Economics 251 Dr. Hartmann

Spring 2017 Worksheet 2

Worksheetdue date TBA. Please turn in the assignment into my mailbox in OEC 436 or place it under my office door (OEC 402) by 6 p.m. Economics tutors are available for help in OEC 415.

  1. (Review of supply and demand)

What is the correct order of statements? Assume that buttermilk is one of the main ingredients

in ice cream.

___ higher buttermilk prices

___ the price of ice cream rises and the amount of ice cream sold falls

___ shifts the supply of ice cream to the left

___ raises the cost of producing ice cream.

  1. (Chp. 5) In 2015, Typhoon Koppubrought severe floods to Philippines. Thousands of businesses were flooded and hundreds more were at risk. Strong stormy winds also led to transport disruptions and some power disruptions. How may this typhoon impact the Philippine economy?

a. Affect Philippine’s AD or AS?ADAS(Circle one.)

b. Does this increase or decrease?IncreaseDecrease(Circle one.)

c. Philippine’s GDPIncreaseDecrease(Circle one.)

d. Philippine’s Price Level IncreaseDecrease(Circle one.)

  1. (Chp. 5) For the last decade, rising health care costs have been a major concern to U.S. businesses. Costs are rising10-15% a year and no one expects this increase to slow down any time in the future. Using AD-AS analysis, how does the increase in health care expenses for U.S. businesses affect the U.S. price level and real GDP? (Hint: what else could firms have spent the money on instead of health care?) Label all axes, curves, shifts of curves, and the market for which you are drawing the AD and AS. Also, show on graph the impact on GDP and the price level.
  1. Current Events: Download U.S. Economic Indicators from
  1. What is the U.S.'s current unemployment rate? (Be careful reading the table. The most current numbers are on the right.)
  2. How much has the CPI risen or fallen in the last month reported? Figures are given in percentages.
  3. What is the most current percentage change in productivity – output per labor hour – for the U.S.?
  4. What does BLS stand for? (See top of website.)
  1. Current Events:What were GDP and its components in the fourth quarter of 2016? The Bureau of Economic Analysis posts these figures at Obtain the figures in current dollars (i.e., nominal terms, not chain weighted) from the sixth column of data listed in Table 3.
  1. Gross Domestic Product
  2. Personal Consumption Expenditures (C)
  3. Gross Private Domestic Investment (I)
  4. Exports (X)
  5. Imports (M)
  6. Government Consumption Expenditures and Gross Investment (G)
  7. For each component, calculate what percentage of GDP it is. For example, if consumption expenditures are 100m and GDP is 400 m, then the consumption expenditures are 25% of GDP. (FYI: The percentages do not total 100% because imports are subtracted when calculating Gross Domestic Product.)
  1. (Chp.5) Economic Indicators (SA = Seasonally Adjusted)

Time Period / Change
Durable Goods Orders / Nov- Dec‘16
Dec‘15-Dec’16 / -0.4%(SA)
-0.3%
Business Inventories (Retail) / Nov- Dec‘16(levelchg)
Dec‘15-Dec’16(levelchg) / 323
20,578
Nov- Dec‘16(% chg) / 0.05% (SA)
Dec‘15-Dec’16(% chg) / 3.38% (SA)
Initial Jobless Claims / Jan 28-Feb 4, 2017 / -4.88% (SA)

4-week moving avg.(Feb 4) -1.51%(SA)

Source: Wall Street Journal Economic Indicators Archive

  1. What are durable goods orders? (1 sentence answer is sufficient)
  2. For durable goods orders, do we use the monthly or annual figure? Explain why.
  3. Given your answer to (b), then what does the durable goods orders data suggest about the health of the United States economy? (Give factual support for your conclusion.)
  4. What are business inventories? (1 sentence answer is sufficient)
  5. For business inventories, do we use figures in levels or percentage change? Explain why.
  6. Given your answer to (d), then what does the business inventories data suggest about the health of the United States economy? (Give factual support for your conclusion.)
  7. What are initial jobless claims? (1 sentence answer is sufficient)
  8. For initial jobless claims, do we use weekly or 4 week moving average figures? Explain why.
  9. Given your answer to (h), then what does the initial jobless claims data suggest about the health of the United States economy?(Give factual support for your conclusion.)

Note that the economic indicators may give conflicting messages about the economy. Visitour class page Click on the link “Interpretation of Economic Indicators” next to where homework #2 is listed. It provides a discussion a description of what each indicator tracks and how effective it is in predicting the health of the economy.

