EBK MACROECONOMICS
EBK MACROECONOMICS
10th Edition
ISBN: 9780134896571
Author: CROUSHORE
Publisher: VST
Question
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Chapter 1, Problem 1RQ
To determine

The way of total output and output per worker changed over time in the United States and the way it affected the lives of typical people.

Expert Solution & Answer
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Explanation of Solution

Labor productivity refers to the output per unit of labor input.

Unit labor costs, on the other hand, refer to labor cost per unit of output.

Unemployment occurs when workers who want to work are unable to find jobs.

According to the Department of Labor, U.S. productivity growth was fairly strong in the 1950s but then declined in the 1970s and 1980s before rising again in the second half of the 1990s and the first half of the 2000s.

The rate of productivity measured by the change in output per hour worked averaged 3.2% per year from 1950 to 1970 which dropped to 1.9% per year from 1970 to 1990 and then climbed back to over 2.3% from 1991 to the present with another modest slowdown after 2001.

A fall in total output leads to employment loss because lower output requires a smaller number of people. Hence, people were affected due to a loss in total output.

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Consider a call option on a stock that does not pay dividends. The stock price is $100 per share, and the risk-free interest rate is 10%. The call strike is $100 (at the money). The stock moves randomly with u=2 and d=0.5. 1. Write the system of equations to replicate the option using A shares and B bonds. 2. Solve the system of equations and determine the number of shares and the number of bonds needed to replicate the option. Show your answer with 4 decimal places (x.xxxx); do not round intermediate calculations. This is easy to do in Excel. A = B = 3. Use A shares and B bonds from the prior question to calculate the premium on the option. Again, do not round intermediate calculations and show your answer with 4 decimal places. Call premium =
Answer these questions using replication or the risk neutral probability. Both methods will produce the same answer. Show your work to receive credit. 6. What is the premium of a call with a higher strike. Show your work to receive credit; do not round intermediate calculations. S0 = $100, u=2, d=0.5, r=10%, strike=$150
Answer these questions using replication or the risk neutral probability. Both methods will produce the same answer.
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