Below is the assignment for Week 3. Each question is 10 points. Explain all answers and show workings were needed.

1) Based on the labor market diagram below, if the minimum wage is set at $10 per hour, there will be ________ unemployed workers.

2) Based on the labor market diagram below, if the minimum wage is increased from $10 to $12 per hour, the numbered of unemployed workers will increase by ________ workers.

3) Based on the figure, if a union contract requires that workers be paid $25 per hour, there will be ________ unemployed workers.

4) Based on the figure, if a union contract requires that the wage workers are paid be raised from $25 to $30 per hour, the number of unemployed workers will increase by ________ workers.

5)A nation has a population of 300 million people. Of these, 80 million are retired, in the military, in institutions, or under sixteen years old. There are 210 million who are employed and 10 million who are unemployed. What is the unemployment rate?

• The financial analysts at Lexmark have evaluated five major projects. Each project, if it actually goes forward, will be financed by going to a bank to borrow the money. They’ve calculated a “break-even interest rate”: If they can borrow cash to pay for the project at less than that rate, the project will likely be a success; if the rate is higher, then it’s not worth it.

	Cost	Break-even Interest Rate
Project A	$100 million	8%
Project B	$50 million	12%
Project C	$200 million	50%
Project D	$25 million	4%
Project E	$150 million	10%

If the interest rate is 11%, which projects will Lexmark take on? If the market interest rate is 6%, which projects will it take on?

Question 7

1. If a zero-coupon bond with a face value of $1,000 payable in 1 year sells for $925, what is the interest rate?
2. If another bond with the same face value and maturity sells for $900, what is the interest rate on this bond?
3. Which bond, the one discussed in question a or question b, would you rather invest in?

Question 8

Rank the following loans in order from low risk/low return, to high risk/high return.

1. 30-year fixed rate home loan
2. 5-year CD issued by the local FDIC-insured bank
3. 13-week U.S. Treasury bill
4. Capital One credit card held by an unemployed high school dropout.
5. 30-year bond issued by AAA-rated company Johnson & Johnson
6. 10-year bond issued by AAA-rated company Johnson & Johnson

Question 9

What are at least 4 factors that led to the great recession of 2007?

Question 10

Calculate the unemployment rate and the labor force participation rate in the following cases:

1. Employed: 100 million. Population: 200 million. In labor force: 110 million.
2. Unemployed: 10 million. Population: 200 million. Employed: 90 million.
3. In labor force: 30 million. Population: 80 million. Unemployed: 3 million.

• Modern Principles of Economics, 3rd Edition (New York: Worth Publishers, 2016), Tyler Cowen and Alex Tabarrock.