  1. (Ch. 7) The Greek economy was particular hit hard in the 2008 world-wide recession. According to the CIA World Factbook ( there were approximately 7.04 m people living in Greecein 2016who were between the age16 and 65.

a)If their labor force consisted of 5.3 million people and their unemployment rate was 24.6%, then approximately how many people were unemployed in Greece? (Aside the unemployment rate was only 7.2% prior to the world-wide economic crisis in 2008.)

b)How many people are not working in Greece?

c)Give two reasons why the unemployment rate understates the number of people who would like to work full time in Greece. (See lecture notes and textbook to provide an economic answer.)

Aside: In 2013, the population was 8.96 people living in Greece who were between the age16 and 65. And the unemployment rate was 28%. People have been migrating elsewhere.

  1. (Ch. 7) Earl E. Byrd consumes only two types of goods, worms and bugs. His “market basket” of goods, along with prices in 2006and 2016, are shown below:

Amount Consumed 2006 Prices 2016Prices

Worms8$8/worm$ 7/worm

Bugs4$5/bug$10/bug

a)Using Earl’s market basket, what is the 2016Consumer Price Index (CPI) when the 2006 CPI = 100?

b)What is the 2006 CPI when 2016is the base year?

Optional Problems: Many if not all are old test questions. See me after class or in office hours.

  1. On a previousexam -- Currently, oil is around $107per barrel. Economists say the substantial price increase has been an obstacle to economic recovery. Economists note that the past four U.S. recessions have coincided with -- or been preceded by -- $30-a-barrel oil. Using AD-AS analysis, show how you expect the rise in oil prices to affect the U.S.’s real GDP and price level. Also explain your reasoning behind shifting the curve(s).
  1. Using AD-AS analysis, show how the following may have affected the U.S.’s real GDP and price level:

a)2002 west coast dockworker strike

b)decrease in consumer confidence because of the war with Iraq

c)choose any current event and think of its macro implications

  1. You should be able to identify the different parts of the business cycle (e.g., trough, peak, contraction, and expansion) and be able to infer the direction of growth (i.e., increasing or decreasing) based on what economic indicators signal.
  1. MGM Studios earned $198,676,459 in gross revenue for Gone with the Wind in 1939. Buena Vista Studios earned $623,357,910in gross revenue for Marvel’s the Avengers in 2012. Which movie earned more money in real terms? Assume the CPI1939 = 14 and CPI2012= 230. Show all work. (Source: Box Office Mojo)
  1. A single mother with two children receives $532 in monthly welfare benefits from the state of Minnesota. This amount has not changed since 1986. Fifteen states, such as Vermont, New York, and California, provide households more money. Suppose you were only concerned about maintaining the real value of the welfare check. Then what would you propose the new monthly stipend be? Assume the CPI1986 = 109.9 and CPI2009= 212.17. Show all work. (Source: Welfare checks haven’t increased with cost of living.” Star Tribune 3/2/09)
  1. While attending CSI: Fort Snelling, I learned some interesting facts about economic life during the 1820s at Fort Snelling. A private was paid $5 a month, while a sergeant was paid $7. Colonel Snelling (the fort was named after him) was paid $75 a month. What is the equivalent salary for a private in today’s dollars? (Assume the CPI1820 = 10 and CPI2014= 195.54.) Show all work.
  1. Last year, Italy decriminalized olive oil counterfeiting. This could have a negative impact on the reputation of products made in Italy and thereby reduce consumers’ willingness to purchase Italian olive oil if they are afraid that they will be sold counterfeit products. Describe how this may impact the Italian Olive Oil market.

a. Affect which side of the market?DS(Circle one.)

b. Does this increase or decrease?IncreaseDecrease(Circle one.)

c. Italian Olive Oil Output?IncreaseDecrease(Circle one.)

d. Italian Olive Oil Price?IncreaseDecrease(Circle one.)

  1. A friend was complaining that new hires at his company are making $50,000 and he only earned $32,000 when he started in 1993. He says this is unfair. How would you respond given your economics background?
  1. A February 2012 OECD report, Equity and Quality in Education: Supporting Disadvantaged Students and Schools, says that helping those in need would reduce school failure, boost economic growth and contribute to a fairer society. Today, many students lack basic skills, as measured by PISA, and one in five students on average across the OECD drops out of the education system before finishing upper secondary [ i.e., high school]. Dropout rates range from 2% in Korea to 58% in Turkey for the 25-34 years-old. [See figure below.] Leaving school this early means that students lack the skills they need in today’s job market, says the OECD.Using a per worker function demonstrate how education boosts economic growth. Label graph clearly and provide an explanation to accompany your graph.