Graduate (S) Business Administration 503 FUNDAMENTALS OF BUSINESS ECONOMICS
	Summer 2011

Unemployment and Inflation

The homework should be written on 8.5 x 11 or 8 x 10.5 paper. When calculations are required, you must show your work. The homework is due at the beginning of class on Wednesday, June 29.  Please make a copy of your homework before you turn it in.

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1.  Suppose an economy had 33.5 million people employed, 1.6 million unemployed, and 13.7 million not in the workforce.  Calculate unemployment rate, the labor force participation rate, and the employment rate in this economy.

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2.  Suppose a country produces the following:

Item	2000 Quantity	2000 Price	2010 Quantity	2010 Price
Restaurant meals	5,000,000	$10.00	6,000,000	$18.00
Cars	10,000	$15,000	16,000	$24,000
Legal services (hours)	1,000,000	$200.00	1,500,000	$300

a.  Calculate the nominal GDP for both 2000 and 2010.

b.  Calculate the real GDP for 2010, using 2000 as the base year.

c.  Calculate the GDP deflator for 2010, with 2000 as the base year.  What is the compound annual inflation rate between 2000 and 2010, according to the GDP deflator?

d.  Suppose that, in 2000, the average consumer in this economy consumed 120 restaurant meals, 0.2 cars (one new car every five years), and 4 hours of legal services.  In 2010, the average consumer consumed 100 restaurant meals, 0.25 cars, and 5 hours of legal services.  Calculate the Consumer Price Index for 2010, using 2000 as the base year.

e.  Suppose the Consumer Price Index in 2011 is 169.  What is the rate of inflation from 2010 to 2011?

f.  Suppose you borrowed $200,000 through a 10-year loan  in 2000.  What is the real value of that amount when you repay it in 2010, based on the Consumer Price Index calculated in (d)?