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Productivity often rises during economic expansions and fa

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1.Productivity often rises during economic expansions and falls during economic recessions. Can you think of reasons why? Briefly explain. (Hint:Remember that the level of productivity involves both levels of output and levels of labor input.)

2.Use the following data to calculate (a) the size of the labor force and (b) the official unemployment rate: total population, 500; population under 16 years of age or institutionalized, 120; not in labor force, 150; unemployed, 23; part-time workers looking for full-time jobs,10.

3.Explain how an increase in your nominal income and a decrease in your real income might occur simultaneously. Who loses from inflation? Who loses from unemployment? If you had to choose between (a)full employment with 6% annual rate of inflation and (b) price stability with an 8% unemployment rate, which would you choose? Why?

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1. Productivity would be likely to rise during economic expansions because the low rate of unemployment would encourage the more intensive use of existing plant and equipment and current workforce. Worker productivity would be likely to fall during recessions because employers would be reluctant to discharge valuable workers until absolutely necessary.

2. Labor force = 500 - (120 + 150) =230
Official unemployment rate =(23/230)x100 =10%.

3. If a person's nominal income increases by 10% while the cost ...

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