Economics 100A
Prof. Yang

Solutions to Homework Problems                     Chapter:  1  2  3  4  5  6  7  8

Chapter 5

1. a) 9.12 million. Unemployment equals 7% and rises at the rate of b - ue; .03 - .07(.4) = .002; 1.002(.07) = .07014; 130(.07014)

=9.1182.

b) u = 7.5%. For this condition to be true, b - ue must equal 0;

.03 - u(.4) = 0; u = .03 / .4 = .075.

 

3. a and b)

                            Year              GDP Gap             Potential GDP

                                                1990              1.5%                   4,825
                                                1991            -2.1                     4,972
                                                1992            -4.2                     5,197
                                                1993            -2.4                     5,261
                                                1994              -.3                     5,358

The average growth rate of potential GDP is

                                - 1 » 2.66%

Analytical

1. a) The natural rate falls as the rate of job destruction decreases due to less structural change and the flow into unemployment decreases.

        b) The natural rate falls as fewer students enter the labor force during the summer and the flow into unemployment decreases.

        c)  The natural rate falls as search time decreases and the job finding rate increases.

        d)  The natural rate falls as the job losing rate decreases as a result of the government’s conscription activities.

        e)  The natural rate falls as the job finding rate increases.

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