Eastland College is concerned about the rising price of textbooksthat students must

At right is a simplified circular-flow diagram for the economy of Micronia. a. What is the value of GDP in Micronia? b.What is the value of net exports? c. What is the value of disposable income? d.Does the total flow of money out of householdsthe sum of taxes paid and consumer spendingequal the total flow of money into households? e. How does the government of Micronia finance its purchases of goods and services?

A more complex circular-flow diagram for the economy of Macronia is shown at right. a. What is the value of GDP in Macronia? b.What is the value of net exports? c. What is the value of disposable income? d.Does the total flow of money out of householdsthe sum of taxes paid, consumer spending, and private savingsequal the total flow of money into households? e. How does the government finance its spending?

The components of GDP in the accompanying table were produced by the Bureau of Economic Analysis. a. Calculate consumer spending. b.Calculate private investment spending. c. Calculate net exports. d.Calculate government purchases of goods and services and investment spending. e. Calculate gross domestic product. f. Calculate consumer spending on services as a percentage of total consumer spending. g. Calculate exports as a percentage of imports. h.Calculate government purchases on national defense as a percentage of federal government purchases of goods and services.

The small economy of Pizzania produces three goods (bread, cheese, and pizza), each produced by a separate company. The bread and cheese companies produce all the inputs they need to make bread and cheese, respectively. The pizza company uses the bread and cheese from the other companies to make its pizzas. All three companies employ labor to help produce their goods, and the difference between the value of goods sold and the sum of labor and input costs is the firms profit. The accompanying table summarizes the activities of the three companies when all the bread and cheese produced are sold to the pizza company as inputs in the production of pizzas. a. Calculate GDP as the value added in production. b.Calculate GDP as spending on final goods and services. c. Calculate GDP as factor income.

The economy of Pizzanistan resembles Pizzania (from Problem 4) except that bread and cheese are sold both to a pizza company as inputs in the production of pizzas and to consumers as final goods. The accompanying table summarizes the activities of the three companies. a. Calculate GDP as the value added in production. b.Calculate GDP as spending on final goods and services. c. Calculate GDP as factor income.

The accompanying table shows data on nominal GDP (in billions of dollars), real GDP (in billions of year 2000 dollars), and population (in thousands) of the United States in 1960, 1970, 1980, 1990, 2000, and 2007, years in which the U.S. price level consistently rose. a. Why is real GDP greater than nominal GDP for all years before 2000 and lower for 2007? Does nominal GDP have to equal real GDP in 2000? b.Calculate the percent change in real GDP from 1960 to 1970, 1970 to 1980, 1980 to 1990, and 1990 to 2000. Which period had the highest growth rate? c. Calculate real GDP per capita for each of the years in the table. d.Calculate the percent change in real GDP per capita from 1960 to 1970, 1970 to 1980, 1980 to 1990, and 1990 to 2000. Which period had the highest growth rate? e. How do the percent change in real GDP and the percent change in real GDP per capita compare? Which is larger? Do we expect them to have this relationship?

Eastland College is concerned about the rising price of textbooks that students must purchase. To better identify the increase in the price of textbooks, the dean asks you, the Economics Departments star student, to create an index of textbook prices. The average student purchases three English, two math, and four economics textbooks. The prices of these books are given in the accompanying table. a. What is the percent change in the price of an English textbook from 2008 to 2010? b.What is the percent change in the price of a math textbook from 2008 to 2010? c. What is the percent change in the price of an economics textbook from 2008 to 2010? d. Using 2008 as a base year, create a price index for these books for all years. e. What is the percent change in the price index from 2008 to 2010?

The consumer price index, or CPI, measures the cost of living for a typical urban household by multiplying the price for each category of expenditure (housing, food, and so on) times a measure of the importance of that expenditure in the average consumers market basket and summing over all categories. However, using data from the consumer price index, we can see that changes in the cost of living for different types of consumers can vary a great deal. Lets compare the cost of living for a hypothetical retired person and a hypothetical college student. Lets assume that the market basket of a retired person is allocated in the following way: 10% on housing, 15% on food, 5% on transportation, 60% on medical care, 0% on education, and 10% on recreation. The college students market basket is allocated as follows: 5% on housing, 15% on food, 20% on transportation, 0% on medical care, 40% on education, and 20% on recreation. The accompanying table shows the December 2009 CPI for each of the relevant categories. Calculate the overall CPI for the retired person and for the college student by multiplying the CPI for each of the categories by the relative importance of that category to the individual and then summing each of the categories. The CPI for all items in December 2009 was 215. How do your calculations for a CPI for the retired person and the college student compare to the overall CPI?

Each month the Bureau of Labor Statistics releases the Consumer Price Index Summary for the previous month. Go to www.bls.gov and find the latest report. (On the Bureau of Labor Statistics home page, click on News Release under Latest NumbersConsumer Price Index and then choose Consumer Price Index Summary.) What was the CPI for the previous month? How did it change from the month before? How did it change over the last year?

