2. Answer the following questions on the basis of the three sets of data for the

Question

2. Answer the following questions on the basis of the three sets of data for the country of North Vaudeville: LO2
a. Which set of data illustrates aggregate supply in the immediate short-run in North Vaudeville? The short run? The long run?
b. Assuming no change in hours of work, if real output per hour of work increases by 10 percent, what will be the new levels of real GDP in the right column of A? Does the new data reflect an increase in aggregate supply or does it indicate a decrease in aggregate supply?

Explanation / Answer

2. Labor force = 500 - (120 + 150) = 230

Official unemployment rate (unemployed / labor force) = (23 / 230) = 10%



3. GDP gap = (9% - 5%) x 2 = 8%

Forgone output estimated at (8% of $500 billion) = $40 billion



4. (a) This year's rate of inflation = (121 - 110) / 110 = 10%

(b) This year's rate of inflation = (108 - 110) / 110 = -1.82%

(c) A negative rate of inflation is referred to as "deflation"



6. (a) Real income % increase (approx.) = (5.3% - 3.8%) = 1.5%

(b) Rate of inflation (approx.) = (2.8% - 1.1%) = 1.7%

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