Macroeconomics Unit Review: Name:

Section 1: Economic Goals and Measurements**answer on a separate sheet of paper**

Instructions: Read each question and answer, for each answer you will need to define orexplain a macroeconomic theme. You will need to answer each question COMPLETELY to receive credit. Unsupported answers will be marked incorrect.

  1. What are the 3 “main” economic goals in an economy? What are the “measurements” we use to track each goal?
  2. Please list and give an example for each of component of GDP. (Hint: C+I+G+(NX))
  3. Please list and give examples of 5 types of goods that are not included in GDP.
  4. Please explain the purpose of CPI and why it uses a “Market Basket”. List and explain one good that would not be included in the “Market Basket”.
  5. Define inflation.
  6. Define and give an example of cost-push inflation.
  7. Define and give an example of demand-pull inflation.
  8. Explain how we calculate unemployment? What group of people are not counted in the labor force?
  9. Heinz ketchup, based in Pittsburgh, recently decided to move their manufacturing plant to London, as a result James was laid off. What type of unemployment is James suffering from? Support your answer with at least one sentence.
  10. Sandy arrived to work late for the 5th time this month. Before firing Sandy, her boss made the statement: “You’re a great worker, but I can’t hire someone who I can’t count on!” What type of unemployment is Sandy suffering from? Support your answer with at least one sentence.
  11. During harvest, Jamal works as an apple picker for his neighbor farmer John. After harvest has been completed John stops employing Jamal, What type of unemployment is Jamal suffering from? Support your answer with at least one sentence.
  12. Megan just finished law school, she is set to take the B.A.R. exam next month. Before her B.A.R. she was “conditionally” hired by the law firm Ciarletta & Ciarletta. However Megan ended up failing her B.A.R. exam and was not hired by the law firm. What type of unemployment is Megan suffering from? Support your answer with at least one sentence.

Section 2: Effects of Inflation **answer on a separate sheet of paper**

Instructions:Use the table below along with the information given to answer questions 1-2.

Year: / Blue Jeans / Hamburgers
2017 / $30.00 / $3.00
2018 / $35.00 / $2.50
2019 / $30.00 / $3.25

***The market basket in each year is 2 pairs or blue jeans and 10 hamburgers. ***

  1. Calculate the rate of inflation in 2018 using 2017 as the base year. Please show your work.
  2. How much did prices change? (express this as a percentage)
  3. Calculate the rate of inflation from 2018 to 2019. Please show your work.
  4. How much did prices change? (express as a percentage)
  5. How would unanticipated inflation affect banks who have loaned out money? (in terms of money given versus money to be received back)
  6. How would unanticipated inflation affect people on fixed incomes?
  7. How would unanticipated inflation affect people who have taken out loans? (in terms of the money they owe)

Section 3: Fiscal and Monetary Policy (Part I) **answer on a separate sheet of paper**

Instructions: Draw a “T-Chart” that separates Monetary and Fiscal policies. Under the t-chart use bullet points to explain who administers each respective policy and a bullet for each of the policies used by each respective policy. Be sure to define how each policy is administered and give at least 1 example.

Section 4: Fiscal and Monetary Policy (Part II) **answer on a separate sheet of paper**

Instructions:Label whether the following actions are Fiscal or Monetary and whether they are Expansionary or Contractionary. Please justify your answer with at least two sentences.

Policy Action: / Fiscal / Monetary / Expansionary / Contractionary
  1. A tax break is given to all people with an annual income under $40,000.

  1. The discount rate is raised from 3.40% to 3.90% during the first quarter of the fiscal year.

  1. The Federal Reserve decides to buy $1,000,000 worth of bonds on the open market

  1. The Reserve Rate is lowered from 20% of deposits to 13% of deposits.

  1. The Governor announces that a new public park will be created near Blue Water Quarry.

  1. A new sales tax on all energy drink products is enacted.

  1. Wells Fargo frees up $6,000,000 worth of deposits that will now be made available for lending

  1. The President announces a new tax break that will see income taxes drop 2-4%

Section 5: The Business Cycle **answer on a separate sheet of paper**

Instructions: Draw a graph of the business cycle labeling it according the following prompts.

  1. Draw a fully labeled business cycle – expansion, contraction, peak, trough, X and Y axes
  2. Label where inflation occurs with an I
  3. Label where deflation would occur with a D
  4. Label where the unemployment rate would increase with a U
  5. Label where stagflation would occur with an S
  1. Draw a fully labeled business cycle – expansion, contraction, peak, trough, X and Y axes (Remember: these will all go in either “expansion” or “contraction”)
  2. Label where the Federal Reserve would buy bonds with the number 1.
  3. Label where the Government would lower taxes with the number 2
  4. Label where the Federal Reserve would increase the discount rate with 3
  5. Label where the Government would increase spending with 4
  6. Label where the Federal Reserve would sell bonds with 5
  7. Label where the Government would use expansionary policy with 6
  8. Label where the Federal Reserve would use contractionary policy with 7