The accompanying table provides the annual real GDP (in billions of 2000 dollars) and nominal GDP (in billions of dollars) for the United States. a. Calculate the GDP deflator for each year. b. Use the GDP deflator to calculate the inflation rate for all years except 2002.

The cost of a college education in the United States is rising at a rate faster than inflation. The table below shows the average cost of a college education in the United States in 2006 and 2007 for public and private colleges. Assume the costs listed in the table are the only costs experienced by the various college students in a single year. a. Calculate the cost of living for an average college student in each category for 2006 and 2007. b.Assume the quantity of goods purchased in each category, that is, the market basket, is identical for 2006 and 2007. Calculate an inflation rate for each type of college student between 2006 and 2007.

Each month, usually on the first Friday of the month, the Bureau of Labor Statistics releases the Employment Situation Summary for the previous month. Go to www.bls.gov and find the latest report. (On the Bureau of Labor Statistics home page, on the left side of the page, find Unemployment and select National Unemployment Rate. You will find the Employment Situation Summary under News Releases.) How does the unemployment rate compare to the rate one month earlier? How does the unemployment rate compare to the rate one year earlier?

In general, how do changes in the unemployment rate vary with changes in real GDP? After several quarters of a severe recession, explain why we might observe a decrease in the official unemployment rate. Could we see an increase in the official unemployment rate after several quarters of a strong expansion?

There is only one labor market in Profunctia. All workers have the same skills, and all firms hire workers with these skills. Use the accompanying diagram, which shows the supply of and demand for labor, to answer the following questions. Illustrate each answer with a diagram. a. What is the equilibrium wage rate in Profunctia? At this wage rate, what are the level of employment, the size of the labor force, and the unemployment rate? b.If the government of Profunctia sets a minimum wage equal to $12 per hour, what will be the level of employment, the size of the labor force, and the unemployment rate? c. If unions bargain with the firms in Profunctia and set a wage rate equal to $14, what will be the level of employment, the size of the labor force, and the unemployment rate? d.If the concern for retaining workers and encouraging highquality work leads firms to set a wage rate equal to $16, what will be the level of employment, the size of the labor force, and the unemployment rate?

A countrys labor force is the sum of the number of employed and unemployed workers. The accompanying table provides data on the size of the labor force and the number of unemployed workers for different regions of the United States. a. Calculate the number of workers employed in each of the regions in March 2007 and March 2008. Use your answers to calculate the change in the total number of workers employed between March 2007 and March 2008. b. For each region, calculate the growth in the labor force from March 2007 to March 2008. c. Compute unemployment rates in the different regions of the country in March 2007 and March 2008. d.What can you infer about the rise in unemployment rates over this period? Was it caused by a net loss in the number of jobs or by a large increase in the number of people seeking jobs?

In which of the following cases is it likely for efficiency wages to exist? Why? a. Jane and her boss work as a team selling ice cream. b.Jane sells ice cream without any direct supervision by her boss. c. Jane speaks Korean and sells ice cream in a neighborhood in which Korean is the primary language. It is difficult to find another worker who speaks Korean.

How will the following changes affect the natural rate of unemployment? a. The government reduces the time during which an unemployed worker can receive benefits. b.More teenagers focus on their studies and do not look for jobs until after college. c. Greater access to the Internet leads both potential employers and potential employees to use the Internet to list and find jobs. d. Union membership declines.

With its tradition of a job for life for most citizens, Japan once had a much lower unemployment rate than that of the United States; from 1960 to 1995, the unemployment rate in Japan exceeded 3% only once. However, since the crash of its stock market in 1989 and slow economic growth in the 1990s, the job -for-life system has broken down and unemployment rose to more than 5% in 2003. a. Explain the likely effect of the breakdown of the job-forlife system in Japan on the Japanese natural rate of unemployment. b.As the accompanying diagram shows, the rate of growth of real GDP has picked up in Japan since 2001. Explain the likely effect of this increase in GDP growth on the unemployment rate. Is the likely cause of the change in the unemployment rate during this period a change in the natural rate of unemployment or a change in the cyclical unemployment rate?

The accompanying diagram shows mortgage interest rates and inflation during 19902005 in the economy of Albernia. When would home mortgages have been especially attractive and why?

The accompanying table provides the inflation rate in the year 2000 and the average inflation rate over the period 20002007 for eight different countries. a. Given the expected relationship between average inflation and menu costs, rank the countries in descending order of menu costs using average inflation over the period 20002007. b.Rank the countries in order of inflation rates that most favored borrowers with seven-year loans that were taken out in 2000. Assume that the expected inflation rate was the inflation rate in 2000. c. Did borrowers who took out seven-year loans in Japan gain or lose overall versus lenders? Explain.