Section A.

This question has several parts

Discuss how we measure real GDP in the United States.

Describe 3 issues with relying on GDP as a measure of the quality of life.

This question has several parts

Discuss how we measure unemployment in the U.S.

Discuss how we measure the labor force participation rate in the U.S.

Define the different components to the unemployment rate (cyclical, structural, and frictional).

Using specific terms, discuss how the measured unemployment rate might under-report the actual unemployment rate.

This question has several parts.

Discuss how we measure inflation in the U.S.

Identify some of the potential problems with this measure as well as the solution that the Bureau of Labor Statistics has come up with.

This question has several parts.

Draw an AD/AS graph to demonstrate an economy that has come to rest in an inflationary gap. Label this equilibrium point 0.

Describe how the Federal Reserve Bank could use open market operations (buy or sell treasury bonds) to cool the economy and describe the effect this has on bank T accounts.

Show the effect of this policy on the AD/AS graph and explain what shifts, and why.

This question has several parts.

Use the Bureau of Labor Statistics, the Bureau of Economics Analysis, or the St. Louis FRED database to look up and cite (url) current statistics for the following.

Unemployment rate

Rate of inflation

Government deficit

Debt to GDP ratio

Federal funds rate

Real GDP

Trade balance

Given the information, identity one policy (fiscal or monetary) you recommend to improve the current situation. Be sure to think about how ALL the variables will be impacted by your policy decision as you think through possible recommendations.

Defend your position by explaining why you've made this recommendation and describe any assumptions you're making.

Use at least one economic model from this quarter to defend your recommendation.

Explain how this recommendation affects each of the variables listed.

Discuss one other policy you considered and explain the thought process you went through to eliminate this other policy.

Section B.

1. In this problem, you are asked to consider cases in which "more is not better." For each of the following scenarios, draw an appropriate indifference curve map over different combinations of Brussels sprouts (X) and broccoli (Y). Put Brussels sprouts (X) on x-axis and broccoli (Y) on Y-axis. Draw 3 indifference curves for each scenario and labeled U1, U2 and U3, from the lowest to the highest utility level.

Hint: to determine the slope of the indifference curves, i.e. whether the indifference curves are upward sloping or downward sloping, start at an arbitrary point (on any indifference curve), reduce the amount of x and ask whether y would have to increase or decrease in order for the person to return to the same indifference curve, i.e., to be indifferent between the original bundle and the new bundle. You can refer to "four particular preferences" in the slides but don't expect the indifference curves to necessarily look like those depicted in slides.

a. I like Brussels sprouts, but I don't like broccoli (Brussels sprouts are an economic good and broccoli is an economic bad.)

b. I don't like Brussels sprouts, and I don't like broccoli.

c. Brussels sprouts are useless for me, and I don't like broccoli.

2. Alan always uses 2oz. of peanut butter and 2oz. of jelly in a PB&J sandwich, and these are the only two commodities he consumes. Assuming he has 2oz. of peanut butter and 2oz. of jelly, how many sandwiches could he make? What if he had 3oz. of peanut butter and 2oz. of jelly? 6oz. of peanut butter and 2oz. of jelly? 2oz. of peanut butter and 4oz. of jelly? Draw his indifference curve for peanut butter (x) and jelly (y) through (2,2). Similarly, draw his indifference curve through (4,4).

3.

Suppose Amy enjoys apple juice (A) and grape juice (G) according to U(A,G) = 4A+3G

a. What does her utility function say about her MRS of apple juice for grape juice?

(Hint: MRS equals the negative value of the slope of indifference curves)

b. Are apple juice and grape juice perfect substitutes or perfect complements? Why?

c. If apple juice costs 6 cents per ounce and grape juice costs 5 cents per ounce, and Amy has 30 cents to spend on these products, how much apple juice and grape juice should she buy to maximize her utility?

d. Draw the graph of her indifference map and her budget constraint, and show that the utility maximizing point occurs only on the A-axis where no grape juice is bought. Hint: to draw the indifference map, please sketch the indifference curves for U=18, and U=20, and give at least two examples of consumption bundles on each indifference curve.

e. Would Amy buy any grape juice if she had more money to spend?

f. How would her consumption change if the price of apple juice fell to 3 cents per ounce?

C..

Problem 1. (7 points) A monopolist faces the following average revenue (demand) curve: P = 300 0.3Q and the monopolist's cost function is given by 0022) = 8000 + 03. (a) Derive the monopolist's marginal revenue equation. (2 pts) (b) Derive the mon0polist's marginal cost equation. (1 pt) (c) What level of output will the monopolist choose in order to maximize its prots? (2 pts) ((1) What price will the monopolist receive at the prot-maximizing level of output? (1 pt) (e) Calculate the monopolist's prot when they produce at the prot-maximizing level. (1 pt)