20. Given the following Figure below (Figure 9.8 in your textbook), explain what the classical school predicts will happen when there is a sudden drop in intended investment spending. Supply of Loanable Funds Interest rate En 3% Original Demand New Demand 60 140 Quantity of funds borrowed and lent 21. What are the determinants of investment spending in the Keynesian model, and which factor plays the most important role (especially in a recession)? 22. In the Keynesian model, what happens to investment and inventories when there is insufficient aggregate expenditure? Chapter 9 - Aggregate Demand and Economic Fluctuations 3 23. In the figure below: Aggregate Demand (AD) 1000 800 Aggregate Demand and Output 720 200 100 400 800 Income (Y) a What is this diagram called? b. What does the 45 degree line represent? C. At an income level of 800, what is the level of spending? Is there any unintended investment? If so, what will be the response of producers? 24. In the figure in the above question, if 800 represents full employment output, would the equilibrium where income = 400 be desirable? Is there unemployment at this equilibrium? And according to Keynes, would there be forces automatically moving the economy back to the full employment output level? 25. Explain what is meant by "the multiplier," and describe it in words. 26. (In appendix): What are the basic steps to deriving the multiplier algebraically?11. In order to measure GDP by the spending approach, to highlight the portions that are considered to be consumption vs. investment, which identity should be used? a GDP = Household and institution spending + Business spending + Net foreign sector spending + Government spending b. GDP = Personal consumption + Private investment + Net exports + Government consumption c. GDP = Personal consumption + Private investment + Net exports + Government consumption + Government investment d. a and c e. none of the above. 12. Which of the following would be included in the income approach to measure GDP? a Wages and benefits, profits, rents b. Wages and benefits, profits, investment spending c. Wages and benefits, rents, investment spending, consumption spending d. The value added in production e. None of the above. Chapter 5 - Macroeconomic Measurement: The Current Approach 10 13. Which of the following would not be included in the US. GDP, as measured by the income approach? a. The wages earned by workers at a German company located in the U.S. b. The profits earned by a German company from its plant located in the U.S. c. The profits earned by a U.S. company from its plant located in China. d. The rents earned by a U.S. landlord with rental properties. e. The interest payments earned by a U.S. bank from its loans. 14. Which of the following is a price index? a. GPI b. HDI C. PPI d. REI e. None of the above 15. The price index that is most frequently reported in the news is the a. Consumer price index (CPI) b. Producer price index (PPI) c. Earnings index d. The GDP deflator e. Export price index 16. The GDP deflator is measured as: Nominal GDP divided by real GDP b. Real GDP divided by nominal GDP c. Real GDP multiplied by nominal GDP d. The rate of change of nominal GDP e. The rate of change of real GDP 17. The rule of 72 measures a. A country's annual growth rate of GDP. b. A country's growth rate over a short period of time. c. The number of years it will take for a country's GDP to grow by 72 percent. d. The number of years it will take for a country's GDP to double if it grows at a constant rate. e. How much a country's GDP will grow over a 72 year period.Problems 1. The U.S. labor force as of December 2016 was 159.7 million. There were 152.2 million employed, and 7.5 million unemployed. There were about 1.51 million in prison. a Calculate the official unemployment rate. b. If those 1.51 million people were not in prison, but were in the labor force and unemployed, calculate what the unemployment rate would be. 2. Assume the labor market is represented by the graphs below. Illustrate the following scenarios, showing the shift in supply or demand for labor, ceteris paribus. On your graph, identify the new wage, quantities of labor supplied and demanded, and any unemployment that exists. Note: This question draws on more than the graphs actually shown in Chapter 8. You will need to draw on some concepts from Chapter 4 (Supply and Demand). a As the economy goes into recession, the demand for labor falls. Illustrate according to the classical model with smoothly functioning labor markets. Wage Supply WE Demand Quantity of Labor Chapter 8 - Employment and Unemployment 4 b. As the economy goes into recession, the demand for labor falls. Illustrate according to the Classical-Keynesian synthesis with sticky wages. Wage Supply WE Demand Quantity of Labor2. Identify which of the following resources are renewable vs. non-renewable resources. Explain how their stock/flow diagrams would be different, assuming that when the renewable resources are being renewed at the same rate as they are used up. a. A forest b. Reserves of petroleum and natural gas c. Reserves of uranium d. Fish in the seas e. Wind energy Problem #3 refers to following graph. 15 The graph above shows a Lorenz curve for income distribution in the country of Utopia. a. Label the horizontal and vertical axes on this graph. b. In words, explain what information is communicated by the numbers shown on this graph. c. Suppose that the pattern of employment and wages in Utopia changes, so that now the distribution of income is less unequal. On the graph, draw an example of a Lorenz curve that could illustrate this result. Chapter 3 - What Economies Do 6 Self Test 1. Enjoying art at a museum is an example of a. production b. consumption c. exchange d. transfer e. resource management 2. Which of the following is an example of the economic activity of resource management? a Cooking dinner b. Operating a factory c. Providing worker education d. Drilling for oil e. Buying a bicycle17. Why do demand curves generally slope downward? 18. Explain the difference between a change in quantity demanded and a change in demand. 19. A U.S. car manufacturer has produced a lot of SUVs, but now is having difficulty selling them at the price it had intended to sell them for. The cars are sitting at the warehouse unsold. Is this market in equilibrium? Explain. 20. A new movie is released after having been heavily promoted to teenagers. On the first night, the tickets sell out and there are still teenagers waiting outside theaters, desperate to see the movie and unable to get a ticket. Is this market in equilibrium? Explain. 21. What is the mathematical definition of price elasticity of demand (supply)? 22. Provide an example of a market in which prices may adjust very slowly; and an example of a market in which prices may adjust very quickly. Chapter 4 - Supply and Demand Problems S. Price of Cars Quantity of Cars 1. For the following questions, refer to the graph shown above. a. Label the equilibrium point as Es, the equilibrium quantity as Q1, and the equilibrium price as P1. b. Show how the supply curve will change if car manufacturers achieve a technological breakthrough that allows them to produce cars more cheaply. c. If the price stayed at Pi. would a surplus or a shortage result from the technological breakthrough described in part (b)? Answer in words, and show on the graph. d Assuming market forces work quickly. show the new equilibrium price to which the market will adjust. Label this point as E2. Label the new equilibrium quantity as Q2 and the new equilibrium price as P2- e In words, summarize the information that you have shown in your adjustments to the graph in parts (a) through (d)