Chapter 2 Homework

During a given​ year, the following activities occur in two​ stages: i. A silver mining company pays its workers ​$200,000 to mine 75 pounds of silver. The silver is then sold to a jewelry manufacturer for ​$300,000. ii. The jewelry manufacturer pays its workers ​$250,000 to make silver​ necklaces, which the manufacturer sells directly to customers for ​$1,000,000. Using the income approach, GDP is $_________.

$1,000,000

During a given​ year, the following activities occur in two​ stages: i. A silver mining company pays its workers ​$200,000 to mine 75 pounds of silver. The silver is then sold to a jewelry manufacturer for ​$300,000. ii. The jewelry manufacturer pays its workers ​$250,000 to make silver​ necklaces, which the manufacturer sells directly to customers for ​$1,000,000. Using the​ production-of-final-goods approach, GDP in this economy is ​$________. (Round to nearest dollar.)

$1,000,000 Final goods are those sold directly to customers (here, the silver necklaces). Their value is $1,000,000, so that is the GDP using the production-of-final-goods approach.

An economy produces three​ goods: cars,​ computers, and oranges. Quantities and prices per unit for years 2009 and 2010 are as​ follows: 2009: Cars 10 @ $4000 Computers 3 @ $1,100 Oranges 1200 @ $1 2010 Cars 12 @ $6,000 Computers 4 @ $600 Oranges 1500 @ $2 Nominal GDP in 2009 is $______.

$44500 Nominal GDP: current price x quantity produced (10x$4000) + (3x$1100) + (1200x$1) = $44500

An economy produces three​ goods: cars,​ computers, and oranges. Quantities and prices per unit for years 2009 and 2010 are as​ follows: 2009: Cars 10 @ $4000 Computers 3 @ $1,100 Oranges 1200 @ $1 2010 Cars 12 @ $6,000 Computers 4 @ $600 Oranges 1500 @ $2 Nominal GDP in 2010 is ​$_____.

$77400 Nominal GDP: current price x quantity produced (12x$6000) + (4x$600) + (1500x$2) = $77400

Now, in​ addition, suppose that in the first year the new ultrasound method is​ available, the price of​ check-ups using the new method is​ 15% higher than the price of​ check-ups in the previous year​ (when everyone used the old​ method.) c. Given this​ information, we can conclude that _______ of the higher price for​ check-ups using the new method​ (as compared to​ check-ups in the previous​ year) reflects a true price increase of​ check-ups and _______ represents a quality increase.

5% ; 10%

An economy produces three​ goods: cars,​ computers, and oranges. Quantities and prices per unit for years 2009 and 2010 are as​ follows: 2009: Cars 10 @ $4000 Computers 3 @ $1,100 Oranges 1200 @ $1 2010 Cars 12 @ $6,000 Computers 4 @ $600 Oranges 1500 @ $2 The percentage change in nominal GDP from 2009 to 2010 is ____%.

73.93% percentage change = (value2 - value1 / value1) x 100 (77400-44500)/44500 X 100 = 73.93%

In which​ year, a year where output growth is​ 2% or a year where output growth is −​2%, will the unemployment rate rise​ more?

A year with output growth of −​2% will see a higher rise in the unemployment rate because negative growth in output means firms will need fewer​ workers, which will cause unemployment to rise.

Okun's law stated that when output growth is higher than​ usual, the unemployment rate tends to fall. Explain why usual output growth is positive.

All of the above are correct. 1. Overall output is a function of population​ (labor) and capital in an economy. 2. Output is dependent on the overall size of all factors of production​ (inputs), and an​ economy's inputs generally increase over time. 3. Output growth is positively related to populationlong dash—as population​ grows, overall output can increase.

Consider the case of a routine medical​ check-up. a. Which of the following is a reason why you might want to use hedonic pricing to measure the change in the price of this​ service?

Check-ups may now include better technology than they did in the past.

During prolonged​ recessions, it is difficult for workers to find a job and many workers become discouraged. Which of the following is a correct​ statement?

Discouraged workers are NOT counted in the labor force and cause the participation rate to FALL.

The Japanese CPI is currently at 108 and the U.S. CPI is at 104. This indicates the Japanese rate of inflation is higher than the U.S. rate of inflation.

False

The Phillips curve is a relation between the level of prices and the level of unemployment.

False

When the economy is functioning​ normally, the unemployment rate is zero.

