Economics Assignment 4 Questions

| November 24, 2016

1. (Measuring Unemployment) Suppose that the U.S noninstitutional adult population is 230 million and the labor force participation rate is 67 percent.

a. What would be the size of the U.S labor force?

b. If 85 million adults are not working, what is the unemployment rate?

2. (Types of Unemployment) Determine whether each of the following would be considered frictional, structural, seasonal, or cyclical unemployment:

a. A UPS employee who was hired for Christmas season is laid off after Christmas.

b. A worker is laid off due to reduced aggregate demand in the economy.

c. A worker in a DVD rental store becomes unemployed as video-on-demand cable service becomes more popular.

d. A new college graduate is looking for employment.

3. (The Meaning of Full Employment) When the economy is at full employment, is the unemployment rate at zero percent? Why or why not? How would a more generous unemployment insurance system affect the full employment figure?

4. (Inflation) Here are some recent data on the U.S consumer price index:

Year CPI Year CPI Year CPI

1992 140.3 1999 166.6 2006 201.6

1993 144.5 2000 172.2 2007 207.3

1994 148.2 2001 177.1 2008 215.3

1995 152.4 2002 179.9 2009 214.5

1996 156.9 2003 184.0 2010 218.1

1997 160.5 2004 188.9 2011 224.9

1998 163.0 2005 195.3 2012 229.6

Complete the inflation rate for each year 1993-2012 and determine which were years of inflation. In which years did deflation occur? In which years did disinflation occur? Was there hyperinflation in any year?

5. (Measuring Labor Productivity) How do we measure labor productivity? How do changes in labor productivity affect the U.S standard of living?

6. (Long-Term Productivity Growth) Suppose that two nations start out in 2013 with identical levels of output per work hour – say $100 per hour. In the first nation, labor productivity grows by 1 percent per year. In the second, it grows 2 percent per year. Use a calculator or a spreadsheet to determine how much output per hour each nation will be producing 20 years later, assuming that labor productivity growth rates do not change. Then, determine how much each will be producing per hour 100 years later. What do your results tell you about the effects of small differences in productivity growth rates?

7. (Technological Change and Unemployment) What are some examples, other than those given in the chapter, of technological change that has caused unemployment? And what are some examples of new technologies that have created jobs? How do you think you might measure the net impact of technological change on overall employment and GDP in the United States?

8. (Consumption) Use the following data to answer the questions below:

Consumption

Real Disposable Expenditures Saving

Income (billions) (billions) (billions)

$100 $150 $

$200 $200 $

$300 $250 $

$400 $300 $

a. Graph the consumption function, with consumption spending on the vertical axis and disposable income on the horizontal axis.

b. If the consumption function is a straight line, what is its slope?

c. Fill in the saving column at each level of income. If the saving function is a straight line, what is its slope?

9. (Consumption Function) How would an increase in each of the following affect the consumption function?

a. Net taxes

b. The interest rate

c. Consumer optimism, or confidence

d. The price level

e. Consumer’s net worth

f. Disposable income

10. (Simple Spending Multiplier) For each of the following values for the MPC, determine the size of the simple spending multiplier and the total change in real GDP demanded following a $10 billion decrease in spending:

a. MPC = 0.9

b. MPC = 0.75

c. MPC = 0.6

11. (Expansionary and Recessionary Gaps) Answer questions a through f on the basis of the following graph:

See attached picture for chart

a. If the actual price level exceeds the expected price level reflected in long-term contracts, real GDP equals and the actual price level equals in the short run.

b. The situation described in part (a) results in a(n) gap equal to .

c. If the actual price is lower than the expected price level reflected in long term contracts, real GDP equals and the actual price level equals in the short run.

d. The situation described in part (c) results in a(n) gap equal to .

e. If the actual price level equals the expected price level reflected in long-term contracts, real GDP equals and the actual price level equals in the short run.

f. The situation described in part (e ) results in a(n) gap equal to .

12. (Changes in Aggregate Supply) List three factors that can change the economy’s output. What is the impact of shifts of the aggregate demand curve on potential output? Illustrate your answers with a diagram.

13. (Supply Shocks) Give an example of an adverse supply shock and illustrate graphically. Now do the same for a beneficial supply shock.

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