381 Ch 2

381 Ch 2 - CHAPTER 2 The Data of Macroeconomics Questions...

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Questions for Review 1. GDP measures the total income earned from the production of the new final goods and services in the economy, and it measures the total expenditures on the new final goods and services produced in the economy. GDP can measure two things at once because the total expenditures on the new final goods and services by the buyers must be equal to the income earned by the sellers of the new final goods and services. As the circular flow diagram in the text illustrates, these are alternative, equivalent ways of measur- ing the flow of dollars in the economy. 2. The consumer price index measures the overall level of prices in the economy. It tells us the price of a fixed basket of goods relative to the price of the same basket in the base year. 3. The Bureau of Labor Statistics classifies each person into one of the following three cat- egories: employed, unemployed, or not in the labor force. The unemployment rate, which is the percentage of the labor force that is unemployed, is computed as follows: Unemployment Rate = × 100. Note that the labor force is the number of people employed plus the number of people unemployed. 4. Every month, the Bureau of Labor Statistics (BLS) undertakes two surveys to measure employment. First, the BLS surveys about 60,000 households and thereby obtains an estimate of the share of people who say they are working. The BLS multiplies this share by an estimate of the population to estimate the number of people working. Second, the BLS surveys about 160,000 business establishments and asks how many people they employ. Each survey is imperfect; so the two measures of employment are not identical. Problems and Applications 1. A large number of economic statistics are released regularly. These include the follow- ing: Gross Domestic Product—the market value of all final goods and services produced in a year. The Unemployment Rate—the percentage of the civilian labor force who do not have a job. Corporate Profits—the income of corporations after payments to workers and creditors. It gives an indication of the general financial health of the corporate sector. The Consumer Price Index (CPI)—a measure of the average price that consumers pay for the goods they buy; changes in the CPI are a measure of inflation. The Trade Balance—the difference between the value of goods exported abroad and the value of goods imported from abroad. In looking at the economic statistics, most people want to see a low and stable inflation rate of about 2–3 percent, a low and stable unemployment rate of about 5 percent, and GDP growth in the 3–4-percent range. This indicates the economy is “healthy” and per- 5 Number of Unemployed Labor Force CHAPTER 2 The Data of Macroeconomics
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forming at its long-run average level. Looking at the economic statistics released in early 2009, the unemployment rate was rising and had reached 8 percent, the inflation rate was near zero, and GDP growth in the last quarter of 2008 was –6.3 percent. This of course indicated the economy was still in the midst of a major recession.
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This note was uploaded on 04/07/2011 for the course ECON 381 taught by Professor Staff during the Winter '08 term at BYU.

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381 Ch 2 - CHAPTER 2 The Data of Macroeconomics Questions...

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