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1. Suppose the table below represents the simple economy of Peaceland. Industry Value Added (in millions of | Percent of GDP dollars) Agriculture 21 5.3 Transportation 34 8.5 Trade 50 12.5 Health care and social 21 5.3 assistance Education 20 5 Construction 44 11.0 Arts and Recreation 11 2.8 Diplomacy & peacekeeping 80 20 Textile manufacturing 65 16.3 Waste management and 54 13.5 environmental stewardship Economy Total 400 100% a Determine the size of the primary sector (in terms of value added and percent of GDP). b. Determine the size of the secondary (in terms of value added and percent of GDP). c. Determine the size of the tertiary sector (in terms of value added and percent of GDP). 2. Suppose the simple economy of Peaceland, above, has decided to cut out some of the activities of the "middlemen" - the people and organizations that are involved in moving products from the producer to the final consumer. They have set up Fair Trade initiatives and have established local farmers' markets, in order to encourage more of the value of the product to flow directly to the producer, rather than Chapter 7 - The Structure of the United States Economy 5 flowing into the pockets of the middlemen. Suppose the table below represents the simple economy of Peaceland after these changes. Industry Value Added (in millions of Percent of GDP dollars Agriculture 21 5.6 Transportation 25 6.7 Trade 30 8 Health care and social 21 5.6 assistance Education 24 6.4 Construction 44 11.7 Arts and Recreation 11 2.9 Diplomacy & peacekeeping 80 21.3 Textile manufacturing 65 17.3 Waste management and 54 14.4 environmental stewardship Economy Total 375 100% Determine the size of the primary, secondary, and tertiary sectors, in terms of percent of GDP. How have the respective sizes changed compared to your answer in problem 1?{1] Determine the equilibrium output level. 4. Use the Keynesian cross diagram, and illustrate how the AE would shift in each scenario. Indicate whether the economywould end up at a higher or lower equilibrium output. a. Households experience a decline in wealth as the value of housing drops when the housing bubble bursts. b. The nation's leaders tell consumers it is their patriotic duty to save the economy by consuming more, and consumers do so :2. The same national leaders pass policies fayoring the wealthy, which leads to a more unequal distribution of income. Chapter 9 Aggregate Demand and Economic Fluctuations e 5. a. Assume a simple, closed economy with no government. The marginal propensity to consume {mpe} = 0.8. Assume that rms expect the mtre sales and profits to fall, and they suddenly cut back {unintended} investment spending {It} by 5D million. By how much will output eventually fall\":I is. Now assume the same as above, except that now the mpe = 0.9. How much will output fall when unintended investment spending drops by 51] million? 19. What kinds of non-financial capital stocks are included in the accounting of national non-financial assets? 20. What are the two components of manufactured capital stocks? 21. What are the three approaches to measuring GDP? 22. How does the government estimate the value of the services produced by government and nonprofit institutions that are not sold on the market? And the value of the services produced by households? 23. Why in 1996 did the BEA switch to calculate real GDP using the "chained-dollar method" from the "constant-dollar method"? 24. When measuring price levels in the economy (such as when calculating the CPI index), why is a weighted average used? 25. Why does a price index based on constant weights tend to overstate inflation in periods after the base year when the price of one good is rising quickly compared to other goods? 26. What is the saving identity in a closed economy? And in an open economy? Chapter 5 - Macroeconomic Measurement: The Current Approach 27. What simplifying assumptions does the traditional macroeconomic model make (in addition to those made in the NIPA)?Use the following table to answer the question #7. assuming that no intermediate inputs are used other than the ones named: Stage of production Sales value of material Wheat grown by a farmer $0.50 Wheat milled by the miller $0.75 Bread made by the baker $1.00 Bread sold by a distributor $3.50 Retail price of bread to the consumer $4.00 7. What is the value added at all stages of the production process of the bread as described in the accompanying table? a. $0.50 b. $1.00 c. $4.00 d. $7.50 e. $9.75 8 Assume the government is trying to measure the value of production of a non-profit institution providing non-market services in a community. The cost of office supplies used per year is $5,000. The payroll expenses are $150,000 per year. The institution owns its own building, which if it rented out would cost $12,000 per year. The value of services production that would be imputed for this non-profit institution would be a. $12,000 b. $150,000 c. $155,000 d. at least $167,000 c. It is impossible to calculate the value of services produced by this non-profit institution if its services are not sold on the market. Chapter 5 - Macroeconomic Measurement: The Current Approach 9. Assume the following for a particular owner-occupied household: The value of the services of the house, based on the imputed rental value, is estimated to be $1500 per month. A gardener is hired for the upkeep of the grounds, and is paid $200 a month. The cleaning, cooking, and childcare are all done by the mother, who also has a part-time paid job outside the home. If she were to hire a cleaning service she estimates she would have to pay $500 a month, and if she were to hire a nanny or babysitter she would have to pay $800 a month. What would be the value of the services produced in this household as currently measured by the BEA? a. $200 b. $1.500 C. $1,700 d. $3,000 e. None of the value of services produced in this household would be included. 10. In 2016, how much of GDP was produced by the business sector, according to the BEA? 33% b. 50% C. 65% d. 75% e. 90%16. What types of questions would concern microeconomics, versus macroeconomics? 17. How have economists traditionally defined "economic growth," and how is that different from "living standards growth"? 18. What are the "three basic economic questions" that economists often address when examining how much economic output is produced? 19. Once countries already have a high level of production, how might they achieve living standards growth? 20. Why is the goal of stability and security important to many people? What problems typically emerge during periods of instability? 21. The goal of sustainability requires that we address what three questions? 22. Explain how the classical school views the role of markets and government intervention in fighting business cycles. 23. Explain how Keynesian economics views the role of markets and government intervention in fighting business cycles. 24. Explain how Monetarist economics views the role of markets and government intervention in fighting business cycles. 25. Describe some of the key changes that the U.S. economy has undergone since the 1980s. 26. What two developments are demanding new ways of looking at the economic world in the 21" century? What kinds of sustainability questions do they raise?Problems 1. Given the following data: Year Unemployment Rate Inflation Rate percent (percent per year) 1984 7.5 3.8 1985 7.2 3.0 1986 7.0 2.2 1987 6.2 2.7 Source: Economic Report of the President a. Plot the unemployment data on a time series graph: b. Hot the inflation data on a time series graph: c. Now plot the unemployment and inflation data using a scatter diagram. Over any period of years is there a positive relationship between the two variables? Over any period is there a negative relationship? Chapter 2 - Useful Tools and Concepts 6 2. Suppose that a society could produce the following maximum combinations of schools and airplanes in a given year: Alternative Quantity of schools Quantity of airplanes A 100 0 B 80 30 C 60 50 D 40 60 E 20 65 F 0 68 a. Draw a production possibilities frontier (PPF) with schools on the horizontal axis and airplanes on the vertical axis. Assume that the dots define a complete curve