Econ Homework

1. In class we looked at potential and real GDP. Can the economy produce above potential GDP, and thus above the economy’s capacity?

yes

no

2. For this question, let’s say that you’re talking to someone who was buying gasoline in 1960 when it cost $.30. You’re curious what that would cost in today prices. What mathematical operation would be part of your calculation?

division

subtraction

exponentiation

3. Consider the federal funds rate. If it rises, what likely happens to other interest rates, like those on cars, credit cards, and student loans?

fall

stay the same

rise

4. You’re computing a change in a real price of an item over the last year and you compute it as $1. In thinking about your result, you’d most likely be on the ___ track.

right

wrong

5. Say that you wished to find the average annual rate of inflation from 2010 to today. Which of the following would you use?

(nominal GDP today – nominal GDP in 2010)/(nominal GDP in 2010)

(real GDP today – real GDP in 2010)/(real GDP in 2010)

(GDP deflator today – GDP deflator in 2010)/(GDP deflator in 2010)

(nominal GDP today/nominal GDP in 2010) (1/(years between 2010 and today) – 1

(real GDP today/real GDP in 2010) (1/(years between 2010 and today) – 1

(GDP deflator today/GDP deflator in 2010) (1/(years between 2010 and today) – 1

none of the above

6. Earlier this decade, a nationally known figure said the following (I put comment in brackets to clarify two parts): “…that although the government reported that there were 120,000 new jobs created in November, the 8.6 percent figure [unemployment rate] ignores the fact that 315,000 people left the workforce [we call it the labor force] entirely. Given that almost three times the number of people left the workforce than actually got jobs, it is impossible, … for unemployment to have dropped by almost a half a percentage point.”

Is this person correct? That is, it is impossible for the unemployment rate to have dropped when people leave the labor force.

this person is correct

this person is incorrect

7. For the sake of this question, let’s assume that the economy has just come out of a severe recession and growth is booming. The labor force grows as many who thought that they could not find a job during the recession now think that they can and have started to look. But, these workers do not find a job this month. What do you think would happen to the labor force this month?

fall

stay the same

rise

8. This graph shows both the labor force in blue and those employed (“payrolls”) in red. These lines ___ cross and the difference between the two lines is ___.

could, unemployment rate

could not, unemployment rate

could, number unemployed

could not, number unemployed

9. Who of the following would be in the labor force? Please select all that are correct — there may be more than one correct answer.

after graduation, you take a year off and backpack around the world on a gift from a generous uncle

a retired member of your family who is being paid to be a school crossing guard

a sibling of yours working at a part-time job this month

a college student who goes to school full time

your childhood friend who lives in his parent’s basement and spends his time debugging video games for Electronic Arts (he telecommutes)

10. In class, we described Okun’s Law as ∆%Y = 3 – 2 ∆u, where Y is real GDP and u is the unemployment rate. We used it to illustrate why during a period of slow growth the unemployment rate can actually rise. This equation describes average behavior in the U.S. “postwar” (i.e., after 1945) era.

But, in the expansion that started in 2009, growth was rarely 3% yet the unemployment fell. In short, we would need to modify Okun’s Law for this unusual expansion. Which of the following would be the best modification for this expansion?

∆%Y = 5 – 2 ∆u

∆%Y = 3 – 2 ∆u

∆%Y = 1 – 2 ∆u

11. Earlier this semester we had this equation: real price of a good = (nominal price of a good / CPI)·100. It takes a nominal price of a good and converts it into what the price would be in the base year of the CPI. We called it “deflating” as it takes inflation out of a nominal price. For example, you can take the nominal price of gasoline from 3/2006 (it was $2.41 and the CPI then was an even 200) and converted it to values of the base period of the CPI. This yielded a real price of $1.20.

Could you compute real GDP in the same way — that is, use nominal GDP and the GDP deflator in a similar fashion? Hint: You’ll need to manipulate the equation we used to calculate the GDP deflator.

yes

no

12. Which one of the following three is least likely to belong with the other two?

Real GDP is less than potential GDP.

The economy has been in a strong expansion for 5 years.

The unemployment rate is above the natural rate.

13. Please read “The Odds You’ll Join the Ranks of the Long-Term Unemployed” in our course packet (i.e. “Macroeconomic Supplement”) and answer the following question.

In Section 3 we used a chart of the long-term unemployed (the percent of the unemployed who have been unemployed more than 6 months) and we found that it is still quite high. In a clicker question, many students felt that this variable best represented the labor market pain of the Great Recession and the years after it. Here, we’ll explore it a bit more. According to this article, which best explains why some of the unemployed have been unemployed for such long periods?

decisions that the unemployed made

bad breaks

14. Please read “Working as a Barista After College Is Not as Common as You Might Think” in our course packet. According to this article, which covers the years from 2009 to 2013, underemployment of recent college grads ___ as they spend more time in the labor market. Also, about ___ of recent college grads worked in low-skilled service jobs.

falls, 20%

stays the same, 20%

rises, 20%

falls, 30%

stays the same, 30%

rises, 30%

falls, 40%

stays the same, 30%

rises, 40%

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