Aplia set 6 and non-aplia

1. Employed 2. Unemployed 3. Not in labor force (discouraged worker) 4. Not in labor force 5. Employed 6. Not in adult population

1. 60% 2. 33.3%

#1, 3 Any jobless person who has not looked for work in the past 4 weeks is not in the labor force according to the Bureau of Labor Statistics (BLS). Some of these jobless people who are not in the labor force indicate that they'd like to have a job and are available for work. The BLS classifies such people as marginally attached workers. Discouraged workers are marginally attached workers who give a job-market-related reason for giving up on their job search. Typically, discouraged workers give up on their search because they feel that there are no current opportunities for them in the labor market.

Increase

1. Cyclical unemployment 2. Structural unemployment 3. Frictional unemployment Structural unemployment arises from a mismatch between the jobs available in some labor markets and the skills of workers. One cause of structural unemployment is institutional factors such as a minimum wage, which holds wages above the marginal productivity of less skilled workers, limiting their employment opportunities. Frictional unemployment occurs because job seekers and employers need time to find one another. Therefore, Valerie is considered to be frictionally unemployed. This kind of unemployment is usually brief. Cyclical unemployment is the form of unemployment associated with business cycles. This kind of unemployment rises during recessions and falls during expansions. Because Caroline lost her job due to the recession, she would generally be considered to be cyclically unemployed.

True Total unemployment is the sum of frictional, structural, and cyclical unemployment. If there is no cyclical unemployment, the economy is at its natural rate of unemployment, equal to the sum of frictional and structural unemployment. In this case, because cyclical unemployment is 0.0%, the economy is at its natural rate of unemployment.

Decrease, increase, frictional Frictional unemployment often results from changes in the demand for labor among firms. When the world price of cotton falls, cotton-producing firms will find it less profitable to produce cotton. As cotton-producing firms decrease production, the demand for labor with which to produce cotton decreases. Job opportunities in Texas contract. For textile-producing firms, the decrease in the world price of cotton decreases production costs. As textile-producing firms increase production, the demand for labor in South Carolina increases. Job opportunities in South Carolina expand. Workers laid off in one sector will take time to find new positions in an expanding sector. These types of sectoral shifts occur continuously in a dynamic economy, so there will always be some level of frictional unemployment.

#1, 2 Unemployment benefits tend to reduce the job-search efforts of the unemployed. Workers receiving unemployment insurance generally take longer to find new work, contributing to frictional unemployment in the interim. Extending or increasing unemployment benefits will contribute to additional frictional unemployment. Note that unemployment insurance is not necessarily bad. Preventing some hardship associated with unemployment may be well worth the cost of some additional frictional unemployment. Reducing the average amount of time spent searching for a job would lower an economy's frictional unemployment and, by extension, its natural rate of unemployment. Job-search websites can connect unemployed workers to firms with job vacancies. A site that matches workers to vacancies more effectively would reduce the amount of time that workers spend looking for jobs and allow employers to fill vacancies more quickly. Government-run employment agencies connect unemployed workers to firms in need of additional labor. Employment bonuses given to unemployed workers who are receiving unemployment insurance benefits would give workers an incentive to find work more quickly. This would reduce frictional unemployment by decreasing the time the unemployed take to find work.

#2,4

Remember the face value of a bond is par value, which is $1000. You should buy more of these bonds since a one year zero selling for $951.45 has internal rate of return of IRR = ($1000 - $951.45)/ $951.45 = 0.051027379 = 5.10% which exceeds the 3% return at your bank.

The IRR on the bond is 10% = (FV + C - Pbond)/Pbond = $100/$1000. Since Janey requires a return of 8% to hold the bond it is a good deal for her and she buys more of these bonds. Jonny requires 11% return so an IRR = 10% is not sufficient to convince him to hold the bond and so he sells his bonds. Jonny requires 10% to hold the bond, which is exactly the IRR of the bond so he is indifferent to buying more bonds or selling his bonds.

$24*(1.04)400 = $156,151,787.92 which is about $156 million.

Use the present value formula for a zero coupon bond since this project makes only one payment at the maturity date 5 years from now. That is, we use = $28,000,000 1+ ! When the interest rate is 7% the present value is $19,963,613.02, so the firm should not invest. When the interest rate is 6% the present value is $20,923,228.84, so the firm should invest. Notice as the interest rate falls the present value of the project increases. The formula you would need to figure out the exact cutoff for the interest rate between profitability and non-profitability is $20 = $28 1+ !

Given the information, the present value of a share of XYZ Corporation can be calculated using the present value formula for a coupon bond. Since the stock has a present value of $98.24 and the present cost is the price which is $90 then this is a good investment.

The stock price will rise. Even though the company suffered a loss, the price of the stock initially reflected an even larger expected loss. When the actual loss turns out to be less than expected the efficient markets hypothesis indicates that the stock price will rise on the better than expected news.

the efficient market hypothesis states that one cannot expect to earn sustained above normal returns using public information without taking on additional risk. Notice that the EMH does not say nobody can earn above normal returns, only that, one cannot expect to earn above normal returns, they cannot be sustained, they cannot be based on public information, and they are not possible without taking on additional risk. Buffet may have taken on greater risk, or may trade on information that the public does not have access to. Of course, Buffet may just be lucky; the EMH does rule out being lucky - it says you cannot expect to be lucky!

Remember the rule of 70 is the time to double. That is, 70/(annual growth rate) = the number of years to double. At a 7% interest rate the rule of 70 implies doubling takes 10 years. For Bond A which has term 3 of 10 years its value will double in 10 years. Since it pays $8000 in 10 years it must be worth half that today or $4000. Bond B has term of 20 years so at 7% interest its value doubles every 10 years which is two doublings in 20 years. Two doublings is a factor of four. Since it pays $8000 in 20 years it must be worth one fourth that today or $2000. At a 14% interest rate the rule of 70 implies doubling takes 5 years. For Bond A, which has term of 10 years, its value will now double twice in 10 years; two doublings is a factor of four. Since it pays $8000 in 10 years it must be worth one fourth that today or $2000. Bond B has term of 20 years so at 14% interest its value doubles every 5 years, which is four doublings in 20 years. Four doublings is 24 is a factor of 16. Since it pays $8000 in 20 years it must be worth one sixteenth of that today or $500. For Bond A the 10 year bond, when the interest rate doubles from 7% to 14% the present value of the bond goes from $4000 to $2000 which is a reduction of 50%. For Bond B the 20 year bond, when the interest rate doubles from 7% to 14% the present value of the bond goes from $2000 to $500 which is a reduction of 75%. For a given increase in interest rates, bonds with longer terms experience a larger percentage fall in value when compared to shorter term bonds, other things equal.