ECO 204 Homework 2 _(35 points) 1. Unemployment rates: Civilian, non-institutional, population over 16 years of age in country X is 200 million. Of the 200 million 140,000,000 are employed, and 24,000,000 are unemployed of whom 3,000,000 are frictionally and 5,000,000 are structurally unemployed. (10 points) You must round numbers up to the nearest hundredth decimal: For example, 34.1277 = 34.13. a. Calculate the actual (or total) unemployment rate b. Calculate the Natural Rate of Unemployment (NRU). c. Calculate the cyclical unemployment rate. d. Is this country in a recession or a boom? e. Explain your answer to part d. 2. Present value of a future return: What is the present value of future expected return of $12,000.00, seven years from now, if the annual fixed interest rate is 2.5%? (3 points) 3. Do you believe government budget deficit "crowds out" private investment spending? Support your response using economic reasoning. (4 points) 4. Give one reason why demand for loanable funds (LF) may increase at each and every level of interest rate (shift), and one reason why supply of loanable funds may decrease at each and every level of interest rate. (6 points) 5. Country X's long run full employment level of Real GDP is estimated to be $20,000,000. However, the current actual Real GDP in country X stands at $18,000,000. Data shows that in country X a $1,000 increase in one's income results in $970 increase consumption. Answer the following questions based on the above information. (12 points) I. Is Country X in a recessionary or an inflationary Real GDP gap? Briefly explain your answer. II. What is the dollar value of the GDP gap? $_ III. What is country X's Marginal Propensity to Consume (MPC)? IV. If MPC has been updated to be 90% (0.90), calculate country X's income multiplier. V. Explain what the income multiplier value you obtained in question IV means. VI. You are informed that due to inaction by government the recessionary Real GDP gap now stands at $3,000,000, and the income multiplier is now 8.03 By how much should country X's government increase the "Autonomous consumption" (i.e., spending) to close the $3,000,000 recessionary Real GDP gap to help the economy reach full employment? 1