1) Explain why the Aggregate Supply curve becomes increasingly steeply sloped at levels of RGDP near "full employment" and becomes especially steeply sloped beyond "full employment" RGDP (hint: this topic is not discussed in your text... you will need to understand this week's lecture notes to answer this).
2) Why might the rate at which the Aggregate Supply curve shifts vertically upward increase when an economy produces beyond full employment. (Hint: think about the effect of very low unemployment rates on the balance of bargaining power between employers and workers)
3) In the period 2000-2003, the RGDP (real GDP adjusted for inflation) growth rate in the US averaged 2.39% per year, while inflation rates remained at around 2.53% per year. In the latter half of the 1970's, by contrast, inflation rates accelerated markedly even though annual growth in RGDP did not exceed 3%.
Now in 2011 the US economy is slowly recovering from the great recession, what will determine whether it can in the coming years a strong growth performance similar to 2003-2006 without triggering a noticeable acceleration of inflation?
Answer out of following 8 questions and post them in assignment drop box for session 2 by due date. This assigned questions are individual assignments without sharing with each other.
1) Agree or disagree with each of the following statements and explain your answer.
a) The economy cannot be considered fully employed until measured unemployment is less than 1% of the labor force.
b) It is possible for an economy to operate for a time with an unemployment rate less that the "natural" unemployment rate. (Also known as NAIRU, the non-accelerating inflation rate of unemployment).
2) a) What is the difference between structural, frictional and cyclical unemployment? How are these three types of unemployment related to the concept of full employment?
b) Why is it difficult to know which measured rate of unemployment corresponds to “full employment,” and why is there currently uncertainty about the level of NAIRU?
c) What is the current unemployment rate? Is it generally considered to be above, below or equal to NAIRU?
4) a) What are the major categories of “investment” expenditure in the GDP accounts?
b) What are “transfer” expenditures of governments? Why aren’t they included as part of “government spending” in calculating GDP?
c) Why aren’t “intermediate” goods purchases by businesses added to GDP spending totals?
d) Agree or disagree: GDP = wages + rents + net interest + dividends + net taxes
e) Agree or disagree: Annual mortgage payments by households are counted as part of consumer spending when adding up C+I +G + (X-IM) to determine RGDP.
Answer any three questions and post in the Assignment drop box.
1) Suppose that the value of the CPI in January of 1999 was 165 and its value on January 2000 was 172. What was the rate of inflation in 1999?
2) Why do the CPI and the GDPD show different rates of inflation for the same time period?
3) Why has the tremendous growth in household consumption of computers since the CPI base year of 1983 imparted an upward bias to the rate of increase of the CPI?.