Download APE Macro Unit 3: Measurement of Economic Performance

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Date
Period
APE Macro Unit 3: Measurement of Economic Performance
Workbook #3
Objectives: These are the key concepts that you must be able to answer after Unit 3.
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Students should be able to explain macroeconomics and how it differs from microeconomics AND answer the following
question: Why is it that what is good for the part is not necessarily good for the whole?
Explain why the business cycle is important and why policy makers seek to diminish the severity of business cycles?
Illustrate a business cycle.
Explain what long-term growth is and how it affects a country’s standard of living.
Explain the difference between nominal and real variables; inflation and deflation.
Illustrate how to calculate the unemployment rates and why there is unemployment at full employment.
Explain the characteristics of an open economy and how countries trade goods, services and assets.
Explain why policy makers and economists prefer price stability in the macroeconomy.
Explain how economists use aggregate measures to track the performance of the economy.
Define GDP and explain the three ways to calculate it.
Explain the difference between real GDP and nominal GDP and why real GDP is the appropriate measure of real economic
activity.
Explain the significance of the unemployment rate and how it relates to the business cycle.
Explain what a price index is and how it is used to calculate the inflation rate.
Explain some of the specific price indexes/indices, how they are computed and how economists use them.
Chapter 23 Vocabulary:
economics, macroeconomics, microeconomics, economic aggregates, business cycle, depression, recession, expansions, employment,
unemployment, labor force, discouraged workers, underemployment, unemployment rate, aggregate output, stabilization policy,
monetary policy, fiscal policy, long-run growth (aka secular long-run growth), nominal, real, aggregate price level, inflation, deflation,
price stability, inflation rate, closed economy, open economy, open-economy macroeconomics, exchange rate, trade balance, capital
flows (32).
Chapter 24 Vocabulary:
national income and product accounts/national accounts, consumer spending, stock, bond, government transfers, disposable income,
private savings, financial markets, government borrowing, government purchases of goods and services, exports, imports, final goods
and services, intermediate goods and services, gross domestic product (GDP), aggregate spending, value added, net exports, real GDP,
nominal GDP, GDP per capita, market basket, price index, inflation rate, consumer price index (CPI), producer price index (PPI),
GDP deflator (27).
Homework Assignments:
Chapter 23 Materials
Vocabulary
 Chapter 23 Vocabulary Notecards: Due:
 Vocab Quiz:
Textbook:
 Chapter 23: Macroeconomics: The Big Picture
(pp. 538 - 557) Due:
 Chapter 23 Quiz:
Chapter 24 Materials
Vocabulary
 Chapter 24 Vocabulary Notecards: Due:
 Vocab Quiz:
Unit 3 Test –
Textbook:
 Chapter 24: Tracking the Macroeconomy (pp. 559581) Due:
 Chapter 24 Quiz:
Extra Unit Practice:
 Krugman/Wells website – animated graph tutorials at
www.worthpublishers.com/krugmanwells
 Refenomics.com –fantastic interactive website to
guide you through a variety of concepts
 ACDCLeadership.com: -Our units are based on Mr.
Clifford’s work  check his site out!
Unit 3 General Problem Sets: Answer these on this sheet of paper unless otherwise noted.
Measuring Growth
Definition of Gross Domestic Product (GDP)-
Nominal GDP-
Real GDPGDP = _____+_____+_____+_____
C:
I:
G:
GDP Deflator-
Nx:
Three things not included in GDP:
1.
2.
3.
1.
Define GDP, identify what is not included, define the four components, and give an example of each
2.
Explain the difference between nominal GDP and real GDP. Use a simplified numerical example with two different years to show
your understanding.
Business Cycle
GDP Deflator Practice
Label peak, recession/contraction, trough, expansion
1. The Nominal GDP is $100 billion and the Real GDP is $80
billion. Calculate the GDP deflator.
Real GDP
2. The Real GDP is $100 billion and the GDP deflator is 200.
Calculate the Nominal GDP.
3. The Real GDP is $200 billion and the GDP deflator is 120.
Calculate the Nominal GDP.
4. The Nominal GDP is $300 billion and the GDP deflator is 150.
Calculate the Real GDP.
Time
5. The Nominal GDP is $100 billion and the GDP deflator is 125.
Calculate the Real GDP.
1. If someone told you that the nominal GDP increased by 4% in 2004 explain why you would need two additional pieces of
information to conclude that the standard of living for the typical person also increased by 4%.
Measuring Unemployment*
1. Frictional Unemployment
2. Structural Unemployment
Full Employment
Natural Rate of Unemployment (NRU)
3. Cyclical Unemployment
Problems With Unemployment Rate
Discouraged Job Seekers-
Underemployed (part-time) Workers-
1.
Define and give examples of the three types of unemployment discussed in class.
2.
How is the unemployment rate calculated? What is the Natural Rate of Unemployment? Do we want zero unemployment?
Measuring Inflation
Market Basket-
Using the values of the market baskets below, calculate the CPI for each year. Start
with 2009 as the base year then recalculate with 2010 as the base year. Lastly,
recalculate with 2011 as the base year.
Consumer Price Index (CPI) Equation
CPI =
CPI Practice*
x 100
Year
Market
Basket
Base Year
2009
2009
$20
100
2010
$40
2011
$50
Base Year
2010
Base year
2011
100
100
Helped or Hurt by Unexpected Inflation
Assume expected inflation is 2% but actual inflation turns
out to be 5%. Who is helped and hurt by inflation?
Helped
Interest Rates and Inflation
Real interest rate=
Hurt
Nominal interest rate=
1. If the nominal interest rate is 7% and expected inflation
is 3%, what is the real interest rate?
2. If the real interest rate is -2% and the nominal interest
rate was 3%, what was the inflation rate?
Causes of Inflation
1.
Quantity Theory of Money
Quantity Theory of Money Equation:
____ x____=____x____
_____=
_____=
_____=
_____=
2.
3.
Assume the amount of money is $5 and it is being used to buy 10
products with a price of $2 each.
1. How much is the velocity of money?
2. If the velocity and output stay the same, what will happen if
the amount of money increases to $10?
1.
Define and identify how to calculate the Consumer Price Index (CPI)? Explain the meaning of the following CPIs relative to a
base year. Year 1=90, Year 2=100, Year 3=125, Year 4=150. Lastly explain why the percent change in prices from year 3 to year
4 is NOT 25%.
2.
Identify how to calculate nominal interest rates and real interest rates. Assume that you put $100 in the bank. Use numeric
examples to explain three different scenarios in which your REAL income falls, stays the same, and increases.
3.
If the actual inflation is greater than the anticipated inflation, fully explain who would benefit and who would be hurt and explain
WHY?