1) the Residents of Goober Gulch, New Mexico Have Never Been Happier! Money Magazine Has

Total Page:16

File Type:pdf, Size:1020Kb

1) the Residents of Goober Gulch, New Mexico Have Never Been Happier! Money Magazine Has

Economics 211 Macroeconomic Principles Due date: 23 July 2013 The value of an exam returned late on or before 25 July is 90 points; 29 July, 80 points. Exam #2 No exam will be accepted after 29 July 2013

Name ______Instructor: Brian B. Young The value of this exam is 100 points. Please show your work where appropriate!

Short Answer

10 points each

1) The residents of Goober Gulch, New Mexico have never been happier! Money Magazine has recently named Goober Gulch “America’s Most Abysmal Community” and, fortunately for the Gulchers, no one in town really knows what “abysmal” means. Life is not always a party in Goober Gulch, though. Of the 10,000 residents of G.G., 7500 are 16 years old or older, 500 are active duty military, 200 are locked up in jail, 200 reside in the local lunatic asylum, and 1600 are retired. Of the remaining 5000 residents, 2500 have either full-time or part-time jobs, 500 are searching for work, and 2,000 spend their time either at home raising children or at the local bars drinking Pabst Blue Ribbon. What is the labor force participation rate in Goober Gulch? What is the unemployment rate in Goober Gulch?

2) “When the unemployment rate goes down, the economy must be improving.” Explain why the preceding statement may not always be accurate.

3) Over the ten year period from 1993 to 2003, a country experiences a significant increase in labor productivity. a. Draw and label a labor market supply and demand diagram. Show how the equilibrium real wage rate and the equilibrium quantity of labor change as productivity increases. b. Draw and label a production function. Show how potential GDP changes as labor productivity increases.

Page 1 of 3 4)

Personal Gross Private Government Exports Imports Consumption Domestic Expenditures Expenditure Investment 1034.4 230.2 357.7 138.7 122.7

The data above are U.S. expenditures (in billions of U.S. dollars) for the year 1975. Use the expenditures approach to calculate Gross Domestic Product (GDP) for 1975.

5) Why is depreciation (capital consumption) accounted for when using the income approach to calculating GDP and, yet, not accounted for when using the expenditure approach to GDP?

6) Compare and contrast the following price level metrics: the Consumer Price Index (CPI), the Personal Consumption Expenditure (PCE) deflator, the GDP deflator, and the Producer Price Index (PPI). What exactly does each measure and how do they differ?

7) According to the World Economic Forum Global Competitiveness Report, at what stage of development is the United States? From the same report, at which factors does the United States excel and at which factors is it deficient?

8) Explain the relationship between measured real GDP and potential GDP and between the measured unemployed rate and the natural rate of unemployment as the economy traverses the business cycle.

Page 2 of 3 9) The table below gives data on the production and prices in a small economy. Use 2003 as the base period.

Data for 2003 Data for 2004 Item Quantity Price Quantity Price Hot dogs 4 $1.50 6 $1.75 Pepsi 2 $1.00 3 $1.25

a. What does nominal GDP equal in 2003? b. What does real GDP equal in 2003? c. What does nominal GDP equal in 2004? d. What does real GDP equal in 2004?

10) Offer two plausible explanations for the decline in the labor force participation rate since 2000. In the coming years, should we expect the LFPR to rise, decline, or remain steady?

Page 3 of 3

Recommended publications