Demand Framework

Homework #1

Problem #1
Q: Use the supply and demand framework in the labor market to explain why employment has grown rapidly in the United States in recent decades while at the same time there has been a slowdown in real-wage growth.

A: With the growth of both supply and demand in the US, we can see that the quantity of labor needed has increased. In the same time the wages have not increased that much, because if we have an increase in both supply and demand we will have a shift to the right of the equilibrium, which basically shows an increase in quantity of labor but not wages paid.

Problem #2
Q: In a small town of 100 people, there are 10 children under 16, 10 retired people, 60 people with full-time jobs, 3 people with part-time
Problem #4
Q: A report indicated that the average real wage in manufacturing declined by 2% between 1990 and 2000. If the CPI equaled 1.30 in 1990, 1.69 in 2000, and the average nominal wage in manufacturing was $35 in 2000, what was the average nominal wage in manufacturing in 1990?

A: Year | CPI | Nominal Salary | Real Salary | 1990 | 1.30 | $x | $(y+2%) | 2000 | 1.69 | $35 | $y |

Y=35/1.69=20.71 (Real Salary for 2000)
Y+2%= 20.71 + 20.71*0.02=21.1242 (Real Salary for 1990)
X= 21.1242*1.30=27.4614 (Nominal Salary for 1990)
Problem #5
Q: A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract and by another 3 percent in the third year. The CPI is 1.00 in the first year, 1.07 in the second year, and 1.15 in the third year. What dollar wage must be paid in the third year?
A:
Year | CPI | Nominal Salary | Real Salary