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4. Out of 246 million persons aged 16 and older, 143.5 million had paying jobs, 11.5 million were without jobs but were actively seeking employment, and 2.5 million wanted jobs but had given up looking for employment. a. Calculate the size of the labor force b. Calculate the unemployment rate Answers for Chapter 4 Fill-in-the-blanks: 1. Inflation 4. Frictional 2. money, products 5. Structural 3. labor force 6. Cyclical Multiple Choice: 1. b. 11. b. 21. b. 2. b. 12. b. 22. b. 3. c. 13. b. 23. a. 4. a. 14. d. 24. d. 5. c. 15. a. 25. b. 6. a. 16. c. 26. d. 7. b. 17. a. 27. c. 8. c. 18. d. 28. a. 9. b. 19. c. 10. a. 20. d. Problems: 1. Inflation (1942) = (16.3 – 14.7) ÷ 14.7 = 1.6 ÷ 14.7 = .1088 or 10.9% 2. The basic economic measurement unit is the dollar. But the value of the dollar in terms of buying power changes from year to year because of changes in the price level. If dollar amounts from different years are to be fairly compared, the nominal dollar amounts must be adjusted to real (inflation-adjusted) dollar amounts. 3. Real Income (2013) = $50,000 ÷ (233.0 ÷ 144.5) = $50,000 ÷ 1.6125 = $31,008 4. a. Labor Force = Employed + Unemployed = 143.5 million + 11.5 million = 155 million b. Unemployment Rate = Unemployed ÷ Labor Force = 11.5 million ÷ 155 million = .074 or 7.4% Answer to Think Like an Economist: The new law is likely to increase unemployment among young workers. While making it more difficult and costly to fire young workers may cause some young workers to keep their jobs who would otherwise be fired, employers will be more hesitant to hire young workers in the first place. FOR REVIEW ONLY - NOT FOR DISTRIBUTION Inflation and Unemployment 4 - 16
Chapter 5 Measuring Total Output: GDP The three macroeconomic goals are price level stability, full employment, and economic growth. We looked at inflation and unemployment in the last chapter. Economic growth refers to an increase in total output for the economy. Measuring total output is the topic of this chapter. Gross Domestic Product To determine whether total output is increasing from year to year, and by how much, we need a measurement of total output. The basic measurement of total output is called gross domestic product (GDP). Gross domestic product – the market value of all final goods and services produced annually. The market value of goods and services means the price that purchasers actually paid for the goods and services. The price actually paid would include any sales or excise tax paid. Example 1: Cindy’s Cinnamon Rolls produced and sold 100,000 cinnamon rolls in 2013 and had sales revenue (including sales tax) of $250,000. Cindy’s production had a market value of $250,000 and thus added $250,000 to GDP in 2013. In 2014, Cindy’s produced and sold 110,000 cinnamon rolls and had sales revenue (including sales tax) of 302,500. Thus, Cindy’s production added $302,500 to GDP in 2014. Notice in Example 1 that Cindy’s produced 10 percent more cinnamon rolls in 2014 than in 2013 (110,000 rolls versus 100,000 rolls). However, Cindy’s contribution to GDP increased by 21% percent ($302,500 versus $250,000). Some of the increase in Cindy’s contribution to GDP from 2013 to 2014 is due to higher prices for the cinnamon rolls rather than to increased production. Nominal GDP numbers will change from year to year for two different reasons. Nominal GDP numbers change due to changes in production. An increase in production will contribute towards an increase in nominal GDP. Nominal GDP numbers will also change if there is a change in the price level. This complicates the comparison of GDP numbers from different years. If GDP numbers from different years are to be fairly compared, an adjustment must be made for the change in the price level in the different years. We will look at the calculations to adjust nominal GDP to Real GDP later in the chapter. What is Excluded in Computing Gross Domestic Product The primary purpose of computing GDP is to compare total output from year to year. Thus, GDP needs to be calculated as objectively and as consistently as possible. For this reason, certain types of production that are difficult to measure objectively are excluded in calculating GDP. Also, factors that affect the quality of life, but that do not affect production are excluded from GDP. And financial transactions that do not result directly in production are excluded from GDP. GDP excludes: 1. Intermediate goods. An intermediate good has not yet reached its final user, but rather is an input in the production of another good or has been purchased for resale. Example 2A: Cindy buys 5 pounds of flour at the store for $2.80 for use at her home. This flour is a final good and its market value ($2.80) is included in GDP. Cindy buys 500 pounds of flour from a wholesaler for $240 for use in her cinnamon roll shop. This flour is an intermediate good. It will be an input in the production of a final good (cinnamon rolls). Since this flour is an intermediate good, the value of the flour is excluded from GDP. Cindy’s cinnamon rolls (which include the flour as an ingredient) are final goods and their market value is included in GDP. If intermediate goods were included in GDP, this would overstate GDP by double counting. The flour purchased by the shop would be included once as flour and a second time as an ingredient in the cinnamon rolls. FOR REVIEW ONLY - NOT FOR DISTRIBUTION 5 - 1 Measuring Total Output: GDP
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PRINCIPLES OF ECONOMICS JEFF HOLT S
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Principles of Economics, 6th Editio
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16. Study Guide for Chapter 7 17. C
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11. Appendix: Book Review - “The
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20. Appendix: The NCAA Cartel 21. S
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Introduction: A Brief History of U.
