mid1revansm11 - Review for first challenge: Solutions Eco...

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Unformatted text preview: Review for first challenge: Solutions Eco 212 Short answer questions (1-2 sentences) Question 1. The participation rate is: participation rate = 125 labor force · 100 = · = 62.5% working age 200 (1) The GDP per working age person is: GDP per capita = $10, 000, 000 = $50, 000. 200 (2) Income per capita is $50,000. Productivity is: productivity = $10, 000, 000 GDP = = $400. total hours 200 · 125 (3) The average worker produces $400 worth of goods per hour. Question 2. Real GDP does not include these items. However, spending related to these items is included: health care spending, education spending, and spending on leisure. Therefore, countries with higher GDP per capita tend to have better health, higher quality education, etc. Question 3. 1 S′ r S = Y − C − T + ( T − G ↑) ↓ 2 1 D = I +X −M LOANS ($) Figure 1: Increase in government spending reduces national savings. From the graph an increase in government spending financed by borrowing reduces public savings and therefore national savings, regardless of the interest rate. This is a shift to the left of the savings curve (1). Demand for loans exceeds supply, so the interest rate rises (2). The increase in interest rates reduces investment spending (move along the demand for loans curve to the new equilibirum). Question 4. The nominal rate measures the dollars lenders are paid in interest. The real rate measures what those dollars can buy. The prime rate is the overnight lending rate from banks to large corporations. It is nominal. Longer Questions Question 5. 2 w p SL floor DL ′ DL N Unemployed Employed employed Not participating Not Participating Natural unemployment cyclical unemployment Figure 2: Recession increases unemployed when a wage floor exists. Insider laws create unemployment. By restricting firing, employers are prevented from hiring the unemployed at a lower wage. 3 ...
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mid1revansm11 - Review for first challenge: Solutions Eco...

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