1. In which phase of the business cycle is the U.S. economy currently in? ________________. How many months has the U.S. economy been in this stage of the business cycle? ___________ months 2. How long has the current expansion/recovery lasted to date? _________________ How does this compare to the average length of U.S. recessions since 1854? ______________________________. 3. What do the last four recoveries/expansions (that is, the current recovery/expansion and the previous three recovery/expansions), suggest about a new trend in the U.S. economy regarding the length of typical recoveries/expansions? ______________________________________________ 4. What critical point in the business cycle occurred in January 1920? __________ 5. What critical point in the business cycle occurred in the November 1982? ______ 6. How long did the recession that started in October 1873 last? ____ months 7. The decline in real GDP that accompanies a recession is usually measured in low single digits. What was the percent decline in real GDP in the U.S. from 1929 to 1933? _____________________________ 8. The "end" of the Great Depression troubled a lot of people. Why? _________________________________________________________________ 9. President Kennedy took office on January 20, 1961 and spent much of his administration promoting a tax cut to counter a recession. Go to the table in Chapter 6 that shows the NBER's dating of the U.S. business cycle. How long did the recession last after Kennedy took office? _____________________. 10. What was President Kennedy's "unofficial" working definition of a "recession" when he argued for his tax cut? (Don't simply say that it was "unofficial" - what did Kennedy base his determination on?) _______________________________________ 11. President Kennedy proposed a tax cut in order to address the recession that he claimed was plaguing the economy during his presidential term. Was President Kennedy was confused or misinformed about the high unemployment rate that he claimed was a feature of the on-going recession that he was addressing? Use your understanding of "jobless recoveries" to make the case that Kennedy was confused or misinformed. ______________________________________________________________ 12. What will always happen to a government budget deficit in a recession? _______ 13. In a typical recession, which are more volatile, consumption or investment expenditures? ____________________ 14. During a typical recovery from a recession, how will most interest rates behave? __________________________________________________________________ 15. What is a V-shaped recession and how does it differ from a U-shaped recession? ________________________________________________________________ 16. As a benchmark, how long have U.S. recessions averaged during 1854-2009? ___________ 17. As a benchmark, how long have U.S. expansions averaged during 1854-2009? __________ 18. The expansion that ended in 1990 lasted _________________ months. 19. During the Reagan recession in the early 1980s, the unemployment rate rose to a monthly high of ____________ percent. During the Obama recession the unemployment rate rose to a monthly high of __________ percent. 20. How does the severity of the decline in real GDP during the Obama recession compare to the decline during the Great Depression? _______________________________________. How does it compare to the decline during the Reagan recession? 21. A financial crisis coupled with a recession seems to affect the severity and duration of the recession. How? ________________________________________________________________ 22. How does the pace of the recovery in the (current) Obama recession compare to the recovery from the Reagan recession? _______________________________________________________________ 23. How are recessions usually shown in time series graphs? ________________ 24. The U.S. business cycle can be traced back to the mid-1850s. However, the U.S. as a nation can be traced back to the 1780s. Why do we not discuss the U.S. business cycle from 1780 - 1850? ______________________________________ 25. Why did Schumpeter think that the recovery from the depths of the Great Depression was so weak and took so long? _______________________. Schumpeter died more than a half century ago, but if he were around today, do you think he would agree with Mr. Obama or Mr. Reagan? _________________. (See the Osgood File in the Commentary.) 26. Compared to President Reagan, President Roosevelt and President Obama shared a very different view about the need for government to intervene in a downturn. Their policies reflected this view. However, Roosevelt and Obama also experienced __________________________________________ recoveries compared to the recovery from the Reagan Recession. 27. What did Jevons think caused the business cycle? _________________________. 28. Suppose that you have been asked to compare the problem of bank failures during the Obama recession with the past. How do the number of bank failures in the Obama recession compare to the 1930s or the Reagan recession? _____________________________________________________. 