Notebooks 10 5 50 Eco 202T3396 Snhu Gross Domesti

Notebooks 10 5 50 Eco 202T3396 Snhu Gross Domesti

Notebooks 10 5 50 Eco 202T3396 Snhu Gross Domesti

1 . Activities included (and not included) in the calculation of GDP

The gross domestic product (GDP) of the United States is defined as themarket value of allfinal goods and services produced within the United States in a given period of time.

Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2018.

Scenario

2018 GDP

Included

Excluded

Athleticus, a U.S. shoe company, produces a pair of sneakers at a plant in Vietnam on March 27, 2018. Athleticus imports the pair of sneakers into the United States on May 18, 2018.

Chocolate Express, a Swiss chocolate company, produces a chocolate bar at a plant in Illinois on December 9, 2018. An elementary school student buys the chocolate bar on December 24.

The Jones family buys an antique silver platter at an auction in upstate New York on March 27, 2018.

Graincorp, a U.S. agricultural company, produces corn syrup at a plant in Iowa on September 25, 2018. It sells the corn syrup to Crunchy’s for use in the production of cereal that will be made in the United States in 2018. (Note: Focus exclusively on whether production of the corn syrup increases GDP directly, and ignore the effect of production of the cereal on GDP.)

Tasty’s, a U.S. fast-food company, produces a hamburger at one of its many St. Louis locations on January 14, 2018. It sells the hamburger to a customer that same day.

2 . Real versus nominal GDP

Consider a simple economy that produces two goods: pens and envelopes. The following table shows the prices and quantities of the goods over a three-year period.

Year

Pens

Envelopes

Price

Quantity

Price

Quantity

(Dollars per pen)

(Number of pens)

(Dollars per envelope)

(Number of envelopes)

2016

1

150

2

160

2017

2

135

4

230

2018

3

110

4

165

Use the information from the preceding table to fill in the following table.

Year

Nominal GDP

Real GDP

GDP Deflator

(Dollars)

(Base year 2016, dollars)

2016

2017

2018

From 2017 to 2018, nominal GDP _________, and real GDP ___________ . choose one of these decreased, or increased

The inflation rate in 2018 was ___________. choose one of these -12.5%, 0.1%, 12.5%, 88.9%, 112.5%

Why is real GDP a more accurate measure of an economy’s production than nominal GDP?

Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.

Real GDP is not influenced by price changes, but nominal GDP is.

Real GDP includes the value of exports, but nominal GDP does not.

3 . Problems and Applications Q1

Indicate what components of GDP (if any) each of the following transactions would affect. Check all that apply.

Transaction

Consumption

Investment

Government Purchases

Net Exports

Texas hires public middle school teachers.

Uncle Henry buys a new refrigerator from a domestic manufacturer.

Honda expands its factory in Ohio.

You buy a new Toshiba computer.

Your parents buy a new house from a local builder.

The federal government sends your grandmother a Social Security check.

Ford sells a Mustang from its inventory to the Martinez family.

You pay a hairdresser for a haircut.

4 . Problems and Applications Q5

1.GDP Computations

  • 2.Percentage Changes

STEP: 1 of 2

The following table shows some data for an economy that produces only two goods: milk and honey.

Year

Milk

Honey

Price

Quantity

Price

Quantity

(Dollars)

(Quarts)

(Dollars)

(Quarts)

2020

1

200

2

100

2021

1

400

2

200

2022

2

400

4

200

Using 2020 as the base year, compute nominal GDP, real GDP, and the GDP deflator for each year.

Year

Nominal GDP

Real GDP

GDP Deflator

(Dollars)

(Dollars)

2020

2021

2022

Will send part 2 when part 1 is sent back to me to input it in

5 . Problems and Applications Q9

A farmer grows wheat, which she sells to a miller for $90. The miller turns the wheat into flour, which she sells to a baker for $145. The baker turns the wheat into bread, which she sells to consumers for $155. Consumers eat the bread.

Assume that these transactions account for all economic activity in this economy.

GDP in this economy is .

Value added is defined as the value of a producer’s output minus the value of the intermediate goods that the producer buys to make the output.

Assuming there are no intermediate goods beyond those just described, complete the following table by calculating the value added for each of the three producers. Then enter the total value added in the final row.

Producer

Value Added

(Dollars)

Farmer

Miller

Baker

Total

True or False: The total value added for the three producers in this economy does not equal the economy’s GDP.

True

False

6 . Calculating inflation using a simple price index

Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019.

The cost of each item in the basket and the total cost of the basket are shown for 2017.

Perform these same calculations for 2018 and 2019, and enter the results in the following table.

Quantity in Basket

2017

2018

2019

Price

Cost

Price

Cost

Price

Cost

(Dollars)

(Dollars)

(Dollars)

(Dollars)

(Dollars)

(Dollars)

Notebooks

10

5

50

7

11

Calculators

1

100

100

110

140

Large coffees

150

1

150

1

1

Energy drinks

50

2

100

3

4

Textbooks

10

100

1,000

120

150

Total cost

1,400

Price index

100

Suppose the base year for this price index is 2017.

In the last row of the table, calculate and enter the value of the CSPI for the remaining years.

Between 2017 and 2018, the CSPI increased by . Between 2018 and 2019, the CSPI increased by.

Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply.

As the price of textbooks increased, more and more students turned to the used-book market or chose not to buy textbooks at all, instead using the copies on reserve in the library.

Professors required each student to buy 10 textbooks, regardless of the price.

A new, safe method of memory enhancement became available for purchase.

The quality and design of calculators improved dramatically from 2017 to 2019. For example, calculators made in 2019 accept memory cards, whereas those made in 2017 do not, but this quality change is hard to measure.

7 . Inflation and interest rates

The following table shows the average nominal interest rates on six-month Treasury bills between 2014 and 2018, which determined the nominal interest rate that the U.S. government paid when it issued debt in those years. The table also shows the inflation rate for the years 2014 to 2018. (All rates are rounded to the nearest tenth of a percent.)

Year

Nominal Interest Rate

Inflation Rate

(Percent)

(Percent)

2014

0.1

1.6

2015

0.2

0.1

2016

0.5

1.3

2017

1.1

2.1

2018

2.1

2.4

Source: “FRED Economic Data,” Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org.

On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 2014 to 2018. Next, use the green points (triangle symbol) to plot the real interest rates for those years.

According to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment?

2014

2015

2016

2017

2018

8 . Interest, inflation, and purchasing power

Suppose Eileen is a sports fan and buys only baseball caps. Eileen deposits $3,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed—that is, it won’t change over time. At the time of her deposit, a baseball cap is priced at $10.00.

Initially, the purchasing power of Eileen’s $3,000 deposit is baseball caps.

For each of the annual inflation rates given in the following table, first determine the new price of a baseball cap, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Eileen’s deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates.

Hint: Round your answers in the first row down to the nearest baseball cap. For example, if you find that the deposit will cover 20.7 baseball caps, you would round the purchasing power down to 20 baseball caps under the assumption that Eileen will not buy seven-tenths of a baseball cap.

Annual Inflation Rate

Number of Caps Eileen Can Purchase after One Year 0% choose one 150, 291, 315, 582 Real Interest Rate ­­­­______

5% choose one 150, 261, 300, 582 Real Interest Rate ­­­­______

8% choose one 150, 291, 315, 582 Real Interest Rate ­­­­______

When the rate of inflation is equal to the interest rate on Eileen’s deposit, the purchasing power of her deposit ­­­­_____________ over the course of the year. Remains or falls or rises

9 . Types of unemployment

The three people described in the following table are categorized as unemployed by the Bureau of Labor Statistics.

Identify each person in the table as structurally, frictionally, or cyclically unemployed.

Unemployment Type

Structural

Frictional

Cyclical

Kyoko just graduated from college and is looking for a full-time position with an investment banking firm.

Rina is a real estate agent. House sales in her area have declined because the region has been going through a recession. She has no clients and is currently looking for a new full-time job.

Jacques left his job as a plumber when his wife took a position in another region. The quantity of plumbing services demanded is considerably lower in the new region, in part because of high union-negotiated wages. He would like to work at the high union wage but remains unemployed due to a lack of plumbing jobs.

The following table shows data on frictional, cyclical, structural, and total unemployment for an economy.

Unemployment Type

Rate

(Percent)

Frictional

3.6

Cyclical

0.0

Structural

1.1

Total unemployment

4.7

True or False: This economy is not currently at its natural rate of unemployment.

True

False

10 . Minimum-wage laws and unemployment

Consider the market for labor depicted by the demand and supply curves that follow.

Use the calculator to help you answer the following questions. You will not be graded on any changes you make to the calculator.

Complete the following table with the quantity of labor supplied and demanded if the wage is set at $12.50. Then indicate whether this wage will result in a shortage or a surplus.

Hint: Be sure to pay attention to the units used on the graph and in the table. For example, type in 100 for 100,000 workers.

Wage

Labor Demanded

Labor Supplied

Shortage or Surplus?

(Thousands of workers)

(Thousands of workers)

$12.50

Suppose a senator considers introducing a bill to legislate a minimum hourly wage of $12.50.

Which of the following statements are true? Check all that apply.

If the minimum wage were set at $9.50, the market would still be able to reach equilibrium.

Binding minimum wages increase the natural rate of unemployment.

In this labor market, a minimum wage of $12.50 would be binding.

In the absence of price controls, a surplus puts upward pressure on wages until they rise to the equilibrium.

11 . Problems and Applications Q5

Economists use labor-market data to evaluate how well an economy is using its most valuable resource—its people. Two closely watched statistics are the unemployment rate and the employment–population ratio (calculated as the percentage of the adult population that is employed).

Indicate what happens to the unemployment rate and the employment–population ratio in each of the following scenarios.

Need to choose from decreases or increases stays the same

12 . Problems and Applications Q6

Which of the following situations illustrate the problem of unmeasured quality change in the construction of the CPI? Check all that apply.

13 . Problems and Applications Q8

Social Security benefits are increased each year in proportion to the increase in the CPI, even though most economists believe that the CPI overstates actual inflation.

True or False: If the elderly consume the same market basket as other people, then Social Security would provide an increase in their standard of living.

Healthcare costs have risen faster than overall inflation.

True or False: If the elderly consume a market basket that includes more healthcare than other people, then Social Security necessarily provides an increase in their standard of living.