Consider an economy that initially has a labor force of 2000 workers. Of these w
ID: 1242564 • Letter: C
Question
Consider an economy that initially hasa labor force of 2000 workers. Of these workers, 1900 are employedand
each works 40 hours per week. Ten units of output are produced byeach
hour of labor.
(b)
The economy enters a recession. Employment falls by 4% and thenumber of
hours per week worked by each employed worker falls by 2.5%. In
addition 0.2% of the labor force becomes discouraged at theprospect of
finding a job and leaves the labor force. Finally, suppose thatwhenever
total hours fall by 1%, total output falls by 1.4%. During the
recession, what is the size of the labor force? How many workersare
unemployed and what is the unemployment rate? What is the totaloutput
per week in the economy? What is the labor productivity per hour?What
is the labor productivity per worker in a week?
Explanation / Answer
Employment - 4% Hours per week each employed -2.5% 0.2% labor force(4) leaves labor force if total hours work - 1%, total output -1.4% Hours per week by each worker = 40 * 97.5% = 39 hours Labor force size = 2000-4 = 1996 Employed = 1,900*96% = 1824 Unemployment rate = (1996-1824)/1996 *100% = 8.62% Total hours work = 39*1824 = 71,136 hours/week % decrease in hours= (76,000-71136)/76,000 *100% = 6.4% % decrease in output = 6.4%*1.4% = 8.96% Total out put per week = 760,000 * 91.04% = 691,904 units/week Labor productivity per hour = 691,904/71,136 = 9.73 units/hour Labor productivity per worker in a week = 691,407/1824 = 379.06units/worker in a week