29. Suppose the U.S. government does very little to address the current recession. Based on his speeches, what did Mr. Obama think would happen to the economy? ________________________________________________________________ 30. In many respects, the Obama Recession and the Reagan Recession are very similar. However, the ideology and policies of President Reagan and President Obama are very different. What is the main difference between the two on the role of government in promoting or stimulating a recovery from a recession? _______________________________________________________________ 31. How long was the last recession in the U.S. economy? (i.e., the Obama recession)? _________ months. How does this compare to the benchmark for a typical recession? _________________ 32. As a bench mark, during a "typical" U.S. recession we should expect the unemployment rate to rise to about ____ percent. During the worst year of the Great Depression in the United States, unemployment reached _____________. 33. The Great Depression affected virtually all countries around the world except one. Which country managed to escape the Great Depression? ___________________ 34. What will always happen to a current account trade deficit during a recovery from a recession? ________________________ 35. What will always happen to a government budget surplus as the economy goes into a recession? ________________________ Chapter 7 36. What reporting period do the latest employment/unemployment reports cover or refer to? ______________ 37. What is the current unemployment rate for the U.S. economy reported in the latest employment/unemployment reports? __________ 38. When we reach full employment in the U.S. economy today, what will the unemployment rate be? ____________ 39. As a benchmark, how many jobs must be created each month in the U.S. economy to keep the unemployment rate from rising? _____________ 40. How many new jobs were created in the U.S. in the latest reporting period? ________________. How many new jobs were created in the two previous reporting periods? __________________. Is the new job growth during these months high or low? Explain your answer. ____________________________ 41. How many discouraged workers were counted in the latest employment/unemployment reports? _____________Are discouraged workers counted as "unemployed" in the unemployment rate? _____________________ 42. Ceteris paribus, how fast does real U.S. GDP have to grow each year in order to keep unemployment from rising? _________________ 43. Many European countries have enacted laws restricting the ability of firms to reduce their labor force through cut-backs and lay-offs. These policies have been well-intended, but they have had an unanticipated consequence; these restrictions tend to reduce ________________________________________________. 44. As a consequence of European efforts to minimize "churn," most European economies have had "full-employment levels of unemployment" that are _____________________ than the U.S. full-employment level of unemployment. 45. Danish labor market reforms are referenced in the Lecture/Commentary. These reforms attempt to make it easier for firms to hire and fire workers. Which of these two - easier to hire or easier to fire - is the primary or critical dimension of the reforms? Why? (This is not an essay - zero in on the core issue). ______________________________________________________________ 46. Before the Danish labor market reforms in 1995, how long could Danish workers collect unemployment benefits before being cut off? ___________________. How did this affect the Danish NAIRU? ____________________________. 47. In the Business Week graph cited in the Lecture/Commentary, Denmark continues to record strong job growth. How is this related to the Danish Reforms? ____________________________________________ 48. Competition takes many different forms. "Churn" is a good example of which type of competition? ____________________________ 49. In its Employment Report issued on April 6, 2007, the Bureau of Labor Statistics (BLS) announced that the U.S. economy had created 180,000 "new jobs" in March 2007. Based on your understanding of "churn," identify what happened to jobs created and jobs lost in March 2007. (Be sure that your answer conveys the essence of "churn") _____________________________________________________________ 50. In the current recovery, how many months did it take for the economy to recover the 8 million jobs lost in the recession? ___________. How does this compare to the job recovery following the Reagan recession in the early 1980s? ________________________________________________________ 51. Which type of unemployment includes a person who is fired from his job? ____________________ 52. Which type of unemployment includes a person who quits in order to find a better job? ____________________ 53. Which type of unemployment includes a person who has given up looking for a job because he thinks it is just a waste of time? ___________________ 54. Which type of unemployment includes a person who is laid-off from a fish cannery that shuts down during the off-season? _________________ 55. Which type of unemployment includes a person who cannot find a job because she lacks basic job skills and job experience? _______________________ 56. Which type of unemployment includes a person who quits work in order to stay home in order to care for a family and household? __________________ 57. Which type of unemployment includes a person who looses a job due to lay-offs during a recession? ____________________________ 58. Which type of unemployment is the only type of unemployment that might be significantly reduced by a government policy of stimulating the economy? ________________________________________________________ 59. Seasonal unemployment is measured in the unemployment rate. What would it take in order to get rid of all seasonal unemployment? ________________________________________________________________ 60. Why should you never watch the unemployment rate