Macroeconomics: The Big Picture

Read this chapter and attempt the "Try It" exercises. Also, complete the concept problems and the numerical problems at the end of the chapter. In the first section of this chapter, you will read about the definition of Gross Domestic Product and some of the issues around measuring it. You will also learn about the 4 phases of the business cycle. As you will see, the economy goes through naturally alternating periods of economic growth and recession. You will review certain sections of this chapter later in the unit.

Review and Practice

NUMERICAL PROBLEMS

  1. Plot the quarterly data for real GDP for the last two years. (You can find the data online at http://www.whitehouse.gov/administration/eop/cea/economic-indicators. Relate recent changes in real GDP to the concept of the phases of the business cycle).
  2. Suppose that in 2013, the items in the market basket for our movie price index cost $53.40. Use the information in the chapter to compute the price index for that year. How does the rate of movie price inflation from 2012 to 2013 compare with the rate from 2011 to 2012?
  3. Recompute the movie price indexes for 2011 and 2012 using 2012 as the base year. Now compute the rate of inflation for the 2011–2012 period. Compare your result to the inflation rate calculated for that same period using 2011 as the base year.

  4. Here are some statistics for August 2006. Compute the unemployment rate for that month (all figures are in thousands).

    Population (Civilian, noninstitutional) 229,167
    Civilian Labor Force 151,698
    Participation Rate 66.2%
    Not in Labor Force   77,469
    Employed 144,579
    Unemployed     7,119

  5. Suppose an economy has 10,000 people who are not working but looking and available for work and 90,000 people who are working. What is its unemployment rate? Now suppose 4,000 of the people looking for work get discouraged and give up their searches. What happens to the unemployment rate? Would you interpret this as good news for the economy or bad news? Explain.

  6. The average price of going to a baseball game in 2011, based on the observations in the Case in Point, was $197.35. Using this average as the equivalent of a base year, compute fan price indexes for:
    a. The New York Yankees.
    b. The Chicago Cubs.
    c. The Boston Red Sox.
    d. The Tampa Bay Rays.
    e. The team of your choice.

  7. Suppose you are given the following data for a small economy:

    Number of unemployed workers: 1,000,000.

    Labor force: 10,000,000.

    Based on this data, answer the following:

    a. What is the unemployment rate?
    b. Can you determine whether the economy is operating at its full employment level?
    c. Now suppose people who had been seeking jobs become discouraged, and give up their job searches. The labor force shrinks to 900,500 workers, and unemployment falls to 500,000 workers. What is the unemployment rate now? Has the economy improved?
  8. Nominal GDP for an economy is $10 trillion. Real GDP is $9 trillion. What is the value of the implicit price deflator?

  9. Suppose you are given the following data for an economy:

    Month Real GDP Employment
    1 $10.0 trillion 100 million
    2 $10.4 trillion 104 million
    3 $10.5 trillion 105 million
    4 $10.3 trillion 103 million
    5 $10.2 trillion 102 million
    6 $10.3 trillion 103 million
    7 $10.6 trillion 106 million
    8 $10.7 trillion 107 million
    9 $10.6 trillion 106 million

    a. Plot the data for real GDP, with the time period on the horizontal axis and real GDP on the vertical axis.
    b. There are two peaks. When do they occur?
    c. When does the trough occur?
  10. The Consumer Price Index in Period 1 is 107.5. It is 103.8 in Period 2. Is this a situation of inflation or deflation? What is the rate?