Economics 251
Spring 2016
Dr. Hartmann
Worksheet 2
Worksheet due 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.
2.
(Chp. 5) Last October, Typhoon Koppu brought 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?
b. Does this increase or decrease?
c. Philippine’s GDP
d. Philippine’s Price Level
AD
Increase
Increase
Increase
AS
Decrease
Decrease
Decrease
(Circle one.)
(Circle one.)
(Circle one.)
(Circle one.)
3.
(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.
4.
Current Events: Download U.S. Economic Indicators from http://www.bls.gov/eag/eag.us.htm .
a. What is the U.S.'s current unemployment rate? (Be careful reading the table. The most current
numbers are on the right.)
b. How much has the CPI risen or fallen in the last month reported? Figures are given in percentages.
c. What is the most current percentage change in productivity – output per labor hour – for the U.S.?
d. What does BLS stand for? (See top of website.)
5.
Current Events: What were GDP and its components in the third quarter of 2015? The Bureau of Economic
Analysis posts these figures at http://www.bea.gov/newsreleases/national/gdp/2015/pdf/gdp3q15_adv.pdf.
Obtain the figures in current dollars (i.e., nominal terms, not chain weighted) from the sixth column of data
listed in Table 3.
a. Gross Domestic Product
b. Personal Consumption Expenditures (C)
c. Gross Private Domestic Investment (I)
d. Exports (X)
e. Imports (M)
f. Government Consumption Expenditures and Gross Investment (G)
g. 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.)
6.
(Chp.5) Economic Indicators (Seasonally Adjusted)
Durable Goods Orders
Business Inventories (Retail)
Initial Jobless Claims
Time Period
Jul- Aug ‘15
Aug ‘14- Aug’15
Change
-2.0% (SA)
-4.6%
Nov- Dec‘15 (level chg)
Dec‘14-Dec’15(level chg)
2,532
30,230
Nov- Dec‘15 (% chg)
Dec ‘14- Dec’15 (% chg)
0.4% (SA)
5.4% (SA)
Jan 31-Feb 6, 2015
4-week moving avg. (Feb 6)
-0.01% (SA)
-0.01% (SA)
Source: Wall Street Journal Economic Indicators Archive
a.
b.
c.
d.
e.
f.
g.
h.
i.
What are durable goods orders? (1 sentence answer is sufficient)
For durable goods orders, do we use the monthly or annual figure? Explain why.
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.)
What are business inventories? (1 sentence answer is sufficient)
For business inventories, do we use figures in levels or percentage change? Explain why.
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.)
What are initial jobless claims? (1 sentence answer is sufficient)
For initial jobless claims, do we use weekly or 4 week moving average figures? Explain why.
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. Visit our class page
http://courseweb.stthomas.edu/mehartmann/macro/macro_econ.html. 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.
7.
(Ch. 7) The Greek economy was particular hit hard in the 2008 world-wide recession. According to the CIA
World Factbook (http://www.worldfactbook.org), there were approximately 8.96m people living in Greece in
2013 who were between the age16 and 65.
a)
If their labor force consisted of 4.95 million people and their unemployment rate was 28%, 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.)
8.
(Ch. 7) Earl E. Byrd consumes only two types of goods, worms and bugs. His “market basket” of goods, along
with prices in 2003 and 2013, are shown below:
Worms
Bugs
Amount Consumed
8
4
2005 Prices
$8/worm
$5/bug
2015Prices
$ 7/worm
$10/bug
a) Using Earl’s market basket, what is the 2015 Consumer Price Index (CPI) when the 2005 CPI = 100?
b) What is the 2005 CPI when 2015 is the base year?
Optional Problems: Many if not all are old test questions. See me after class or in office hours.
1. On a previous exam -- Currently, oil is around $107 per 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).
2. 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
3.
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.
4.
MGM Studios earned $198,676,459 in gross revenue for Gone with the Wind in 1939. Buena Vista Studios
earned $623,357,910 in 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)
5.
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)
6.
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.
7.
Headline in the March 7th edition of the Wall Street Journal: “Central Bankers (such as the Federal Reserve)
vow to fight inflation” Explain what the Federal Reserve will do to fight inflation and explain how this will
lower inflation. (2-3 sentences)
8.
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?
9.
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.
provide an explanation to accompany your graph.
Label graph clearly and