## Quantitative Problems

 1. During the early 2000s, the dot-com bubble burst and many high-tech workers were laid off. One such worker, Norburt, has not worked for three years but pounds the streets every day looking for a job. His previous salary was \$150,000 a year, and he refuses to work for anything less. Is Norburt unemployed? 2. What are the most recent values of the U.S. unemployment rate, u; employment rate, e; and employment to population ratio, EP? 3. Relative to whites, the labor-force participation rate of African Americans is lower and their unemployment rate is higher. Establish that these facts necessarily mean that the employment to population ratio is lower among African Americans than among whites. What is the potential significance of this observation? 4. The real hourly wage, w, is defined by w = W/P, where W is the nominal straight-time hourly wage, and P is the price index. What are the main problems involved in constructing an adequate measure of the price index, P? 5. The substitution effect, in which individuals respond to a change in relative prices by switching the basket of goods they consume, is an important source of bias in constructing the CPI. Respond to the following excerpt by Abraham, Greenlees, and Moulton (1998):Many of the letters we receive about the CPI focus on the substitution effect, and many who write find the whole concept confusing, or even offensive. One individual offered the following comments: . . . your suggestion that switching from [butter to margarine] reduces inflation is flatly wrong. Were price increases . . . to lead people to live in cardboard boxes and to eat gravel, that logic would lead to the statistical conclusion that there is no inflation at all.23 6. Dave just received a 10% pay increase for the year! Nevertheless, the inflation rate is 15%. What happened to his real wage? 7. Suppose that the average nominal hourly wage of a steelworker increased from \$7 per hour in 1975 to \$45 per hour in 2009. What happened to his real wage if the price level increased from \$2 to \$12 over the same period? 8. What is meant by the structural transformation? What are its principal causes?