MACRO

Only two resources, capital and labor, are used in the economy to produce an output of 600 million units. If the total cost of capital resources is $300 million and the total cost of labor resources is $100 million, then the per-unit production costs in this economy are

$0.67

If the average level of nominal income in a nation is $44,000 and the price level index is 175, the average real income would be about

$25,143

If the natural rate of unemployment is was 6% the current unemployment rate was 10%, and the potential GDP was $4,000 billion then according to Okun's law the economy would have sacrificed

$320 billion

Total population: 307.0 Under 16 or institutionalized: 69.3 Employed: 139.1 Unemployed: 14.6 Use the data to find the following: The size of the labor force. The number classified as "not in the labor force." The unemployment rate.

--The labor force consists of all those either employed or unemployed. The labor force in this period was 139.1 + 14.6 = 153.7 million people. --Those classified as "not in the labor force" are those individuals age 16 or older and not institutionalized who are neither employed nor unemployed. For the period given, this amounted to 307.0 - 69.3 - 139.1 - 14.6 = 84.0 million people. --The unemployment rate is found as the proportion of the labor force that is classified as unemployed. For this period, the unemployment rate was 14.6/153.7 = .095, or 9.5%.

The unemployment rate in an economy is 7.5%. The total population is 250 million and the size of the civilian labor force is 180 million. The number of employed workers in this economy is

166.5 million

Inflation rates in the US reached double-digit rates in the

1970's

If the negative GDP gap were equal to 4% of the potential GDP Okun's law suggests that the actual unemployment rate would exceed

2%

the economy has an annual inflation rate of 3.5%. It will take approximately how many year for the price to double

20 years

If the CPI for a year is 120, this means that the average price of consumer items in that year were

20% higher than the average price in the base period of 1982-84

Suppose the natural rate of unemployment is 4.5% and the current unemployment rate is 6%. If potential GDP is $1,000 billion, how much output is being lost as a result of the economy being below its potential?

A GDP gap of -3% implies that $1,000 x .03 = $30 billion of output is being foregone

Suppose the natural rate of unemployment is 4.5% and the current unemployment rate is 6%. At that time, GDP was $14,592 billion. What was potential GDP?

By Okun's law, actual GDP of $14,592 billion was 10.0 percent below its potential. Equivalently, actual GDP is 90% of potential GDP. Potential GDP is then found as $14,592/.90 = $16,213 billion

The group of three economists appointed by the president to provide fiscal policy recommendations is the

Council of Economic Advisors

A headline states: "Real GDP falls again as the economy slumps" this condition is most likely to produce what type of unemployment

Cyclical

In the expansion phase of a business cycle

Employment and output increase

Cost-push inflation tends to be characterized by all of the following except

Falling employmeny

Potential GDP is the output that would be produced if the economy was experiencing

Full employment

What is an advantage of mild inflation to some economists

It makes it easier for firms to adjust real wages downward as demand for their product falls

A hypothetical economy's consumption schedule is given in the table below. GDP=DI C 6600 6680 6800 6840 7000 7000 7200 7160 7400 7320 7600 7480 7800 7640 8000 7800 Use the information to answer the following: If disposable income were $7400, how much would be saved? What is the "break-even" level of disposable income? What is this economy's marginal propensity to consume? What is the average propensity to consume when disposable income is $7000? When disposable income is $8000?

Saving is the difference between disposable income and consumption. Since consumption is $7320 when DI is $7400, saving = $7400 - $7320 = $80. The break-even level of disposable income occurs where all income is spent and saving is zero. In this example, the break-even is at $7000. The marginal propensity to consume is the ratio of the change in consumption to the change in disposable income. In the table, each change in income is $200 and each change in consumption is $160, so the MPC is 160/200 = .8. The average propensity to consume is the ratio of consumption to income. At $7000, the APC is 7000/7000 = 1, while at $8000 it is 7800/8000 = .975.

if the CPI declines from one year to the next then the following statements are true except

The CPI turns negative in the next year

Suppose the natural rate of unemployment is 4.5% and the current unemployment rate is 6%. According to Okun's law, what is the size of the GDP gap?

The GDP gap is the difference between actual GDP and potential GDP. Okun's law suggests a GDP gap of -2% for every 1% that the unemployment rate exceeds its natural rate. In this case, the GDP gap is (6.0 - 4.5) x -2 = -3%.

