Assignment:
In complete Circular Flow Model that we did in class, how will you add:
a) An Underground Economy
b) Government Borrowing (For example, when Treasury sells Bonds)
2. Consider a firm whose final output (and sales) in a particular year has a value of $1,200. To produce these goods, the firm used $500 worth of intermediate goods it had purchased in previous years plus $200 worth of newly-purchased intermediate goods. In the subsequent year, this same firm again sells $1,200 worth of final goods, but in this year has purchased $700 worth of intermediate goods, of which $100 is not used in current production but, rather, added to the firm's inventory. For each of these two years, calculate the value added by this firm. For each of these two years, calculate the contribution of this firm to the economy's GDP.
3. What impact do you think that the movement of women from working in the household to working in the market has had on GDP? Why? Do you think that this points to a problem with GDP?
4. Assume the following national income accounting data in billions of dollars:
transfer payments to persons 500
personal taxes 120
Corporate profit tax payments, undistributed profits and valuation adjustments 200
interest paid to businesses 50
contributions to Social Security 350
net personal transfer payments to foreigners 15
personal interest income 160
government purchases of goods and services 100
consumption expenditures 750
gross investment 80
imports of goods and services 20
exports of goods and services 10
Depreciation 250
indirect taxes 100
a) Calculate gross national product.
b) Calculate net domestic product.
c) Calculate personal disposable income.
d) Calculate personal saving.
5. Assume the budget deficit decreased by $15 billion, private domestic saving decreased by $20 billion, exports increased by $10 billion, and imports increased by $15 billion. By how much did private domestic investment change?
6. a) How will an increase in the minimum wage impact the GDP of an economy.
b) Some craft unions, such as electricians, restrict the number of workers who can join the union and then negotiate with employers to hire only union workers. Use a demand and supply graph to illustrate the effect of a craft union on employment/unemployment and/or wages?
7. Consider the following scenario. Initially the economy has 90 million people working, 10 million people unemployed, and 20 million people not in the labor force. Then prospects for the economy improve. Five million people who previously were not in the labor force now join the 10 million previously unemployed in looking for work. For now, the economy remains with 90 million workers. What happens to the unemployment rate?
8. For the past decade, the unemployment rate in the Eurozone has been higher than the unemployment rate in the United States. Based on this fact, is the natural unemployment rate larger in the Eurozone or in the United States? Why might the natural rates differ between the two areas?
9. Technical and "junior" colleges offering full-time degree programs that may be completed in two years or less are a rapidly growing segment of the U.S. economy.
What are some likely impacts on aggregate flows into and out of employment status?
10. Typically, employers compete with each other in the labor market to get and to retain the best possible workers. Explain how such competition might prevent the unemployment rate from ever being close to zero.
11. In an article about the effect of the 2007-09 recession on the labor market, Bloomberg.com quotes Lawrence Mishel, president of the Economic Policy Institute in Washington as saying: "People tend to think that when you come out of a recession you get the labor market you had when you entered it. This time you may get something quite different." Why might a prolonged recession cause changes in the natural rate of unemployment?