Homework 2- Chapters 8,9,10

Econ 105.08

Due: Friday, October 19th, 2012 (beginning of class)

52 Points

Instructions: Make sure you show all your work. You can write your answers in the space provided.

1.Suppose an economy’s real GDP is $50,000 in year 1 and $55,000 in year 2. What is the growth rate of its GDP? Assume that population was 100 in year 1 and 105 in year 2. What is the growth rate in GDP per capita?(5 points)

2. A farmer produces corn, which is valued at $0.75. The corn is then sold to a miller, who turns it into cornmeal, which is valued at $1.50. The miller then sells the cornmeal to a bakery, which uses it to make cornbread, valued at $3.00. Finally, the baker sells the cornbread to a grocery store, where it is sold to a consumer for $6.00. (5 points)

In the table below, show the value added at each stage of production, and the total value added to GDP.

Firm / Value Added
Farmer
Miller
Baker
Grocery Store
Total Value Added to GDP:

3.In the table below are statistics showing the labor force and total employment in month 1 and

month 2 of the same year. Make the computations necessary to complete the table. (Number of

persons is in thousands.)(5 points)

Month 1 / Month 2
Labor force / 136,297 / 137,065
Employed / 129,558 / 129,526
Unemployed / _____ / _____
Unemployment rate (%) / _____ / _____

4. Using the following data,Total population: 1500; population under age 16: 360; not in labor

Force: 450; unemployed: 69; workers with part-time jobs who are looking for full-time jobs: 30,

to calculate:

(a)the size of the labor force. (3 points)

(b) the official unemployment rate.(3 points)

5. Explain the differences among the frictional, structural, and cyclical forms of unemployment.

(5 points)

6. Answer the next four questions based on the following data using year 1 as the base year. All

dollars are in billions.

Year / Nominal income / CPI
1 / $50,000 / 100
2 / 60,000 / 110
3 / 70,000 / 115
4 / 80,000 / 120

(a)Find real income in year 2.(2 points)

(b)What was the percentage rise in prices between years 2 and 3?(2 points)

(b)What was the percentage rise in prices between years 3 and 4?(2 points)

(d)What was the increase in real income from year 3 to year 4 in percentage?(2 points)

7. Use a graph representing the supply and demand of loanable funds to answer the following:

a. Illustrate an increase in the supply of loanable funds. Describe how the equilibrium changes. (5 points)

b. Illustrate a decrease in the demand of loanable funds. Describe how the equilibrium changes. (5 points)

8. Consider the following data for a closed economy:

Y=$15 trillion

C=$9 trillion

I=$4 trillion

TR=$2 trillion

T=$0.5 trillion

a. Find public savings. (2 points)

b. Find private savings. (2 points)

c. Find government expenditures. (2 points)

d. Find the government budget deficit or budget surplus. (2 points)