Econ 104 Macro
Problem Set #5
Answer Key
1. The BLS (Bureau of Labor Standards) calculates monthly unemployment figures based on the
CPS (Current Population Survey). To be counted as unemployed, a person must be in one of
three categories:
1.) without work but has made specific efforts to find a job within the previous 30 days.
2.) waiting to be called back to a job from which he or she has been temporarily laid off.
3.) waiting to start a new job within 30 days.
3 reasons why the unemployment rate may be misleading (describe each):
1.) unrealistic wage expectations.
2.) accounting for discouraged workers.
3.) accounting for part-time workers.
3 types of unemployment (describe each):
1.) frictional
2.) structural
3.) cyclical
4 costs of unemployment:
1.) loss in output and income.
2.) loss in human capital.
3.) increase in crime.
4.) loss in human dignity.
2. Unemployment rate = unemployed/labor force = 317/14800 = .0214 or 2.14%
Labor force participation rate = labor force/population = 14800/18000 = .822 or 82.2%
3. See class notes for the definition of the natural rate of unemployment. Also, does full
employment mean zero unemployment?
4.
a.) A discounted present value (or simply a present value) converts dollars in the future into
dollars today.
PV = $X/(1+i)n where $X is the amount to be received in the future, i is the nominal interest
rate, and n is the number of periods (or maturity date).
b.) At 10%, PV = $181.82.
At 5%, PV = $190.48
c.) At 10%, PV = $16,528.93
At 5%, PV = $18,140.59
