# Discussion 2 Macro

In your initial response to the topic you have to answer Question #1 and Question #2.

### Question #1

Supply and demand is used extensively in Chapter 4. To be sure that everyone has a full understanding of how to solve supply and demand problems, our first discussion will be a supply and demand problem.

First review the attachments, then provide a step-by-step solution to the following problem (see the attachments for the steps):

Assume that the case is one of the machine tool industry in a closed economy. The market begins in equilibrium. The government imposes 10% VAT tax on all producers of machine tools.

Provide a step-by-step explanation of the changes in the machine tool market as a result of the tax.

Remember that the order of events is important. Also use correct terminology (see attachments).

Supply and Demand Guide

Supply and Demand Presentation

### Question #2.

Another important measure of how an economy is performing is the unemployment rate, but there is more to the unemployment rate than just the headline rate reported on the news.

In particular, we are going to look at the U3 rate (the Headline rate), the U6 rate, and the labor force participation rate.

Go to the Bureau of Labor Statistics.

On their home page, from the menu on the top of the page, click on “Economic Releases,” choose “Latest Releases,” click on “Employment Situation,” and then on “Employment Situation Summary.” Read the report. Then using the tables linked from the bottom of the report, find:

the U3 rate;

the U6 rate; and,

the labor force participation rate.

What are the differences among these measures? Note the percentages of each, what each measure includes, and then express your views on what factors may be causing the U6 rate to be roughly twice the U3 rate and what may be causing the decline in the labor participation rate. Is the headline rate used by most news reports misleading?

For your information, here is a summary of the six unemployment measures.

• U-1, persons unemployed 15 weeks or longer, as a percent of the civilian labor force;
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• U-2, job losers and persons who completed temporary jobs, as a percent of the civilian labor force;
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• U-3, total unemployed, as a percent of the civilian labor force (this is the definition used for the official unemployment rate);
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• U-4, total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers;
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• U-5, total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers; and
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• U-6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.
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