Suppose the natural rate of unemployment is 4.5% and the current unemployment rate is 6%. Recent data for the U.S. showed an unemployment rate of 9.5%. Suppose the natural rate at the time was 4.5%. What was the size of the GDP gap?

The GDP gap was (9.5 - 4.5) x -2 = 10.0%

Suppose a $100 increase in desired investment spending ultimately results in a $300 increase in real GDP. What is the size of the multiplier? If the MPS is .4, what is the multiplier? If the MPC is .75, what is the multiplier? Suppose investment spending initially increases by $50 billion in an economy whose MPC is 2/3. By how much will this ultimately change real GDP?

The multiplier is defined as the ratio of the change in real GDP to the initial change in spending that brought it about. In this case, the multiplier is $300/$100 = 3. The multiplier is 1/MPS = 1/.4 = 2.5, in this example. As the MPS and the MPC sum to one, the multiplier can also be computed as 1/(1 - MPC) = 1/(1 - .75) = 1/.25 = 4. The multiplier in this example is 1/(1 - 2/3) = 3. The ultimate change in GDP is 3 x $50 = $150 billion.

Suppose Janice's nominal income rose by 4% from December 2008 to December 2009 while Jeff's increased by only 2%. By what percentage did each of their real incomes change?

The percentage change in real income can be approximated as the difference between the percentage change in nominal income and the percentage change in the price level. For Janice, this was 4% - 2.7% = 1.3%, while Jeff's real income fell: 2% - 2.7% = -1.3%.

The Bureau of Labor Statistics reported the CPI stood at 215.9 in December 2009, while one year earlier it was 210.2. What was the annual rate of inflation measured from December to December?

The rate of inflation is measured by the percentage increase in the value of the CPI. In this case, the rate of inflation was [(215.9 - 210.2)/210.2] x 100 = 2.7%

The Bureau of Labor Statistics reported the CPI stood at 215.9 in December 2009, while one year earlier it was 210.2. At this rate of inflation, approximately how long will it take for the price level to double?

Using the rule of 70, the price level will double in 70/2.7 = 25.9 years.

Menu costs

are the costs to firms of changing prices and communicating them to customers

Which of the following is not a legitimate concern of public debt

bankruptcy of the federal government

The actual budget deficit of the fed gov in 2009 was about 1.4trillion. On the basis of this information, it

cannot be determined whether the gov engaged in expansionary or contradictory fiscal policy in 2009

best example of public investment

construction of highways

Unemployment that occurs when there is a deficient demand for the goods and services in an economy is called

cyclical unemployment

Inflation occurs when total spending is greater than the economy's ability to produce at the existing price levels

demand-pull inflation

The gov purposely changes the economy's cyclically adjusted budget from a deficit of 0% to 3%, the gov is engaging in

expansionary fiscal policy

The crowding-out effect suggests that

gov borrowing to finance public debt increases the real interest rate and reduces private investments

The American recovery act of 2009

implemented a $787 billion pckage of tax cuts and government expenditure increase

The determinate of aggregate supply

includes resource prices and resource productivity

A rightward shift of the AD curve in the very flat part of the short-run AS curve will

increase real output by more than the price level

Suppose the federal government had budget deficits of $40b in year 1 and $50b in year 2 but had budget surpluses of $20b in year 3 and $50b in year 4. Also assume that it used budget surpluses to pay down the public debt. At the end of these four years, the federal government's public debt would have $90=debt $70 surpluses= 90-70=$20b in debt

increased by $20b

A person's real income will increase by 3% if her nominal income is

increases 5% while the price index rises 2%

The short-run aggregate supply curve represents circumstances where

input prices are fixed but output prices are flexible

when deriving the aggregate demand curve from the aggregate expenditures model, an increase in US product price would cause an increase in

interest rates and lower investment expenditures

The aggregate supply curve (short run)

is steeper above the full-employment output than below it

Payment of interest on the US public debt

is thought to increase inequality

the recession is a decline in

real gdp that lasts six months or longer

When the current gov expenditures exceed tax revenues and the economy is achieving full employment the

the cyclically adjusted budget has a debt

If aggregate demand increases and aggregate supply decreases, the price level

will increase, but real output may increase, decrease, or remain unchanged

In an aggregate-demand-aggregate-supply diagram equal decreases in government spending and taxes

will shift the ad curve to the left