1. Discuss what happens in a recessionary phase of the business cycle with respect to borrowing, liquidity and psychological outlook.
During the recessionary phase of the business cycle businesses are forced to borrow liquid assets, essentially meaning cash, from private or federal corporations in order to keep their business a float. This leads to the business becoming in debt to whomever they borrowed the money from and will have to pay it back with interest generally. The recessionary phase of the business cycle also takes a toll on the psychological outlook of the employees alongside the owners. The owners struggle every day, wondering if that day is the day that they must close their door of their business and will ultimately become unemployed. The employees begin to output less goods and they are on edge constantly as they do not know how much longer they will have their jobs and be able to provide for themselves and potentially their families. It also gives businessmen a new outlook, looking at the numbers of the sales during periods of recession can make them lose confidence and become pessimistic to invest.
2. For each, state whether the unemployment is structural, frictional or cyclical.
a. Unemployment rises as output in the economy falls. Cyclical
b. As it becomes more acceptable for mothers to work, more women enter the labor market looking for work. The unemployment rate rises. Frictional
c. As the United States becomes a more high-tech producer, labor-intensive factories relocate to low-wage countries. Factory workers lose their jobs and the unemployment rate rises. Structural
d. The demand for workers in the southwest increases as more people search for work in the northeast. Frictional
e. Foreign economies slow and demand fewer U.S. exports. Unemployment rate rises. Cyclical
3. Calculate the following given the information about the economy in the table:
Total population 480 Million
Noninstututional population 210 Million
Incapable of working 60 Million
Under the age of 16 66 Million
Employed 310 Million
Unemployed 15 Million
a. Labor force. 310 M (Employed) +15M(Unemployed)= 325 Million
b. Unemployment rate. (Unemployed/Labor Force)*100 (15M/325M)*100= 4.62%
4. Create a price index for NY Nicks fans using the following basket of goods with 2014 prices as the base year. Show work.
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Quantities
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Price per unit 2014
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Price per unit 2015
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20 boxes of face paint
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$1.00
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$1.50
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3 jerseys
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$22.00
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$25.00
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8 game tickets
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$40.00
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$40.00
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Total: (Quantity*Price Per unit of year)+(Quantity*Price Per unit of year)+(Quantity*Price Per unit of year
2014:(20*1)+(3*22)+(8*40)=406 2015:(20*1.50)+(3*25)+(8*40)= 425
2015/2014*100= Price Index
(425/406)*100= 104.679%
5. Calculate the following given the following information about an economy in 2012, 2013, and 2014:
Calculate the following given the following information about an economy in 2010 2011, and 2012:
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2012
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2013
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2014
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Nominal GDP (in billions of dollars)
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$3730
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$4380
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$7,035
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GDP deflator (base year 2013)
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97
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100
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105
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Real GDP
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$3,845
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$4380
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$6700
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a. Nominal GDP in 2014. 7,035
b. Real GDP in 2012 and 2013. 2012: $3,845. 2013: $4380
c. Rate of inflation for 2013: 13.92%
d. Growth rate in 2014. Give a percent change. (6700/4380)-1= .53%
6. Answer the following question about real output change in the country of Ulsteria:
a. Nominal output increased from $6.2 trillion to $9.0 trillion from 2003 to 2010. The GDP deflator index rose from 160 to 200 in that time. By how much did real output change? Show work.
7. Use the following table showing the production of 500 boxes of Wheaties cereal to calculate the contribution to GDP using the value-added approach.
Participants Cost of Materials Value of Sales Value Added
Farmer $0 $150 ________
Mill $150 $400 ________
Cereal maker ______ $______ $300
Wholesaler $_____ $950 ________
Grocery store $_____ ________ $750
a. Calculate the value added at each stage of production.
b. What is the market value of the final good?
c. What is the total value added?
d. What is the contribution to GDP for the production of those Wheaties?
8. You have been hired as a research assistant and are given the following data about the economy: All figures are in billions of dollars.
Transfer payments 80
Interest paid by consumers 5
Exports 20
Indirect business taxes 44
Change in inventory -50 (negative 50)
Corporate income tax 69
Contribution for social insurance 48
Imports 40
New Home Construction 50
Plant and equipment 250
Government purchases 280
Personal Household consumption 1150
Calculate the GDP using the expenditures approach._ Show work.
9. You have been hired as a research assistant and are given the following data about another economy :
Corporate income tax $200
Profits $220
Rents $40
Depreciation $20
Indirect business taxes $110
Undistributed corporate profits $50
Net foreign factor income $-5
Interest $185
Social security contribution $30
Transfer payments $80
Wages $900
Personal taxes $175
Calculate the GDP using the factor payment approach. Show work.