A Brief Note On Unemployment And The Unemployment Rate

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Diemmi Nguyen
January 9, 2017
Dr. Nurul Samiul Aman

Midterm Exam

Question 1

Full employment is when there are enough jobs available so that everyone can work. Full employment does not necessarily mean that the unemployment rate is 0. At full unemployment, there is frictional and structural unemployment. Frictional unemployment is the process of people moving from one occupation to another. Structural unemployment is when the individual do not qualify for the jobs. The definition of ‘full’ employment does not have a clear measured rate due to bad data on job industries. First off, surveys can provide inaccurate data. Secondly, when the demand is high, employers will take chances for people who normally would not qualify for the
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This relationship will cause an increase in the costs per unit of output of products and goods, causing inflation for the economy.

Question 2B

Question 3A

Date of purchase: $500,000 of shares of stock CPI = 190
One year later: $530,000 price sold CPI = 200

Rate of return = (530,000-500,000)/500,000 = 0.06 = 6%

% of inflation = (200-190)/190 = 0.0526 = 5.263 % inflation

“real” rate of return = we paid ($500,000/190) X 100 = $263,158 of shares of stock we received ($530,000/200) X 100 = $265,000 from the sale. So real rate of return = (265,000-263,158)/263,158 = 0.7 %

Question 3B
The CPI includes some weight of imported goods, while the GDPD does not include the weights of imported goods. In this situation, we are calculating the real rate of return, so we use the CPI because it more accurately expresses the average percentage of price increase of household purchases with income, as well as goods and services.

Question 4A
The rise increase of inflation expectations lowers the expected real value of future payments to T-note buyers. This makes the current prices less attractive and reducing demand. As a result, the prices of the T-notes will lower, as nominal interest yields increase from 2.8% to 4.2%.
Nominal interest before = 0.6%+2.2% = 2.8%
Nominal interest after one year = .2%+4% = 4.2%

Question 4B

Quesetion 5
Labor Productivity = Y/L Y = RGDP and L= hours of labor worked in economy per
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