False

When the unemployment rate is​ high, the participation rate is also likely to be high.

False

During a given​ year, the following activities occur in two​ stages: i. A silver mining company pays its workers ​$200,000 to mine 75 pounds of silver. The silver is then sold to a jewelry manufacturer for ​$300,000. ii. The jewelry manufacturer pays its workers ​$250,000 to make silver​ necklaces, which the manufacturer sells directly to customers for ​$1,000,000. What is the value added at each stage of​ production? First stage = $_________. Second stage​ = ​$______. Using the value-added approach, GDP is $_______.

First stage = $300,000 In the first step, silver is mined and sold to a jewelry manufacturer. The value in the first step, therefore, is the value of the mined silver: ($300,000) Second stage = $700,000 GDP is $1,000,000

The Phillips curve is a relation between the change in the inflation rate and the level of the unemployment rate. Using the Phillips​ curve, what will happen to the unemployment rate when the rate of inflation is constant​ (neither rising nor​ falling)?

It will be at the natural rate of​ unemployment, or near​ 6%.

The Phillips curve is often portrayed as a line with a negative slope. In the​ text, the slope is −0.4. Is this a​ "better" economy than one that has a Phillips curve with a large​ slope, say −​0.8?

No, the slope does not indicate whether one economy is better than​ another; it simply shows how much inflation rises or falls given a change in the unemployment rate.

If the CPI in Japan in 2014 is​ 108, then the rate of inflation in Japan from 2013 to 2014 must be

None of the above—there is not enough information to answer the question.

During a given​ year, the following activities occur in two​ stages: i. A silver mining company pays its workers ​$200,000 to mine 75 pounds of silver. The silver is then sold to a jewelry manufacturer for ​$300,000. ii. The jewelry manufacturer pays its workers ​$250,000 to make silver​ necklaces, which the manufacturer sells directly to customers for ​$1,000,000. What are the total wages and profits​ earned? Total wages = $________. Profits earned = $_______.

Total wages = $450,000 Profits earned = $550,000

Okun's law shows that when output growth is lower than​ normal, the unemployment rate tends to rise.

True

Periods of negative GDP growth are called recessions.

True

The rate of unemployment tends to fall during expansions and rise during recessions.

True

U.S. GDP was 32 times higher in 2014 than it was in 1960.

True

The rate of inflation computed using the CPI is a better index of inflation than the rate of inflation computed using the GDP deflator.

Uncertain

Now consider the case of a medical​ check-up for a pregnant woman. Suppose that a new ultrasound method is introduced. In the first year that this method is​ available, half of doctors offer the new​ method, and half offer the old method. A​ check-up using the new method costs​ 10% more than a​ check-up using the old method. b. The new method represents _________ over the old method. ​(Hint​: Consider the fact that some women choose to see a doctor offering the new method when they could have chosen to see a doctor offering the old​ method.)

a 10% quality increase

Suppose a government report about a​ country's employment situation reveals the following data​ (all values are in millions of​ people). 190 = Working-age population 100 ​= Employed people 28 = People not working but actively looking for work 23 = Unemployed people who have stopped looking for work 39 ​= People not working and not seeking work If the country in question is the United​ States, these data are obtained from ________. From the data​ above, it can be determined that this​ country's labor force is _________ million people. It can be determined that this​ country's unemployment rate is ___% The data indicate that the​ country's participation rate is _____%.

household surveys 128 million people (# of employed + # of people looking for work) 21.9% (unemployed/labor force) x 100 67.4% labor force/working-age population

In many​ cases, the kind of information we used in parts​ (b) and​ (c) is not available. For​ example, suppose that in the year the new ultrasound method is​ introduced, all doctors adopt the new​ method, so the old method is no longer used. In​ addition, continue to assume that the price of​ check-ups in the year the new method is introduced is​ 15% higher than the price of​ check-ups in the previous year​ (when everyone used the old​ method). Thus, we observe a​ 15% price increase in​ check-ups, but we realize that the quality of​ check-ups has increased. d. Under these​ assumptions, the​ quality-adjusted price increase of​ check-ups is​ __________. To know the precise​ amount, we need to know​ __________.

less than 15% ; the relative value of check-ups with and without the new technology

Overall, the consensus among economists is that ___________ is the better measure of inflation in most situations.

neither the CPI nor the GDP deflator necessarily

The rate of unemployment tends to _______ during recessions and _______ during expansions.

rise ; fall