during a recovery from a recession in order to gauge the extent and strength of the recovery? __________________________________________________________________ 61. What economic statistic does the general public always watch to gauge the extent and strength of a recovery from a recession? ______________________________ 62. Suppose that the U.S. economy is in a recession and the unemployment rate is at 10.5%. One of your co-workers claims that the government (that is, the BLS) does not accurately measure "discouraged workers" and that the true unemployment rate is easily double the reported rate of 10.5 %. Why is your co-worker either correct or incorrect? _________________________________________________ 63. It is very common to see the unemployment rate actually increase as the economy begins to recover (i.e., after the trough). What causes the unemployment rate to rise at this time? ________________________________________________ 64. How could George H.W. Bush, the U.S. president with the highest public approval ratings in the post-WWII period, loose his re-election bid in 1992? In other words, how did the recession of 1990-91 and the subsequent recovery affect the presidential election held in November of 1992? ____________________________________________________________________________________________________________________________________ 65. The original Phillips Curve depicted by Almarin Phillips sought to show a relationship between unemployment and _________________________. Subsequent versions of the Phillips Curve usually depict a relationship between unemployment and __________________________. 66. How good was the original "fit" of the data for the Phillips Curve for the U.S. economy in the 1960s? _______________ How good was the fit of the data for the Phillips Curve for the U.S. economy after the 1960s? ____________________ 67. During the last two recessions before the most recent Obama recession, the U.S. unemployment rate rose slightly above 8% in the earlier recession and almost reached 8% in the most recent recession. Everyone who lives through a recession will tell you that it was "recession from hell," but how would you describe there severity? (Hint: Use the benchmark.) _______________________________________________________ 68. Over the past decade, the U.S. economy has experienced permanent job losses amounting to about _____________ jobs per year. Over the past decade, the U.S. economy has created about _____________ jobs per year. (Hint: See the benchmarks.) 69. How does the expected annual U.S. job loss to foreign outsourcing over the next decade compared to the annual number of U.S. jobs lost through churn in a "typical" year? _________________________________________________ 70. Many countries around the world are worried about immigrants taking jobs away from native-born workers. Recent studies have shown that this is a bigger problem in Europe than in the U.S. This recent research suggests that immigrants (both legal and illegal) will only have a net take away effect on employment if labor markets are __________________________________________ 71. In the 20th century, only two countries stood out in terms of robust job creation. The two countries were a) ___________________ and b) ___________________ 72. What type of unemployment would the minimum wage impact? ________________. What type of unemployment would better job information programs impact? __________________________ 73. What type of unemployment might be reduced by policies that improve job searching? 74. Education and job training programs would probably have the biggest impact on _____________ unemployment and ___________ unemployment. 75. Increasing the number of government jobs might put more people to work in government jobs, but the increase in __________________ needed to pay for these jobs might reduce overall employment..

B.

The market inverse demand curve is P(y) = 10 - 2y, and a monopolist's cost curve is y' + 2. (a) What output level y maximizes the monopolist's revenue? What output level y maximizes the monopolist's profit? Identify which of the two output levels is lower, and explain why using economic intuition. (b) Suppose a second firm with cost curve y' + 2 is considering entering the market. If after entry, the firms would compete a la Cournot, what would be the Cournot- Nash equilibrium output levels y and y2 of firms 1 and 2? What would be the equilibrium profits for each firm? Will firm 2 choose to enter the market? (c) Suppose that if firm 2 enters, both firms collude, choosing output levels that maxi- mize total profits and then split the profits equally between them. What would be the profits to each firm? Will firm 2 choose to enter the market in this case?3. (55 points) The inverse demand function a monopoly faces is P = 100 -Q. The firm's cost curve is TC(Q) = 10+5Q (a) (4 points) What is the monopolist's marginal revenue curve? (b) (3 points) What is the monopolist's marginal cost curve? (c) (4 points) What level of output maximizes the monopolist's profits? (d) (4 points) What is the price charged by a profit maximizing monopolist? (e) (4 points) How would your answers to parts (a)- (d) change if TC(Q) = 100 +5Q? (f) (4 points) For what value of fixed costs, does the monopolist break even? (g) (4 points) For what value of fixed costs, would be monopolist find it optimal to shut down in the short-run? (h) (4 points) For what value of fixed costs, would be monopolist find it optimal to shut down in the long-run? (i) (4 points) What is the value of Lerner Index at the profit maximizing level of output