Economic Questions for Chapter 4

Essential of Economics

By: Amber Broderson

Study Questions with Answers for Session 4

1. Use the following data to calculate (a) the size of the labor force and (b) the official unemployment rate: total population, 500; population under 16 years of age or institutionalized, 120 not in labor force, 150; unemployment, 23 part-time workers looking for full-time jobs, 10.

2. In the CPI was 110 last year and is 121 this year, what is this year's rate of inflation? What is the "rule of 70"? How long would it take for the price level to double in inflation persisted at (a) 2 percent, (b) 5 percent, and (c) 10 percent per year?

3. Briefly distinguish between demand-pull inflation and cost-push inflation.

4. What is the general relationship between a country's price level and the quantity of its domestic output (real GPD) demanded? Who are the buyers of U.S. real GPD?

5. What assumptions cause the immediate-short run aggregate supply curve to be horizontal? Why is the long-run aggregate supply curve vertical? Explain the shape of the short-run aggregate supply curve. Why is the short-run curve relatively flat to the left of the full-employment output and relatively steep to the right?

6. Suppose that the aggregate demand and supply schedules for a hypothetical economy are as shown below?

a. Use these sets of data to graph the aggregate demand and aggregate supply curves. What are the equilibrium price level and the equilibrium level of real ouput in this hypothetical economy? Is the equilibrium real output also necessarily the full-employment real output? Explain?

b. Why will a price level of 150 not be an equilibrium price level in this economy? Why not 250?

C Suppose that buyers desire to purchase $200 billion of extra real output at each price level. Sketch in the new aggregate demand curve as AD. What factors might cause this change in aggregate demand? What are the new equilibrium price level and level of real output?...