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In the twentieth century, per capit
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Appendix: The 35 Largest National E
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Multiple Choice: ___ 1. The Jamesto
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2. Describe the economic cost of th
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Chapter 1 Scarcity and Choices The
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Example 5B: At the end of 1982, the
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Example 11: When Cindy quits her jo
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consequences may result in failure
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An upward sloping curve (as in Exam
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In making decisions, humans tend to
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5. ______________________ _________
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___ 13. If the value of one variabl
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Page 39 and 40: Chapter 2 Trade and Economic System
Page 41 and 42: Example 4B: The following quantitie
Page 43 and 44: 1. An increase in the quantity of r
Page 45 and 46: 3. For whom to produce? This is det
Page 47 and 48: The graph below illustrates the shi
Page 49 and 50: The two primary economic systems ar
Page 51 and 52: ___ 12. The capitalist vision sees
Page 53 and 54: ___ 25. According to the book “Ca
Page 55 and 56: Chapter 3 Demand, Supply, and Equil
Page 57 and 58: . For inferior goods, income and de
Page 59 and 60: The same information can be placed
Page 61 and 62: Not only does a free market elimina
Page 63 and 64: $7 - 6 - 5 - S 3 S1 S 2 Price 4 - 3
Page 65 and 66: Example 17: The graph below illustr
Page 67 and 68: Questions for Chapter 3 Fill-in-the
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Page 71 and 72: $8 - 7 - 6 - 5 - Price 4 - 3 - 2 -
Page 73 and 74: Chapter 4 Inflation and Unemploymen
Page 75 and 76: Computing the Rate of Inflation The
Page 77 and 78: Full Employment Though unemployment
Page 79 and 80: 3. Cyclical unemployment - due to d
Page 81 and 82: During the Great Depression, the ec
Page 83 and 84: Appendix: Think Like an Economist -
Page 85 and 86: Answer questions 8. and 9. based on
Page 87: ___ 25. The extension of unemployme
Page 91 and 92: 5. Leisure. Leisure time is by defi
Page 93 and 94: The U.S. is a high per capita GDP c
Page 95 and 96: Example 17: In “An International
Page 97 and 98: The simple circular flow diagram be
Page 99 and 100: ___ 3. Which of the following would
Page 101 and 102: 2. Explain what nonproduction trans
Page 103 and 104: Chapter 6 The Aggregate Market The
Page 105 and 106: Example 2C: Assume the same facts a
Page 107 and 108: Example 5B: The price of crude oil
Page 109 and 110: Price Level Real GDP SRAS AD 2 AD 1
Page 111 and 112: Appendix: Why the Aggregate Demand
Page 113 and 114: ___ 3. DEF Company can invest in ne
Page 115 and 116: 2. List and explain the two factors
Page 117 and 118: Chapter 7 Classical Economic Theory
Page 119 and 120: Notice that the investment demand c
Page 121 and 122: Long-Run Equilibrium If Real GDP is
Page 123 and 124: Example 6B: When the economy is in
Page 125 and 126: Laissez-faire If the economy is sel
Page 127 and 128: ___ 5. According to Say’s Law: a.
