1. ECO2251 Homework 4
1.
Suppose that society decided to reduce consumption and increase investment.
1. How would this change affect economic growth?
Economic growth will increase temporarily.
2. What groups in society would benefit from this change?
For a while workers at and owners of firms which produce capital goods.
3. What groups might be hurt?
For a while workers at and owners of firms which produce consumption goods.
2. Last year a country had 800 workers who worked an average of 8 hours and produced 12,800 units.
This year the same country had 1000 workers who worked an average of 8 hours and produced 14,000
units. This country's productivity was
a. lower this year than last year. A change in the size of the capital stock does not affect
productivity.
b. lower this year than last year. A possible source of this change in productivity is a change in the
size of the capital stock.
c. higher this year than last year. A possible source of this change in productivity is a change in the
size of the capital stock.
d. higher this year than last year. A change in the size of the capital stock does not affect
productivity.

2. 3. In 2009, the imaginary nation of Florastan had a population of 8,044 and real GDP of 36,198,000. In
2010 it had a population of 7,800 and real GDP of 35,880,000. What was the growth rate of real GDP per
person in Florastan between 2009 and 2010?
a. -2.2 percent
b. 2.2 percent
c. 4.5 percent
d. -0.7 percent
4. Structural unemployment is sometimes said to result from a mismatch between the job skills that
employers want and the job skills that workers have. To explore this idea, consider an economy with two
industries: auto manufacturing and aircraft manufacturing.
1. If workers in these two industries require similar amounts of training, and if workers at the beginning
of their careers could choose which industry to train for, what would you expect to happen to the wages
in these two industries?
wages would be the same in the auto and aircraft industries.
2. Suppose that one day the economy opens itself to international trade and, as a result, starts importing
autos and exporting aircraft. What would happen to demand for labor in these two industries?
Demand for labor
Country begins importing autos falls in the auto industry.
Country begins to export aircraft rises in the aircraft industry.
3. Suppose that workers in one industry cannot be quickly retrained for the other. How would these
shifts in demand affect equilibrium wages in the short run?
Wages in the auto industry would fall.
Wages in the aircraft industry would rise.
4. If for some reason wages fail to adjust to the new equilibrium levels, what would occur?

3. The labor market for auto workers would have a surplus.
The labor market for aircraft workers would have a shortage.
5.
Table 12-1.
Athens and Troy both produce only ribs and baked potatoes.
Refer to Table 12-1. Which of the following is correct?
a. Real GDP is higher in Troy while real GDP per person is higher in Athens.
b. Real GDP is higher in Athens while real GDP per person is higher in Troy
c. Both real GDP and real GDP per person are higher in Athens than Troy.
d. Both real GDP and real GDP per person are higher in Troy than Athens.
6. Which of the following is not correct?
a. Workers in unions reap the benefit of collective bargaining, while workers not in unions bear
some of the cost.
b. An organized withdrawal of labor from a firm by a union is called a strike.
c. The power of a union comes from its ability to strike if the union and the firm do not agree on the

4. terms of employment.
d. Economists who study the effects of unions typically find that union workers earn about 25 to 35
percent more than similar workers who do not belong to unions.
7.
Table 15-1
Labor Data for Aridia
Refer to Table 15-1. The labor-force participation rate of Aridia in 2011 was
a. 54.2%.
b. 43.3%.
c. 68.4%.
d. 63.3%.
8. In 2009, Angel Foods produced 300,000 bags of tortilla chips, employing 12,000 hours of labor. In
2010, Angel Foods produced 325,000 bags of tortilla chips, employing 13,000 hours of labor. Angel
Food's productivity
a. decreased by 2.1 percent.
b. increased by 2.3 percent.
c. increased by 1.3 percent.
d. was unchanged.
9. The Bureau of Labor Statistics announced that in April 2010, of all adult Americans, 139,455,000 were

5. employed, 15,260,000 were unemployed, and 82,614,000 were not in the labor force.
1. Calculate the adult population.
237329000
2. Calculate the labor force.
154715000
3. Calculate the labor-force participation rate. Please round the answer to one decimal place.
65.2
4. Calculate the unemployment rate. Please round the answer to one decimal place.
9.9
10.
Table 15-3
2010 Labor Data for Adults (age 16 and older) in Meditor
Refer to Table 15-3. What is the adult unemployment rate in Meditor?
a. 6.7 percent
b. 6.25 percent
c. 4.2 percent
d. 10 percent
11. Gramp's Potato Chips produces 1280 bags of potato chips a day. Each employee at Gramp's works 8
hours. If the company's productivity is 20 bags per hour, how many people does Gramp's employ?

6. a. 80
b. 10
c. 100
d. 8
12. How does the rate of population growth influence the level of GDP per person?
a. It decreases the capital stock per worker which reduces output per worker and it decreases
technological progress which reduces output per worker.
b. It increases the capital stock per worker which raises output per worker but it decreases
technological progress which reduces output per worker.<<<wrong answer also
c. It decreases the capital stock per worker which reduces output per worker but it may increase
technological progress which raises output per worker.
d. It increases the capital stock per worker which raises output per worker and it may increase
technological progress which raises output per worker.
13. Suppose that the minimum wage increases.
1. What happens to the wage paid to workers?
it remains the same<<<wrong, it falls<<wrong also
2. What happens to the number of workers supplied?
it rises
3. What happens to the number of workers demanded?
it falls
4. What happens to the amount of unemployment?
it rises
14. Economists use labor-market data to evaluate how well an economy is using its most valuable resource-

7. its people. Two closely watched statistics are the unemployment rate and the employment-population ratio.
What happens to each of these in the following scenarios?
Unemployment
rate
Employment-population
ratio
1. An auto company goes bankrupt and lays off its
workers, who immediately start looking for new jobs.
will rise will remain the same
will rise<<wrong answer
also
2. After an unsuccessful search, some of the laid-off
workers quit looking for new jobs.
will remain the
same
will fall<<correct
answer
will fall, will rise<<both
wrong
3. Numerous students graduate from college but
cannot find work.
will fall
will rise<<correct
will remain unchanged
4. Numerous students graduate from college and
immediately begin new jobs.
will rise
will fall<<correct
will remain the same, will
fall<<both wrong
5. A stock market boom induces newly enriched 60-
year-old workers to take early retirement.
will rise will fall
6. Advances in healthcare prolong the life of many
retirees.
will remain the
same
will fall
15. Are the following workers more likely to experience short-term or long-term unemployment?
1. A construction worker laid off because of bad weather.
short-term
2. A manufacturing worker who loses her job at a plant in an isolated area.

8. long-term
3. A stagecoach-industry worker laid off because of competition from railroads.
long-term
4. A short-order cook who loses his job when a new restaurant opens across the street.
short-term
5. An expert welder with little formal education who loses her job when the company installs automatic
welding machinery.
long-term