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ECO 407, Quiz 5

by: Jonas Ofori

ECO 407, Quiz 5 ECO181

Jonas Ofori

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This is part of the cumulative exam that will take place.
Intro to Macroeconomics
Dr. Monica Cherry
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This 4 page Study Guide was uploaded by Jonas Ofori on Thursday October 6, 2016. The Study Guide belongs to ECO181 at University at Buffalo taught by Dr. Monica Cherry in Fall 2016. Since its upload, it has received 3 views.


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Date Created: 10/06/16
Your Name_____________________________         _____________ Quiz 5 REVISED For all numerical questions show your calculations. Economics 407 Fall, 2016. Professor James Holmes Total Population 320M Non-institutionalized population over the age of 16 = Number of people potentially available for civilian employment 224M Number of those potentially available for employment who are neither working nor looking for work 30.4 Number of people working 176M Natural rate of unemployment 5.2% 2 1) A) Explain the difference in concept between total population and the potential labor force. B) Who makes up the labor force and how much is it in the numerical example above? 2)  A) Define using a paradigm the labor force participation rate.  and b) calculate it. c) Define using a paradigm, unemployment and the unemployment rate. and d) calculate them from the table above.   3) In your answers to the following define real and nominal wages.  a) Explain efficiency wage behavior using the example of Ford Motor Co. Cite the facts of what  happened to wages, employee turnover, absenteeism, and productivity. Does it depend upon the real or nominal wage? b) Define and give a personal example of the reservation wage. According to your textbook what are  some of the advantages to a firm of paying workers above their reservation wage? 4) Explain using a numerical example why an increase in employment does not always lead to an  equivalent decrease in the unemployment rate.   5) A) According to your textbook, if the economy is at full employment, the unemployment rate will  not be 0%.  Why? B) Explain the "discouraged worker hypothesis" and discuss how it relates to measured  unemployment. 3 6) A) in the IS theory, G, is total government spending upon goods and services.  Is this the same as  total federal government expenditures?  Explain. B) Explain what T refers to/is, and its relationship to total tax revenue? C) What is wage indexation? Give a paradigm. 7)  In the IS­LM theory what are the three major policy actions the government can take to remedy a  recession? 8) Your text argues that investment and the interest rate are negatively correlated, because higher  interest rates make borrowing money for investment by a firm from a bank a less attractive option.   Firms, in fact, only finance about 20­25% of their new capital by borrowing and the remainder is  financed by equity ownership (including reinvesting retained earnings).  Prof. Holmes criticized the  textbook explanation as illogical and incoherent. What was his criticism (Hint: it involved 4 interest  rates or rates of return)? 9) WSJ, Answer at least one. (9/30/216) What reasons did Wladawsky – Berger give for “ Why are  We Stuck in a World of Slow Economic Growth?”  (9/26/16) David Rivken and Andrew Grossman  argued what should be the EPA’s and congress’s roles in “Clean Power Plays and the Last Stand for  Federalism”? 10)  Relate P/P  to the slope of the PPC curve and explain how an increase in it will affect the supply  of investment goods using the concept of opportunity cost to a firm. 11)  In the figure draw 2 production possibility curves (PPC), one for employment of L =100 workers and the  0  other for L1 =101 employees per week.  Then draw two, parallel straight lines that are tangent to the PPC curves you drew at the points with the dotted lines.  Correctly label and denote the relative magnitudes of the relevant  variables (using the subscripts ‘0’ for initial and ‘1’  for new. 4 C Chart Title C C PPC (L 1      ) . == PPC (L 0 PPC (L 0          )


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