Question

Complete the questions below that are based on your chapter readings. Submit your answers in a Microsoft Word document (no PDFs) by 11:00 p.m. on Sunday of Unit 2 or as directed by your professor.

1. Suppose you are given the following data for a small economy:

• Number of unemployed workers: 1,000,000.
• Labor force: 10,000,000.

Based on this data, answer the following:

1. What is the unemployment rate?
2. Can you determine whether the economy is operating at its full employment level?
3. Now suppose people who had been seeking jobs become discouraged, and give up their job searches. The labor force shrinks to 900,500 workers, and unemployment falls to 500,000 workers. What is the unemployment rate now? Has the economy improved??

2. Nominal GDP for an economy is $10 trillion. Real GDP is $9 trillion. What is the value of the implicit price deflator?

3. Suppose you compare your income this year and last year and find that your nominal income fell but your real income rose. How could this have happened?

4. Suppose that people expect inflation to equal 3 percent, but in fact prices rise by 5 percent. Indicate whether this unexpected higher rate of inflation would help or hurt each of the following groups.

1. a homeowner with a fixed-rate mortgage.
2. a union worker with a fixed labor contract
3. a company that has invested some of its endowment in government bond which pay fixed rate of return.

5. Indicate how each of the following events would affect the aggregate demand AD curve:

1. a short-run decrease in the price level
2. an increase in consumer confidence on the price level and real GDP
3. an increase in government purchases

Answer 1

A) (as Unemployment Unemployment Rate = Number of unemployed Workers x loco Labor force - 1986.066 xlo 18, 000/000 (6) The unemployment rate in the economy is Ligher Than natural rate of unemployment which is generally 4-50% in economies thus the economy is not operating at its full employment lenet. 6 New Unemployment rate = 500,000 xloo = 55.5% 900 500 No, the economy has not improved because unemisheyment ! rate has increased and number of discouraged orkers has increased in the economy