MACRO HW IV

3. (lnvestmentl Given the following data, answer questions a through c,

New residential construction

Purchases of existing homes

Sales value of newly issued stocks and bonds

New physical capital

Depreciation

Household purchases of new furniture

Net change in firms' inventories

Production of new intermediate goods

Billions

of Dollars

$500

250

600

800

200

50

100

700

a. What is the value of gross private domestic investment?

b. What is the value of net investmenP

c. Are any intermediate goods counted in gross investment?

6-2 Tlace through the circular flow model, explaining each of the 10 steps along the way t. (Circular Flow Model) First describe in general terms the point of

the circular flow model. Next describe the 1 0 steps along the way.

s. (Leakages and lnjections)What are the leakages from and injec- tions into the circular flow? How are leakages and injections related

in the circular flow?

5-3 Identify the limitations of the national income accounting system 6. (Nati1nal lncome Accounts) What relevant aspects of the ec0nomy

are not reflected in the national income accounting system.

7. (Limitatilns of National lncome Accounting)Explain why each of the following should be taken into account when GDP data are used to

compare the "level of well-being" in different countries:

a. Population levels b, The distribution of income

c. The amount of production that takes place outside of markets

d. The length of the average workweek

e. The level of environmental pollution

6-4 Define a price index and explain why is it useful 8. (Consumer Price lndex)Calculate a new consumer price index for

the data in the following exhibit. Assume that current-year prices of

Twinkies, fuel oil, and cable W are $0.95/package, $1.25lgallon, and $1 5.00/month, respectively. Calculate the current year's cost

of the market basket and the value of the current year's price

index. What is this year's percentage change in the price level

compared to the base year?

lwlnkies 365pmka0es. $0.891p*kige- $324,85 .$0.70 $2OE.3S F{el.dl Sm0dbns . 1-otrgallon 500,00 tr50 750,00 fabE.nr 12 mor,$s 3o.&lmarth $60.00 30,00 .

_ggq.0q

$1,184.85 $1.39&35

9. (Consumer Pice /ndexl Given the following data, what was the value of the consumer price index in the base yeaP Calculate the annual rate of

consumer price inflation in 2013 in each of the following situations:

a. The CPI equals 200 in 201 2 and 240 in 2013.

b. The CPlequals 150 in2012and175in2013, c. The CPI equals 325 in 2012 and 340 in 2013.

d. The CPI equals 325 in2012and 315 in 2013.

GHAPTER 7

7-1 Describe what the unemployment rate measures, and summarize four sources of unemployment 1. (Measuring Unemployment)Determine the impact on each of the

following if 2 million formerly unemployed workers decide to return

to school full time and stop looking for work:

a. The labor force participation rate

b. The size of the labor 6rce

c. The unemployment rate 2. (Measuring Unemployment)Supp0se 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. lf 85 million adults are not working, what is the unemployment rate?

3. (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 the Christmas season is laid

off after Christmas.

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

econ0my.

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.

7-2 Outline the pros and cons of unemPloyment insurance 4. (Unemployment lnsurance) What are the pros and cons of

unemployment insurance?

s. (lhe Meaning of Full Enploymenfl 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?

7-3 Define inflation and describe the nvo sources of inflation 6. (fwl Sources of lnflation) Using aggregate supply and aggregate

demand, dem0nstrate two s0urces of inflation.

t. (lnflation)Here are some recent data on the U.S, consumer price index: Year CPI 1992 140.3 1993 144.5 1994 148.2 I995 152.4 1996 156.9 1997 160.5 1998 163.0

Year CPI 1999 166.6 2000 172.2 2001 177.1 2002 179.9 2003 184.0 2004 188.9 2005 195.3

Year CPI 2006 20'1.6 2007 207.3 2008 215.3 2009 214.5 2010 218.1 2011 224.9 2012 229.6

PROBLEMS APPENDIX 329

fumpute the inflation rate for each year 1 99F201 2 and determine

which were years of inflation. In which years did deflation occur? ln

which years did disinflation occur? Was there hyperinflation in any year?

u (fuurces of lnflation)UsingIhe concepts of aggregate supply and ag- gregate demand, explain why inflation usually increases during wartime.

9. (lnflation and lnterest Rates) Using a demand-supply diagram for loanable funds (like the exhibit below), show what happens

to the nominal interest rate and the equilibrium quantity of loans

when both bonowers and lenders increase their estimates 0f the

expected inflation rate from 5 percent to 1 0 percent.

The Market lor Loanable Funds

Loanable funds per period

7-4 Explain how unanticipated inflation harms some individuals and harms the economy as a whole 10. (Anticipated Versus Unanticipated lnflatilA ff actual inflation ex-

ceeds anticipated inflation, who will lose purchasing power and who

will gain? How does unanticipate( inflation harm the economy?

GHAPTER 8 8-1 Describe how we measure labor productivitl4 and explain why is it important for a nation's standard of living

(Measuring Labor Productivily) How do we measure labor productivit/.r

How do changes in labor productivity affect the U.S. standard of living?

(Growth and the PPF) Use the production possibilities frontier (PPD

to demonstrate economic growth.

a. With consumption goods on one axis and capital goods on the

other, show how the combination of goods selected this period

affects the PPF in the next period.

b. Extend this comparison by choosing a different point on this period's PPF and determining whether that combination leads to

more or less growth over the next period.

(Shifts in the PPF)Ierrorist attacks foster instability and may affect

productivity over the shorl and long term. Do you think the

September 1 1, 2001 , tenorist attacks on the World Trade Center

and the Pentagon affected short- and/or longterm productivity in

the United States? Explain your response and show any move-

ments in the PPF.

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@o o ic- i @ C

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33O PROBLEMS APPENDIX

8-2 Summarize the history of U.S.labor productivity changes since World War II and explain why these changes matter t. (Labor ProductiviU)ldenlity at least four definable periods of labor

productivity growth beginning right after World War ll. During which

periods was productivity growth lowest and why? (Refer to Exhibit 6

in{he chapter.)

5. (Long-Term Productivity Grouutfl Suppose that two nations start out in 201 3 with identical levels of output per work hour-say,

$100 per hour. ln the first nation, labor productivity grows by

1 percent per year. ln the second, it grows by 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, as-

suming that labor productivity growth rates d0 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 groMh rates?

8-3 Evaluate the evidence that technological change increases the unemployment rate

6. [echnollgical Change) Does technological change create unemployment? What's the evidence?

t. (technological Change and Unemployment)What are some examples, other than those given in the chapter, of technologi-

cal 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?

CHAPTER 9 9-l Explain what a consumption function illustrates and interpret its slope t. (Consumption)Use the follbwing data to answer the questions

below:

Consumption

Real Disposable lncome (billions)

$1 00

$200

$300

$400

Expenditures (billions)

$1 50

$200

$250

$3oo

Saving (billions)

a. Graph the consumption function, with consumption spending on

the vertical axis and disposable income on the horizontal axis.

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

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

(MPC and MPS) lf consumption increases by $12 billion when

disposable income increases by $t S billion, what is the value of

the MPC? What is the relationship betvveen the MPC and the MPS?

lf the MPC increases; what must happen to the MPS? How is the

MPC related to the consumption function? How is the MPS related

to the saving function?