2. How would each of the following factors be likely to affect the economy-wide supply of labour?

a) The compulsory retirement age is increased

b) Increased productivity causes real wages to rise.

c) War preparations lead to the institution of a national draft, and many young people are called up.

d) More people decide to have children (consider both short-run and long-run effects).

e) Social security benefits are made more generous.

ECON1102 Macroeconomics: Money and Finance Semester 1, 2016 Tutorial 2 (Week 4)

Questions:

1. Fill in the table below, which gives historical data for the United States.

Year

Total

Unemployment

Labour Force

Working-Age

Employment

Rate(%)

Participation

Population

(millions)

Rate (%)

(millions)

1955

   

4.4 59.3

109.7

1965

71.1

 

4.5 58.9

 

1975

85.8

 

61.2

153.1

2. The table shows the demand for and supply of skilled labour at different real hourly wages of a fictitious economy.

Demand for Labour

Supply of Labour

Wage/Hour

Quantity

Wage/Hour

Quantity

$12

75

$12

47

14

68

14

54

16

61

16

61

18

54

18

68

20

47

20

75

22

40

22

82

a) Draw the supply and demand curves for labour.

b) What are the wage and quantity of labour at equilibrium?

c) Suppose a law is passed forbidding employers to pay wages less than $20 per hour. What will be the new quantity of labour in the market? Who gains and who loses from this law?

3. An economy with no foreign trade produces jumpers and dresses. There are 14 workers in the jumper industry and 26 workers in the dress industry. The marginal product of workers in the jumper industry, measured in jumpers produced per day, is determined by the following equation: MP = 20 - NS, where NS is the number of workers employed in the jumper industry. The marginal product of workers in the dress industry, measured in dresses produced per day is determined by the following equation, MP = 30 - ND, where ND is the number of workers employed in the dress industry.

a) Initially, jumpers sell for $40 each and dresses are $60 each. Find the equilibrium wage in each industry.

b) The economy opens up to trade. Foreign demand for domestically produced jumpers is strong, raising the price of jumpers to $50 each. But foreign competition reduces demand for domestically produced dresses so that they now sell for $50 each. Assuming that workers cannot move between industries, what are the wages in each industry now? Who has been hurt and who has been helped by opening up to trade?

Group Discussion Question Read the article “Why long-term unemployment in the euro area is so high” from The Economist, http://www.economist.com/blogs/economist-explains/2015/08/economist-

explains?zid=293&ah=e50f636873b42369614615ba3c16df4a.

Compared to the U.S. and other advanced economies, why is it so tough for Europeans to go back to work?

Additional Questions (Solutions to be provided on LMS)

1. For each of the following scenarios, state whether the unemployment is frictional,

structural, or cyclical. Justify your answer.

a) Ted lost his job when the steel mill closed down. He lacks the skills to work in another industry and so has been unemployed over a year.

b) Alice was laid off from her job at the auto plant because the recession reduced the demand for cars. She expects to get her job back when the economy picks up.

c) Lance is an unskilled worker who works for local moving companies during their busy seasons. The rest of the year he is unemployed.

d) Tao looked for a job for six weeks after finishing college. He turned down a couple of offers because they didn’t let him use the skills he had acquired in university, but now he has a job in the area that he trained for.

e) Karen, a software engineer, lost her job when the start-up company she was working for went bankrupt. She interviewed at five companies before accepting a new job in another firm in the same industry.

2. How would each of the following factors be likely to affect the economy-wide supply of labour?

a) The compulsory retirement age is increased

b) Increased productivity causes real wages to rise.

c) War preparations lead to the institution of a national draft, and many young people are called up.

d) More people decide to have children (consider both short-run and long-run effects).

e) Social security benefits are made more generous.

ECON1102 Macroeconomics: Money and Finance Semester 1, 2016 Tutorial 2 (Week 4)

Questions:

1. Fill in the table below, which gives historical data for the United States.

Year

Total

Unemployment

Labour Force

Working-Age

Employment

Rate(%)

Participation

Population

(millions)

Rate (%)

(millions)

1955

   

4.4 59.3

109.7

1965

71.1

 

4.5 58.9

 

1975

85.8

 

61.2

153.1

2. The table shows the demand for and supply of skilled labour at different real hourly wages of a fictitious economy.

Demand for Labour

Supply of Labour

Wage/Hour

Quantity

Wage/Hour

Quantity

$12

75

$12

47

14

68

14

54

16

61

16

61

18

54

18

68

20

47

20

75

22

40

22

82

a) Draw the supply and demand curves for labour.

b) What are the wage and quantity of labour at equilibrium?

c) Suppose a law is passed forbidding employers to pay wages less than $20 per hour. What will be the new quantity of labour in the market? Who gains and who loses from this law?

3. An economy with no foreign trade produces jumpers and dresses. There are 14 workers in the jumper industry and 26 workers in the dress industry. The marginal product of workers in the jumper industry, measured in jumpers produced per day, is determined by the following equation: MP = 20 - NS, where NS is the number of workers employed in the jumper industry. The marginal product of workers in the dress industry, measured in dresses produced per day is determined by the following equation, MP = 30 - ND, where ND is the number of workers employed in the dress industry.

a) Initially, jumpers sell for $40 each and dresses are $60 each. Find the equilibrium wage in each industry.

b) The economy opens up to trade. Foreign demand for domestically produced jumpers is strong, raising the price of jumpers to $50 each. But foreign competition reduces demand for domestically produced dresses so that they now sell for $50 each. Assuming that workers cannot move between industries, what are the wages in each industry now? Who has been hurt and who has been helped by opening up to trade?

Group Discussion Question Read the article “Why long-term unemployment in the euro area is so high” from The Economist, http://www.economist.com/blogs/economist-explains/2015/08/economist-

explains?zid=293&ah=e50f636873b42369614615ba3c16df4a.

Compared to the U.S. and other advanced economies, why is it so tough for Europeans to go back to work?

Additional Questions (Solutions to be provided on LMS)

1. For each of the following scenarios, state whether the unemployment is frictional,

structural, or cyclical. Justify your answer.

a) Ted lost his job when the steel mill closed down. He lacks the skills to work in another industry and so has been unemployed over a year.

b) Alice was laid off from her job at the auto plant because the recession reduced the demand for cars. She expects to get her job back when the economy picks up.

c) Lance is an unskilled worker who works for local moving companies during their busy seasons. The rest of the year he is unemployed.

d) Tao looked for a job for six weeks after finishing college. He turned down a couple of offers because they didn’t let him use the skills he had acquired in university, but now he has a job in the area that he trained for.

e) Karen, a software engineer, lost her job when the start-up company she was working for went bankrupt. She interviewed at five companies before accepting a new job in another firm in the same industry.

2. How would each of the following factors be likely to affect the economy-wide supply of labour?

a) The compulsory retirement age is increased

b) Increased productivity causes real wages to rise.

c) War preparations lead to the institution of a national draft, and many young people are called up.

d) More people decide to have children (consider both short-run and long-run effects).

e) Social security benefits are made more generous.