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Macroeconomics

Problem-set Mini Exam #3: 30 points

Please use black type or blue/black pen if completing this on paper. Thank you! Point values are indicated for each problem.

1. Name the type of unemployment (is it cyclical, structural, or frictional) occurring in each of the sentences below. (2 points each)

1. Bill just recently graduated from college and is currently considering three offers to work for top accounting firms in Kanas City. ________________________________
2. Julie was recently laid off from the software developing firm she worked at due to the economic downturn in the economy last year. ________________________________
3. Carrie lost her job as the textile factory she worked for moved their plant overseas. Other textile plants in the nation have also been following this trend. _____________

1. Use the following data to calculate the unemployment rate. To receive credit, you must type or write out your math in the space next to the data, or just below it. Be sure to round to the nearest 10^th. For example, if you calculate an unemployment rate of 8.783 in your calculator, you would round to 8.8%. (3 pts)

• Total population of Collinsville = 3,000
• population under age 16 or those institutionalized = 650
• retired or stay at home = 850
• those who have jobs and are employed = 1,325

ANSWER: ________

1. (1 point) Now, considering your answer in #2 above, and assuming a full employment rate of 5% unemployment, how much cyclical unemployment is there? _________

1. (2 pts) Suppose that Collinsville were capable of a potential GDP of $900,000. Applying Okun's Law, how much will Collinsville's GDP shortfall (or GDP gap) be if they have the level of cyclical that you calculated above. Again, show all your math for credit.

1. Suppose the CPI for 2021 is 386 and the CPI in 2020 was 359. What was the rate of inflation between those years? (Show your math calculation for credit.) Is this "good" or "bad" and how do you know? (2 pts)

1. Real rates of interest are rates that have been adjusted for_______________________. If the nominal rate of interest is 5% and inflation is 9% than the real rate of interest is_________. (2 pts)

1. Fill in the table below. Assume that planned investment is $500 billion. Use the table to answer the questions that follow. (3 pts)

Possible levels of employment (millions)	Income or output GDP (Y) (billions)	Consumption (C)	Investment (Ig)	Saving (S)	Aggregate Expenditures (AE)	Change in Inventory (+) or (-)
10	$ 400	$ 400
15	800	700
20	1200	1000
25	1600	1300
30	2000	1600
35	2400	1900
40	2800	2200
45	3200	2500
50	3600	2800

1. How much is the MPC? _____ The MPS? _____ The multiplier? _____ (2 pts)
2. What is the equilibrium level of employment? ____________________ (1 point)
3. What is our equilibrium Y amount? __________________ (1 point)
4. What's true of savings and investment at this level of income? ___________(1 pt)

1. Using the table, at the $1200 level of income, how much is saving? _______How much is planned investment? _____ (1 point)
2. (1 pt) What's happening to inventories? Up or down and by how much? _______

1. In this situation, is there a tendency for employment, output and income in the economy (our GDP) to increase or decrease and why? (2 points)

1. How much is actual investment? ________ (Be sure to show me how you get the "actual" investment answer by showing the formula and your math in the space below.) (2 pts)