Introduction to Macroeconomics
Worksheet #1

 

1)    You are given the following figures for 1985 (in billions of dollars calculated at 1985 prices):

Consumption Expenditures

2601

Labor Income

2368

Government Expenditures for Goods and Services

815

Capital Consumption Allowance

437

Import Expenditures

449

Export Expenditures

370

Corporate Profits

281

Gross Domestic Investment

661

Government Transfer Payments

487

a)     Calculate nominal GNP.

b)    Calculate NNP.

c)     Real GNP for 1985 is $3,585 billion.  Calculate the GNP deflator.

d)    The GNP deflator for 1984 is 108.3.  What is the inflation rate for 1985 (as measured by the GNP deflator)?

2)    In the U.S. in 1982 the noninstitutional population (over 16 years old) was 173.9 million people, the labor force was 111.9 million people, and employment was 101.2 million people.

a)     Calculate the number of people classified as unemployed and the unemployment rate.

b)    Calculate the labor force participation rate which is the labor force as a percent of the noninstitutional population.  Briefly explain why everyone in the population is not included in the labor force.

c)     The year 1982 was a time of recession in the U.S.  If as a result of the generally bad economic conditions some workers without jobs decided to quit looking for a job, what would an economist call these workers?  Would this situation lead an economist to believe that the calculated unemployment rate understated, overstated, or was an accurate indicator of the true unemployment rate for the economy?

3)    Using a properly labeled graph, show how an increase in the minimum wage would affect a.)  the average wage rate, b.) employment, and c.) involuntary unemployment.

4)    Using a properly labeled graph, show how an increase in the existing income tax (that is the tax paid by workers on the wages they earn) would affect the labor market.  Show what happens to a.) the average gross wage, b.) the average net wage, and c) employment.

5)    Since the government’s program of unemployment insurance began in 1935 there has been a significant increase in unemployment insurance coverage (about 97% of all civilian workers currently are in covered jobs) and benefits have increased along with average earnings (average benefits are above 50% of after-tax earnings).  There have also been increases in the allowable duration of benefits (benefits typically last 25 to 40 weeks but can be extended).  Using two separate graphs show 1.) how both unemployment insurance benefits given to unemployed workers and taxes levied on firms to pay for unemployment insurance benefits affects the average gross wage, the average net wage, and employment; 2.) how both unemployment insurance benefits given to unemployed workers and taxes levied on firms to pay for unemployment insurance benefits affects the average wage workers receive (the net wage) and the average duration of unemployment.