1) Read the preliminary study on the gap between the official unemployment rate (U3) and the broader definition of unemployment (U6) by Professor John Komlos. You will find the paper on the course website in the folder “Problem Set 3”. After reading this paper answer the following questions: a) In one or two paragraphs, explain the main results of this study. b) Check the Bureau of Labor Statistics website and report the most recent (Sept. 2019) unemployment measures U3 and U6 (seasonally adjusted). Did they increase or decrease with respect to the same month of 2018?

2) Consider the data in the Table below, which shows the relevant data for six firms’ stocks: GE, Apple, Bank of America, Exxon, Pfizer, and Home Depot. 𝑅 is the return (in %) of a risk-free asset and ∆𝑝𝑠⁄𝑝𝑠 is the growth rate of the stock price (in %). Additionally, the table has the current market price of each stock (𝑝𝑚). Use the stock price arbitrage equation (equation 9 from the lecture on investment) to calculate the no-arbitrage price of each stock (𝑝𝑠 ∗ ) at which you would be indifferent between investing in the risk-free asset and investing in the stock. Given your answer, should you buy the stock or put the money into a safe asset? Justify your answer. [Hint: you may want to compare 𝑝𝑠 ∗ and 𝑝𝑚 . Notice that the risk-free return and the growth rate of stock prices are expressed in percentage!] Table: Relevant Stock Data Firm Dividend 𝑹 ∆𝒑𝒔⁄𝒑𝒔 𝒑𝒎 GE 0.38 4.2 3.18 32.1 Apple 2.03 4.2 2.04 106.1 Bank of America 0.2 4.2 3.4 15.9 Exxon 0.75 4.2 3 87.5 Pfizer 1.12 4.2 1.5 35.7 Home Depot 1.78 4.2 3.01 135 Source: Morningstar

3) Consider the basic Neoclassical model. Graphically analyze the effects of: a) An exogenous increase in the current level government spending (𝐺𝑡 ). b) An exogenous increase in the future level of productivity (𝐴𝑡+1). c) An exogenous increase in money supply (𝑀𝑠 ) In each case, clearly describe how each endogenous variable changes.

All problems are covered in GLS Chapter 17-21, Problem 1 need to use Komlos U6 and U3.