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Unit 4 Homework Packet Due Friday 4/10 Read pages 306-317 Online video lesson GDP Answer questions 1-6 1. Define G.D.P. and Final goods 2. How is G.D.P. calculated? 3. What is the difference between Nominal GDP and Real GDP? Why is real GDP a better measure when trying to compare two different periods of time? 4. What is GDP per capita and why is it a better measure when trying to compare the GDPs of different nations? 5. What is the benefit of using G.D.P. as an economic indicator? 6. What are the flaws of using G.D.P. as an economic indicator? According to economist Frank Shostak . . . According to economist Milton Friedman . . . According to Senator Robert F. Kennedy . . . Due Monday 4/13 Read Pages 318-328 Online video lesson Unemployment Answer questions 7- 12 7. How is the unemployment rate calculated? 8. Economist claim that the natural rate of unemployment is about 4.5%. What unemployed worked fall under this category? 9. Why is the government concerned with cyclical unemployment and how can it lead to a downward spiral? 10. What are some of the costs of unemployment? 11. If there is an unemployment rate higher than 4.5% does that mean that high unemployment is a problem throughout the entire nation? 12. Argue how the unemployment rate can simultaneously overestimate and underestimate the unemployment problem. Due Tuesday 4/14 Read pages 329- 343 Online video lesson Money’s role Inflation Answer questions 13- 19 13. Provide and explain the three basic reasons why price increases. 14. Using the equation MV=PQ, explain how increasing the money supply while all other variables stay stay the same, must result in an increase in prices. 15. Why is the Consumer Price Index also considered the Cost of Living Index? 16. Explain why the difference between real wages and nominal wages. 17. Why is time a better measure of value? 18. Assuming you have a job making minimum wage ($7.25) figure out if a 4 lb. chicken costs you more in 2014 or in 1938. On your own figure out a way to determine the answer to the question. 19. What types of people are hurt the most by inflation? Why? Due Wed 4/15 Read pages 344- 347 Online video lesson The Business cycle Answer questions 20-23 20. Outline the 4 phases of the business cycle and explain what happens to GDP, Price, and unemployment rates during these periods. 21. What is a recession? 22. What phase of the business cycle are we currently in? What is your evidence to support your claim? 23. In the space provided diagram/label the phases of the business cycle. Due Tuesday 4/21 Read pages 348-377 Online video lessons The aggregate market Classical LRAS Keynesian LRAS Phases of the LRAS Answer questions 24- 31 24. In the space provided summarize Henry Hazlitt’s quote in your own words. 25. Nothing in the economy works in isolation. Relate this idea to the quote above. 26. a. Please label parts of the Aggregate Market b. Identify the following terms: Aggregate Demand Aggregate Supply Long Run Aggregate Supply 27. Explain the following ideas of John Maynard Keynes Idea Drops in aggregate demand cause recessions Prices and Wages are Sticky Ind. decisions are based on Animal Spirits The Paradox of Thrift Spending and the Multiplier Effect In the Long Run we are all Dead Explanation 28. Explain the following ideas of the opponents John Maynard Keynes Idea Explanation Prices and Wages are Flexible (Classical) Let prices work Praxeology (Ludwig Von Mises) Use the internet Pretence of Knowledge (F.A. Hayek) Supply creates its own demand (Says) There is no such thing as a Free Lunch (Friedman) Fear inflation, it’s the boom that we need to study not the bust. (Hayek) Mal-investments 29. Diagram the Long Run Aggregate Supply (LRAS) curve according to Keynes When AD drops what happens GDP and employment levels? When AD drops what happens to price level? 30. Diagram the Long Run Aggregate Supply (LRAS) curve according to classical economist. When AD drops what happens GDP and employment levels? When AD drops what happens to price level? 31. Price C Level AD B A Section A GDP/employment Name of Phase ___________________________ What happens to price when AD increases? What happens to employment and GDP when AD increases? Section B Name of Phase ___________________________ What happens to price when AD increases? What happens to employment and GDP when AD increases? Section C Name of Phase ___________________________ What happens to price when AD increases? What happens to employment and GDP when AD increases? Due Wed. 4/22 Read pages 378-380, Read pages 386-387, 391-393 Online video lessons Fiscal and Monetary Policy during Recession Fiscal and Monetary Policy during Expansion Answer questions 32- 41 Congress and Fiscal Policy 32. What are the two main methods of fiscal policy that Congress uses to impact the economy? 33. What happens to the demand of consumers of Congress cuts income tax? 34. What happens to the demand of the government if Congress increases spending? 35. According to Keynes what would be the proper fiscal policy during periods of recession? 36. According to Keynes what would be the proper fiscal policy during inflationary periods? The Federal Reserve and Monetary Policy 37. What are some methods that the Federal uses to increase or decrease the money supply? 38. According to Keynes what is the proper monetary policy during periods of recession? Easy money or tight money? Why? 39. According to Keynes what is the proper monetary policy during inflationary periods? Easy money or tight money? Why? 40. Review back to previous pages in this unit and explain what Hayek would say about artificial interest rates. 41. Explain Milton Friedman’s money supply rule. Due Friday 4/24 Read pages 394 to 408 Answer questions 42-50 42. What is the biggest difference between Keynesians and Supply-siders? 43. In theory if Aggregate supply increases what will happen to employment levels, GDP, an price levels? 44. Make a list of methods that they government can use to increase Aggregate Supply. 45. Identify the different types of taxes a. Progressive b. Regressive c. Flat 46. Using your mind explain how the government could use its power to tax to accomplish the following goals: A. Influence behavior B. Raise Revenue C. Rearrange income 47. Identify the different types of spending A. Mandatory B. Discretionary C. Earmarks D. Pork Barrel 48. Identify the following items A. Budget Surplus B. Budget Deficits C. Debt 49. Explain why deficit spending is politically appealing. 50. Explain the Tragedy of the Congress. Think game theory and the tragedy of the commons.