Download unit 6 review

GDP BY NATURE – UNIT 6 REVIEW
G.D.P.
One of Mr. B’s favorite childhood rap groups was Naughty By Nature. They had a #1 hit during the 1990’s, “Down with
O.P.P.”. It was the anthem for all middle school dances, at which Mr. B owned the floor with his sick dance moves (The
Roger Rabbit, The Running Man, The Cabbage Patch, etc…). Anyways, Mr. B is now a entertainment manager (in his
spare time), and has recently signed Naughty By Nature to his new label, FREE MARKET RECORDS!!! They just cut a new
track “You down with GDP?”. They are making a lot of money now (stacking a ton of chips), but need some help
understanding what the GDP actually is. They refuse to continue to rap the lyrics to a song that they don’t understand.
Your goal is to help them better understand the ins and out of Macroeconomics.
Oh by the way, here are some of the lyrics to the song…..
Woke up quick
At about noon
Just thought that I had to spend some money soon
Gotta start ballin before the day begins
Before my mom starts ask if she get some Ben’s (Ben Franklins)
You down with GDP?
Ya you know me!
You down with GDP?
Ya you know me!
Good, cuz other economic gauges are wiggity wiggity wack!
Part 1 – Explain and calculate the GDP – The guys want to know what the GDP acronym stands for. They have been
brainwashed by Mr. B to just sing the song. They feel like you can relate, since Mr. B says things in class that no one
seems to understand (or care about ).
1) What does the GDP stand for? What does it represent?
2) What is included in the GDP?
3) What is not captured in the GDP?
4) What are the different components used to calculate GDP? Explain each
5) What does the expenditure approach measure?
6) What is the equation we use to calculate the GDP using the expenditure approach?
7) Calculate the GDP for each year (units in the billions)
Year
Consumer Spending Business Investment Government Spending Exports Imports Total GDP
2013
105
48
33
75
95
2014
145
58
39
78
99
2015
134
51
34
72
105
Part 2 – Measuring the GDP – aka “How to Keep it Real”. The members of the group want to know how their record
sales will help boost the economy. They want to know why Mr. B keep yelling “You gotta keep it Real” every time
they sing “You down with GDP”. Help them out.
1) What is the difference between Nominal and Real GDP?
2) Why do economists prefer to use Real GDP figures when deciding on GDP growth?
3) Calculate the Nominal GDP for each year.
Good
Price
Quantity
GDP Album
2014
Snapback Hats
2014
$10
1,000
$ 15
10,000
GDP
Good
GDP Album
2015
Snapback Hats
2015
Price Quantity
$20
1,200
$ 28
11,500
GDP
TOTAL
2015
TOTAL
2014
4) Using the information from above, now calculate the Real GDP for each year. 2014 is our base year
Good
Price Quantity
GDP
Good
Price Quantity
GDP
GDP Album
2015
Snapback Hats
2015
GDP Album
2014
Snapback Hats
2014
TOTAL
2014
TOTAL
2015
5) By how much did the Nominal GDP for 2015 overstate the growth in this economy?
6) If an economist were to use the Nominal GDP to discuss and show growth, why would he be considered a
liar? Explain
Part 3 - Messing around with the GDP figures. The guys wanted to know which purchases they make that would be
included in the GDP. They also want to know what purchases get classified by the sector of the economy they fall
into. Last they want to know how GDP can be used to highlight equality or inequality.
1) Determine which part of the expenditure approach would be affected by each economic action:
a. ______________________ The company that makes the tour t-shirts buys a new silk screen press
b. ______________________ The guys all buy new Bentley’s
c. ______________________ Sales of their used CD’s on Amazon go up by 5,000 units
d. ______________________ A new public concert arena is built in the town center to house concerts
e. ______________________ The group sells 2 million CD’s in North Korea (Kim Jong-un loves em)
f. ______________________ The group buys 10,000 pounds of Swedish Fish (made in Sweden).
2) Identify whether each is a Final good (that is calculate in GDP) or an intermediate good (not calculated in GDP).
