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Exam 7: Economic Growth, business Cycles, unemployment, and Inflation

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Question 1

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What was the typical rate of growth of United States GDP during the twentieth century and how did the decades of the 1970s and 1980s differ from that general pattern? Approximately how long (in years)was the typical business cycle in the last half century? How big a drop in GDP was associated with America's worst business cycle,the Great Depression?

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Throughout most of the twentieth century...

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Question 2

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What is the business cycle? How is it linked to a secular trend? Describe the four phases of the business cycle.How are these phases linked to the concepts of a "boom",a "recession" and an "expansion"?

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A business cycle is the upward or downwa...

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What are the measurement problems associated with the CPI? What has the government done to overcome these problems?

What is the target rate of unemployment and how does it relate to potential income? According to "Okun's rule of thumb",what will happen to output and income if actual unemployment is 1 percent greater than target unemployment?

What are two costs of inflation?

Non-economists often say that inflation makes the nation poorer.Why are they incorrect? What are two actual costs of inflation?

What are the four central problems of macroeconomics?

Fill in the blanks of the following table and answer the following questions. $\begin{array}{l}\begin{array} {llll } \text {Year }&\text {Real GDP }&\text { Nominal GDP}&\text {GDP Deflator }\\\hline2005&8,144.8&----&101.9\\2006&----&8,759.9&103.1\\2007&8,848.2&9,256.1&----\\\end{array}\end{array}$ (a)Does the table indicate there is inflation?

What are the benefits and costs of economic growth?

Why are Keynesian economists likely to think the unemployment rate reported by the BLS understates true unemployment?

Suppose an economy currently has total output of $7 trillion and an unemployment rate of 4%.Using Okun's rule of thumb,how would output change if unemployment decreased to 3.5%?

What is inflation?

How does the target rate of unemployment relate to potential income?

What is real GDP?

What is the target rate of unemployment? What would happen if unemployment were below this rate?

Distinguish between the concept of a secular growth trend of the economy,and an increase in output experienced in any given year.

Define the following price indices: PPI,GDP Deflator,CPI,and PCE deflator.

What is the business cycle? List (in order of occurrence beginning when GDP is at its highest)the four phases of the business cycle.

What is the difference between the short-run framework and the long-run framework? How does each relate to supply and demand? Explain.

Classify each of the following cases as frictional,structural,or cyclical unemployment. (a)John graduated from college and is currently looking for a job. (b)A farmer lost his job because the area he lives in was transformed into a highly industrialized zone. (c)Eliot works in the automobile industry in Detroit.He lost his job because cheaper imported cars have poured into America from Mexico. (d)Mrs.Dunkin finished raising her children and decided to look for a job. (e)Elizabeth lost her job because the company she used to work for merged with another company. (f)David,who is a restaurant manager,lost his job because of a recession.