1. Suppose in the first quarter of the year, Real GDP was $400 billion; in the s
ID: 1099142 • Letter: 1
Question
1. Suppose in the first quarter of the year, Real GDP was $400 billion; in the second quarter it was $398 billion; in the third quarter it was $399 billion; and in the fourth quarter it was $395 billion. Has there been a recession? Explain your answer.
2. When economists say that the economy is operating at full employment, do they really mean that the unemployment rate is zero? Why or why not?
3. Suppose the total adult population of Neverland is 100 million. Of this total, 70 million have jobs, 7 million are full-time students, 3 million are retirees and 20 million are without jobs. Of the 20 million without jobs, 15 million are actively looking for work and 5 million have given up looking for work.
a. What is the labor force participation rate?
b. What is the unemployment rate?
c. How many people are discouraged workers?
4. If the frictional unemployment rate is 2 percent, natural unemployment rate is 5 percent, labor force is 100 million, and 82 million workers are employed, compute the following:
a. Structural unemployment rate
b. Unemployment rate
c. Cyclical unemployment rate
5. Use a supply and demand diagram to illustrate and briefly explain:
a. Cost-push inflation caused by labor unions successfully negotiating for higher wages.
b. Demand-pull inflation caused by an increase in demand for domestic product from foreign buyers.
Explanation / Answer
1. This is not a recession as the GDP has not decreased for 2 consecutive quarters.
2. Full employment allows for some unemployment as there will always be frictional unemployment. People switch jobs occasionally and there will be a time between jobs where they are unemployed.
3. a) (70+15)/100=85%
b) 15/(70+15)=17.6%
c) 5 million
4. a) (18-5)/100=13%
b) (100-82)/100=18%
c) 5-2=3%
5.
a) The supply curve shifts to the left as at any price, producers are willing to produce left. This increases the price and decrease the quantity demanded.
b) The demand curve shifts to the right as at any price there are more buyers so price increases and quantity demanded also increases.
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