If it is a Final Good label it “F”. If it is an intermediate good, label it “I”
a. CD jewel case ____
b. T-shirt sold at concert _____
c. Cotton used for t-shirt _____
d. Gold necklace purchased at Zales ____
e. Haircut purchased before a concert _____
f. Whole group gets McDonalds ____
g. McDonalds buys a new McFlurry mixer _____
h. Group buys some new turntables _____
i. Group has to pay roadies a salary _____
j. Concert ticket you purchased _____
3) Naughty By Nature started their newest world tour and now they are wondering what helps explain the poverty
or affluence of an economy. They want to know what the GDP per capita would be for each of the following
countries:
Country
GDP (bill)
Population (million)
GDP per capita
China
4,985
1.33 billion
Brazil
1,573
194 million
Russia
1,232
142
India
1,310
1.15 billion
a) Based on the results, which country would you suspect has the highest standard of living, why?
b) How can economists use the GDP per capita results to help explain differences between countries?
Part 4 – The guys now want some help with Aggregate Demand and Supply. They just can’t wrap their mind around
this shift! Help them out with your Economic wisdom.
1) What is aggregate demand?
2) How are GDP and aggregate demand related?
3) What is aggregate supply?
4) When we create the graph for them, what is the market showing us?
5) What is plotted along the vertical axis? Horizontal axis?
6) What are the things that can cause a shift in the Aggregate Demand (AD)?
7) What are the things that can cause a shift in the Aggregate Supply (AS)?
8) Show what would happen to AD or AS in the following examples:
a)
b) .
c) .
d) .
e) .
Part 5 – Unemployment. The guys know a few people who are always looking for a job. They have brought on a
few of them and added them to their posse! Mr. B keeps telling them to stop accepting so many people because
it is a drain to their wallet, but they are true Keynesians and love spending those dolla dolla bills!! Help them
understand unemployment a little better.
1) Types of unemployment: For each example tell the group if this is Frictional, Seasonal, Cyclical, or Structural
unemployment.
a. Mr. B works during the winter at Bear Mountain Ski resort, not in the summer __________________
b. Mr. Romo quits, because he’s over it, and pursues a career in hand modeling but hasn’t found a job yet
______________________
c. The school district now requires that all security personnel know Kung Fu, Mr. Mosquiera only know Tai
Chi (he’s fired) ______________________
d. Due to a major economic downturn, ESHS has to lay-off 5 teachers _____________________
e. Everyone on earth now only listens to country music (YIKES), Naughty By Nature refuses to change from
their rap roots _________________________
2) Would any of these be considered unemployed? (Y/N)
a. Mr. B’s grandpa who has been retired for 10 years? _____________
b. Mr. B’s nephew who is locked up doing 15 years in Chino? _______________
c. Mr. B’s sister who is attending college full time at Yale? ______________
d. Mr. B’s friend in the army? ________________
3) Use the table below to answer the following questions
Year
Employed
Unemployed
2000
Civilian (noninstitutional)
population over 16
334
224
22
2005
361
249
31
2010
398
292
23
Total
Unemployment
rate
a) What year has the lowest unemployment rate?
b) What people are not included in the unemployment rate calculation?
Labor force
participation
rate
Part 6 – Business Cycles. After a quick stop at an amusement park, Mr. B tries to explain the business cycle using the
ups and down of the cycle as a visual for the economy. The guys just keep saying “Throw your hands in the air, spend
money like you just don’t care”. Help them out.
1) Correctly label the following illustration to help the guys understand the business cycle:
2) Explain each of the following parts of the business cycle.
a. Contraction
b. Expansion
c. Recession
d. Depression
e. Trough
f.
Peak
Part 7 – Fiscal and Monetary Policy. The group keeps hearing how Oprah is not the most influential woman in the
world. Mr. B keep yelling “It’s Yellen”!! Explain below.
1) What is the ultimate goal of both fiscal and monetary policy? (answer this after you have done 2-9)
2) What is monetary policy?
3) Who is responsible for carrying out monetary policy?
4) What three tools are used to carry out monetary policy? Explain each
5) If we wanted contractionary monetary policy, what could be done? Give two examples and illustrate using an
AD/AS graph.
6) What is Fiscal Policy?
7) Who is responsible for deciding fiscal policy?
8) What two tools can be used to carry out fiscal policy? Explain each.
9) What would be done if we wanted to enact expansionary fiscal policy in the USA? Give two examples and
support it by illustrating what would happen using an AD/AS graph.
Part 8 – Last but not least!! The guys just finished watching a marathon on YO! MTV Raps. They wanted to know if
rappers would be considered more Keynesian or Hayek like? Explain your answer. (some visuals attached to help you
answer the question). Also how would each economist view rappers? As good or bad? Explain.
Answer: