a) Assume a perfectly competitive firm is currently producing 5,000 units of output and is earning $15,000 in total revenue. The marginal cost of the 5,000th unit of output is $3. The corresponding average total cost is $3.50 and total fixed costs equal $1250. Based on this information, should this firm continue to operate in the short run? Why or why not?
b) The Bureau of Labor Statistics announced that in October 1996, of all adult Americans, 127,587,000 were employed, 7,221,000 were unemployed, and 66,645,000 were not in the labor force. How big was the labor force? What was the labor-force participation rate? What was the unemployment rate?
c) Autonomous aggregate expenditures decreases by $200 million, the marginal propensity to consume is 0.50, marginal propensity to invest is 0.25, and the marginal propensity to import is 0.10. Calculate the change in income.
d) During the recession of 2007-2009, the U.S. economy was experiencing a decrease in home prices and consumer wealth, a credit crisis in the financial markets, and declining consumer and business confidence. What components of aggregate demand were affected and what was the impact on real output? What were the policy options?
e) Summarize the arguments for having a central bank that is independent from government.
f) Which do you think is a more effective macroeconomic tool to manage the economy, fiscal policy or monetary policy? Why?