Page 129 and 130: 3. On the graph below, draw an aggr
Page 131 and 132: Chapter 8 Keynesian Economic Theory
Page 133 and 134: Example 2B: The graph below illustr
Page 135 and 136: Example 5: Assume that the table be
Page 137 and 138: Notice on the graph on the previous
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According to Keynesian theory, a ch
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“The General Theory” also inclu
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___ 8. If the consumption function
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3. If the MPC is .667, and investme
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Chapter 9 Fiscal Policy The basic e
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Keynesian Fiscal Policy Theory and
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Example 5A: The federal government
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The Laffer Curve What will happen t
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Appendix: The Importance of Incenti
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___ 4. A decrease in government exp
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2. Explain what automatic stabilize
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Chapter 10 Money, Money Creation, a
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Example 4B: The castaways on Gillig
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Looking at the balance sheet below,
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Demand-side One-shot Inflation Exam
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4. Inflation increases uncertainty
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life; it came into existence not by
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calculated by using the potential d
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___ 12. If the required-reserve rat
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4. Referring to the balance sheet f
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Chapter 11 The Federal Reserve Syst
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5. After Bank X sells the $300,000
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Low Mortgage Interest Rates Mortgag
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Relaxed Standards for Mortgage Loan
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The Bursting of the Housing Bubble
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On February 17, 2009, the federal g
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Fed policies caused short-term inte
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___ 10. The Fed’s most important
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___ 25. In response to the recessio
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Chapter 12 Monetary Policy The basi
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2. A change in aggregate demand (AD
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Monetarist Transmission Mechanism C
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3. Borrowers do not have to seek ou
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Appendix: Book Review - “The Age
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Questions for Chapter 12 Fill-in-th
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___ 16. The primary source of incom
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7. According to Alan Greenspan, wha
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Chapter 13 Taxes, Deficits, and the
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Example 5: In 2015, Taxpayer A had
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of $5 and a quantity of 10 units. T
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The complexity of the tax law also
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the current government spending and
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cut of 1964. The top rate was lower
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___ 6. Federal excise taxes: a. are
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3. How would eliminating the loopho
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Chapter 14 Economic Growth The basi
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2. Labor. Labor can contribute to e
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estricting international trade (e.g
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An improvement in technology (e.g.
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The table below shows the economic
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will increase both Real GDP and per
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___ 8. Which of the following is co
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___ 26. The opinion that economic g
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Chapter 15 Less Developed Countries
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Example 8: Countries A, B, C, and D
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Obstacles to Economic Development f
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c. Restrictions on international tr
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Appendix: Book Review - “The Powe
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Example 25: In Brazil, about half t
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Study Guide for Chapter 15 Chapter
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___ 13. Among the counterproductive
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4. List four ways that governments
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Chapter 16 International Trade The
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Other Benefits of Free Internationa
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Example 6: The graph below illustra
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competitive disadvantage. But dumpi
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is only 25% as productive as before
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Smith was skeptical of government a
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___ 4. For Country X, what is the o
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___ 18. Frédéric Bastiat’s “P
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4. On the graph below: (1) What is
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Chapter 17 Elasticity We are often
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Example 4A: What is price elasticit
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Example 5A: Gertie’s Gas and Go i
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Example 10A: When the price of Good
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Example 13B: On the graph below, su
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$7 - 6 - 5 - Price 4 - 3 - 2 - 1 -
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In the long run, would the deadweig
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___ 7. The factors that determine w
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3. a. Which price (or prices) from
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Chapter 18 Utility The basic econom
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Nonetheless, society generally assu
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Example 9: Capital City operates a
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Marginal rate of substitution - the
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The diamond-water paradox is the ob
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Complete the table below to answer
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4. The graph below shows indifferen
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Chapter 19 The Firm The basic econo
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than contributing to team productio
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1. Difficulty in raising large amou
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Corporations also use self-financin
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Example 24: A blacksmith who produc
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For financing needs, proprietorship
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___ 13. Corporations: a. are comple
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5. List two things that the absence
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Chapter 20 Production and Costs The
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In Example 5B, Birdwell finds that
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variable cost initially decreases,
