UNIT 5 Problems

Problem 1.

   Assume the following data for a country: total population, 500; population under 16 years of age or institutionalized, 120; not in labor force, 150; unemployed, 23; part-time workers looking for full-time jobs, 10. What is the size of the labor force? What is the unemployment rate?

 Problem 2.

   If the CPI was 110 last year and is 121 this year, what is this year’s rate of inflation? In contrast, suppose that the CPI was 110 last year and 108 this year. What is this year’s rate of inflation? What term do economics use to describe this second outcome?

Problem 3.

   Use the hypothetical economy data in the table below to answer the following questions.

Amount of Real GDP Demand, in Billions Price Level (Price Index) Amount of Real GDP Supplied, in Billions
$180 300 $500
260 250 400
300 200 300
420 150 200
560 100 100

a) What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Use Excel to graph both the aggregate demand and aggregate supply curves. Can there be equilibrium level of output at below full employment?

b) At what price level will aggregate supply FALL BELOW [equal] aggregate demand? At what price level will demand fall below aggregate supply? If given a price level of 250, will aggregate demand exceed supply?

c) If the aggregate demand schedule shifted by $140 billion to the right at every level, what would be the new equilibrium level of income?