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ECON 214
PROBLEM SET 1
Complete all questions listed below. Clearly label your answers.
1. The receipts and year of release of the five movies with the largest nominal box office
revenues, along with the CPI data of each year are presented below. Assuming that the
receipts for each of the movies were derived during their year of release, convert the
receipts for each to real dollars for the year 2010 (2010 CPI 218.1). Put the movies in
order from largest to smallest real box office receipts.
Nominal
Box Office
Receipts
Year
CPI in Year
Movies
(millions) Released Released.
Avatar
$760.50
2009
214.5
Titanic
600.8
1997
160.5
Star Wars
461
1977
60.5
Shrek 2
437.2
2004
188.9
E.T. The
ExtraTerrestrial
399.9
1982
96.5
FORMULA: Original value * CPI of 2010 (218.1) / CPI of Original year
ANSWERS:
Star Wars
E.T. The Extra-Terrestrial
Titanic
Avatar
Sherk 2
461 * 218.1 / 60.5 =
1661.89 million dollars
399.9 * 218.1 / 96.5 =
903.82 million dollars
600.8 * 218.1 / 160.5 =
816.41 million dollars
760.50 * 218.1 / 214.5 = 773.26 million dollars
437.2 * 218.1 / 188.9 =
504.78 million dollars
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ECON 214
2. Classify each of the following as employed, unemployed, or not in the labor force.
a. Beth is not working; she applied for a job at Wal-Mart last week and is awaiting
the result of her application.
b. Juan is vacationing in Florida during a layoff at General Motors plant due to a
model changeover, but he expects to be recalled in a couple of weeks.
c. Bob was laid off as a carpenter when a construction project was completed. He is
looking for work but has been unable to find anything except a $10 per hour job
which he turned down.
d. Jade works 70 hours per week as a homemaker for her family of 6.
e. Carson, a 17-year-old, works six hours per week as a delivery person for the local
newspaper.
f. Brady works three hours in the mornings at the clinic and for the last two weeks
has spent the afternoons looking for a full-time job.
•
•
•
Employed
– a person (16 years old or over) who is
• working for pay at least one hour per week,
• self employed, or,
• working 15 hours or more each week without pay in a family-operated
enterprise.
Unemployed
– a person not currently employed who is either
• actively seeking a job, or,
• waiting to begin or return to a job.
Not in the labor force
– persons (16 years and older) who are neither
employed nor unemployed (like retirees,
students, homemakers, or disabled persons).
ANSWERS:
a.
b.
c.
d.
e.
f.
UNEMPLOYED
UNMPLOYED
UNEMPLOYED
NOT IN LABOR FORCE
EMPLOYED
EMPLOYED
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ECON 214
3. Use the following data to calculate (a) the labor force participation rate, (b) the
unemployment rate, and (c) the employment/population ratio.
Population age
16 and over
Labor force
Not currently
working
Employed Fulltime
Employed Parttime
Unemployed.
15,000
7,300
4,500
5,000
1,100
1,200
Employed = Employed Full time and Part time
ANSWERS:
a. Labor force participation rate = Labor force / Working age population,
Labor force participation rate = 7300 / 15000 = 48.7% (answer)
b. Unemployment Rate = Unemployed / Labor Force
Unemployment Rate = 1200 / 7300 = 16.4% (answer)
c. Employment/Population Ratio = Number of Employed / Population age 16 and over
Employment / Population Ratio = 5000+1100 / 15000 = 40.7% (answer)
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ECON 214
4. Consider an economy with the following aggregate demand (AD) and short-run
aggregate supply (SRAS) schedules. Decision-makers have previously made decisions
anticipating that the price level during the current period will be P105.
a. Indicate the quantity of GDP that will be produced during the period.
b. Is it a long-run equilibrium level of GDP? Why or why not?
c. How will the unemployment rate during the current period compare with the
natural rate of unemployment?
d. Will the current rate of GDP be sustainable into the future? Why or why not?
AD
105
6300
6000
5700
5400
5100
4800
Price
Level
90
95
100
105
110
115
SRAS
105
4500
4800
5100
5400
5700
6000
ANSWERS:
a. The quantity of the GDP = 5400 (this takes place at Price Level 105 where both the
AD and SRAS reach the equilibrium point)
b. YES, it is a long-run equilibrium level of the GDP. Why? The LRAS curve us
vertical and passes through the intersection point of AD and SRAS curves.
c. The actual unemployment rate will be equal to natural rate since the aggregate
demand is equal to the aggregate supply the two unemployment rates are equal.
d. No the current rate of GDP will not be sustainable in the future because there are going
to be more supply (SRAS) than there is demand (AD). It is no longer going to be in
equilibrium.
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