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Quantity TC MC AFC AVC ATC 0 240 X
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If the scale of operation is increa
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average total cost. Average fixed c
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___ 11. Concerning the cost curves:
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5. Complete the following cost tabl
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Chapter 21 Perfect Competition The
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Even though a perfect competitor ca
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Example 6C: This example builds on
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At what price will there be neither
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Appendix: Perfect Competition in th
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Multiple Choice: ___ 1. A perfect c
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___ 17. Perfect competition: a. req
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Answers for Chapter 21 Fill-in-the-
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Chapter 22 Monopoly Of the four mar
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3. Exclusive ownership of an essent
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maximizing quantity (4 units) creat
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$22 - 20 - 18 - 16 - 14 - Deadweigh
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2. Negotiating, beginning at a high
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Legal barriers are created by gover
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___ 8. The slope of the demand curv
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Price Quantity 3. List some of the
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Chapter 23 Monopolistic Competition
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For Percomp (the perfect competitor
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Example 7A: The graph below represe
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Example 9: The Organization of the
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Example 12 illustrates the dilemma
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its current price and quantity. The
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___ 14. Game theory: a. is a method
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Answers for Chapter 23 Fill-in-the-
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Chapter 24 Factor Markets The basic
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$ $240 - 200 - 160 - 120 - 80 - 40
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Since producers will attempt to equ
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2. Differences in nonmoney aspects
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were his strikeouts, walks, and hom
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___ 3. To maximize profits, a produ
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___ 19. According to the book, “M
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Multiple Choice: 1. a. 8. c. 15. d.
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Chapter 25 Labor Unions The primary
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The elasticity of demand for union
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Example 4A: Assume that the graph b
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Notice from the graph in Example 6
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Wage Factory A Quantity of Labor S
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As a cartel, a labor union faces a
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___ 10. For a monopsony: a. there i
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3. The graph below represents a lab
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Chapter 26 Interest, Present Value,
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An increase in expected rates of re
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An asset is valuable because we exp
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Example 13B: General Ordnance prove
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Appendix: Present Value Table One f
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___ 4. An increase in expected rate
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Problems: 1. List and explain the t
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Chapter 27 Market Failure The basic
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External Benefit If a market genera
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Example 2: To encourage the consump
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$100 - 90 - 80 - MSC 70 - $ 60 - 50
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A common good is nonexcludable. Non
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___ 5. What government policy would
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4. Based on the information on the
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Chapter 28 Public Choice and Govern
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Candidates and the Median Voter Mod
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Example 8: According to State and F
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Example 10: When Elvis Presley was
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4. Pessimistic bias. This is the te
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___ 5. An elected official will: a.
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2. If a certain policy will yield s
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Chapter 29 Government Regulation of
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underproduction is the amount that
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micromanagement results in business
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market. They may agree with their c
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Questions for Chapter 29 Fill-in-th
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___ 10. The public interest theory
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4. List the four types of costs imp
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Chapter 30 Agriculture and Health C
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weather may cause bumper crops. Bad
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Security and Rural Investment Act o
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Example 12: From 1960 to 2013, the
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1. NHI would provide universal heal
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d. Insurance providers are not allo
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Answer questions 7. through 10. by
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___ 21. If there were no individual
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Chapter 31 Income Distribution and
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Income is more equally distributed
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over a typical career is the accumu
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Ideal Income Redistribution The ide
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Poverty - a family whose income fal
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Appendix: Income Inequality around
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How is this story an analogy for th
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___ 2. In 2013, the Lowest Income 6
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Problems: 1. Explain the two primar
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Absolute advantage - when one natio
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Fiat money - money by government de
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Nonrivalrous good - a good for whic
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Absolute advantage, 16-9 Absolute e
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“Company town”, 25-6 Comparativ
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Eli Lilly and Company, 22-1 Emergen
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Houston, Texas, 15-10 Human capital
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Market, 3-1, 3-8-9 Market basket, 4
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Political bias, 9-4, 12-7 Political
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Short run production, 20-2-3 Short-
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Upturns, 9-4 USDA, 27-9, 30-1-2, 30
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