Honors Macroeconomics Problem Set 2 PDF

SamanthaBall Economics Problem Set 2 -All problem sets are open-book and open-note. -This problem set should be complete...

SamanthaBall Economics Problem Set 2 -All problem sets are open-book and open-note. -This problem set should be completed individually (not collaboratively). -Your answers are due at the beginning of class on October 21 and should be submitted as a hard copy. s 1. Below are the major components of a circular flow model. (8 points) ii 50taxes MEers idielled 1154 want Smroir savings  2 a) Using arrows to show the flow of money, add the following information to the diagram (0.5 point each): i) $200 total in wages, profit, interest, and rent ii) $50 in taxes iii) $110 in consumer spending iv) $50 in household savings v) $10 in government direct transfers vi) $80 in government purchases of goods and services vii) $40 in government bonds issued viii) $20 in loans to firms ix) $20 in businesses’ investment spending on goods and services x) $40 in imports xi) $30 in exports b) Highlight or otherwise denote the flows of money on the diagram that would be included in the calculation of GDP using the expenditures method. (1.5 points) c) What is the GDP of this economy? (2 points) Afford il mÉ aCif iffp.is  3 2. Assuming that the industries outlined below comprise the entirety of a national economy, to what would the GDP of that economy be? (3 points) Cost of Rent Wages Interest Profit Total sales Assuming EEE Intermediate goods the total sales Mining $0.00 $8,000.00 $25,000.00 $2,000.00 $5,000.00 $40,000.00 already Chemicals $0.00 $2,500.00 $12,000.00 $1,000.00 $4,500.00 $20,000.00 reflect the Petroleum $0.00 $10,000.00 $55,000.00 $15,000.00 $5,000.00 $85,000.00 value of the Steel $35,000.00 $2,000.00 $14,000.00 $0.00 $4,000.00 $55,000.00 Final Goods Plastics $60,000.00 $3,000.00 $22,000.00 $4,000.00 $6,000.00 $95,000.00 Services Pharmaceuticals $50,000.00 $2,000.00 $23,000.00 $1,000.00 $4,000.00 $80,000.00 Automotive $35,000.00 $20,000.00 $40,000.00 $9,500.00 $5,500.00 $110,000.00 Construction $60,000.00 $2,000.00 $53,000.00 $10,000.00 $5,000.00 $130,000.00 Industrial Equip. $55,000.00 $12,000.00 $18,500.00 $5,000.00 $4,500.00 $95,000.00 see We  4 3. Calculate the unemployment rate and labor force participation rate for each of the following countries. a) A nation has a population of 260 million people. Of these, 60 million are retired, in the military, in institutions, or under 16 years old. There are 188 million who are employed and 12 million who are unemployed. (4 points) Jetentr otortipationate b) In an economy, 35 million workers are employed out of a labor force of 50 million and a total civilian, non-institutionalized over-16 population of 70 million. (4 points) 4. The descriptions give the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. (2 points each) For each of these individuals, specify a) whether the BLS would count him or her as being unemployed and, if so, b) what type of unemployment this situation represents. a) Melissa just graduated from college and is now looking for work. She has had three job interviews in the past month. I b) George worked in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in several months when national economic conditions improve.  5 c) Alan worked as a construction foreman, but is undergoing rehab for a serious injury and does not expect to return to work for 9-12 months. d) Joanna worked as an aircraft design engineer for a company that produces military aircraft and she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year, but no company seems interested in her aircraft design skills. e) Sandra lives in Chicago and recently lost her job as a software engineer. She has been looking for jobs in her field and they are available, but they are mostly located in New York or California, and she is not currently able to relocate. f) Jeff lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year, but was unsuccessful and quit looking for work. g) Rebecca works 15 hours a week at a local coffeeshop. She would prefer to find full-time work, but has been unsuccessful in doing so. on 5. You are an economist employed by the Federal Reserve, which issues the nation’s currency and sets certain key interest rates in the money market. You’ve been tasked with providing  6 recommendations as to whether the Federal Reserve should aim to increase or decrease the money supply (through means we will discuss in class in a few weeks!). First, though, you need to know about recent trends in the price level. You’ve constructed a market basket containing 10 boxes of Cheerios, 2 dozen eggs, 3 quarts of orange juice, and 1 non-stick frying pan. Based on data gathered by the Bureau of Labor Statistics, you know the following about price trends for these goods: 2014 Price ($) 2015 Price ($) 2016 Price ($) Cheerios (box) 3.50 3.65 3.70 Eggs (dozen) 2.35 2.40 2.10 Noway Orange juice (qt) 2.80 2.95 3.20 Frying pan 18.75 18.75 19.15 a) Using 2014 as a base year, construct a price index for this market basket. What is the price index for each year? (2 points each) lost 201 basket 10.3.5 2.2.35 3 2.8 18.7 5 66.85 m i f 10.3.65 22.4 3.2 Cfffffy 75 68.9 Cost 015 basket yfyffffgfg I III III b) What wasf the rate of inflation from year 1 to year 2? From year 2 to year 3? (2 points each) cii.in igpifpacs recommendations as to whether the Federal Reserve should aim to increase or decrease the money supply (through means we will discuss in class in a few weeks!). First, though, you need to know about recent trends in the price level. You’ve constructed a market basket containing 10 boxes of Cheerios, 2 dozen eggs, 3 quarts of orange juice, and 1 non-stick frying pan. Based on data gathered by the Bureau of Labor Statistics, you know the following about price trends for these goods: 2014 Price ($) 2015 Price ($) 2016 Price ($) Cheerios (box) 3.50 3.65 3.70 Eggs (dozen) 2.35 2.40 2.10 Orange juice (qt) 2.80 2.95 3.20 Frying pan 18.75 18.75 19.15 a) Using 2014 as a base year, construct a price index for this market basket. What is the price index for each year? (2 points each) Jeffords b) What was the rate of inflation from year 1 to year 2? From year 2 to year 3? (2 points each) afterongstaff c) If your employer (the Federal Reserve) aims to achieve an annual rate of inflation of 2%, then, based on the data you’ve just gathered, would you recommend an increase or decrease in the money supply? Why? (2 points)