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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
1955
1965
1975
2.

Total
Employment
(millions)

Unemployment
Rate(%)

71.1
85.8

4.4
4.5

Labour Force
Participation
Rate (%)
59.3
58.9
61.2

Working-Age
Population
(millions)
109.7
153.1

The table shows the demand for and supply of skilled labour at different real hourly
wages of a fictitious economy.
Demand for Labour
Wage/Hour
Quantity
$12
75
14
68
16
61
18
54
20
47
22
40

Supply of Labour
Wage/Hour
Quantity
$12
47
14
54
16
61
18
68
20
75
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/economistexplains?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 didnt 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
1955
1965
1975
2.

Total
Employment
(millions)

Unemployment
Rate(%)

71.1
85.8

4.4
4.5

Labour Force
Participation
Rate (%)
59.3
58.9
61.2

Working-Age
Population
(millions)
109.7
153.1

The table shows the demand for and supply of skilled labour at different real hourly
wages of a fictitious economy.
Demand for Labour
Wage/Hour
Quantity
$12
75
14
68
16
61
18
54
20
47
22
40

Supply of Labour
Wage/Hour
Quantity
$12
47
14
54
16
61
18
68
20
75
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/economistexplains?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 didnt 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
1955
1965
1975
2.

Total
Employment
(millions)

Unemployment
Rate(%)

71.1
85.8

4.4
4.5

Labour Force
Participation
Rate (%)
59.3
58.9
61.2

Working-Age
Population
(millions)
109.7
153.1

The table shows the demand for and supply of skilled labour at different real hourly
wages of a fictitious economy.
Demand for Labour
Wage/Hour
Quantity
$12
75
14
68
16
61
18
54
20
47
22
40

Supply of Labour
Wage/Hour
Quantity
$12
47
14
54
16
61
18
68
20
75
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/economistexplains?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 didnt 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
1955
1965
1975
2.

Total
Employment
(millions)

Unemployment
Rate(%)

71.1
85.8

4.4
4.5

Labour Force
Participation
Rate (%)
59.3
58.9
61.2

Working-Age
Population
(millions)
109.7
153.1

The table shows the demand for and supply of skilled labour at different real hourly
wages of a fictitious economy.
Demand for Labour
Wage/Hour
Quantity
$12
75
14
68
16
61
18
54
20
47
22
40

Supply of Labour
Wage/Hour
Quantity
$12
47
14
54
16
61
18
68
20
75
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/economistexplains?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 didnt 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
1955
1965
1975
2.

Total
Employment
(millions)

Unemployment
Rate(%)

71.1
85.8

4.4
4.5

Labour Force
Participation
Rate (%)
59.3
58.9
61.2

Working-Age
Population
(millions)
109.7
153.1

The table shows the demand for and supply of skilled labour at different real hourly
wages of a fictitious economy.
Demand for Labour
Wage/Hour
Quantity
$12
75
14
68
16
61
18
54
20
47
22
40

Supply of Labour
Wage/Hour
Quantity
$12
47
14
54
16
61
18
68
20
75
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/economistexplains?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 didnt 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
1955
1965
1975
2.

Total
Employment
(millions)

Unemployment
Rate(%)

71.1
85.8

4.4
4.5

Labour Force
Participation
Rate (%)
59.3
58.9
61.2

Working-Age
Population
(millions)
109.7
153.1

The table shows the demand for and supply of skilled labour at different real hourly
wages of a fictitious economy.
Demand for Labour
Wage/Hour
Quantity
$12
75
14
68
16
61
18
54
20
47
22
40

Supply of Labour
Wage/Hour
Quantity
$12
47
14
54
16
61
18
68
20
75
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/economistexplains?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 didnt 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
1955
1965
1975
2.

Total
Employment
(millions)

Unemployment
Rate(%)

71.1
85.8

4.4
4.5

Labour Force
Participation
Rate (%)
59.3
58.9
61.2

Working-Age
Population
(millions)
109.7
153.1

The table shows the demand for and supply of skilled labour at different real hourly
wages of a fictitious economy.
Demand for Labour
Wage/Hour
Quantity
$12
75
14
68
16
61
18
54
20
47
22
40

Supply of Labour
Wage/Hour
Quantity
$12
47
14
54
16
61
18
68
20
75
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/economistexplains?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 didnt 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.