Macroeconomics

Main Point - Macroeconomics is about studying both how the economy grows and how it moves through the business cycle.

Main Point - Economists use statistics to track the economy and to test their models of the macroeconomy.

Homework # 1 - Introduction to Macroeconomics

Reading - Introduction to Macroeconomics - click here

Class Power Point - click here 

Homework # 2 - Macroeconomic Statistics

Reading - Macroeconomic Statistics - click here

Homework # 3 - Videos on Macroeconomic Statistics

Printable Copy of Homework - click here

Classwork - Macroeconomic Statistics

Practice Problem - Gross Domestic Product - GDP is calculated based on economic transactions that are reported to the government, such as the sale of goods or money paid to workers currently. Economic activity that is not reported to the government or the sale of used goods is not recorded in GDP. How would the following be included in GDP accounting? (Write the dollar amount of the transaction that would be included in GDP)     (Answer)

A.  A person pays a carpenter $50,000 to build a garage.

B.  A person pays a carpenter $50,000 to build a garage to replace one that burned down in a fire.

C.  A person buys $10,000 of materials and builds their own garage that has a value of $50,000.

D.  A person builds a garage for themselves with scrap material they did not buy that has a value of $50,000.

E.  A person buys a new computer on Amazon for $1000.

F.  A person buys a used computer on Craigslist for $1000.

Practice Problem - Difference Between Real and Nominal GDP - Suppose there is an economy with only 2000 people in it and it only produces 7000 buckets of chicken in one year and each bucket of chicken costs $10.  The next year the economy has a population of 2500 people and it makes and 8000 buckets of chicken in the next year which cost $11. (Answer)

A. What was the rate of inflation during this period?

B. How much did the nominal GDP grow during this period?

C. How much did real GDP grow during this period?

D.  How much did real GDP per capita grow during this period?

Practice Problem - Calculating Inflation - Consider an economy that produces both buckets of chicken and containers of mashed potatoes.   In the first year, the price of a bucket of chicken is $10 and the price of a container of mashed potatoes is $5.  In the second year, the price of a bucket of chicken is $11 and the price of a container of mashed potatoes is $6.  The "market basket" of goods is one bucket of chicken and three containers of mashed potatoes.  (Answer)

A. What is the cost of a market basket in the first year?

B. What is the cost of a market basket in the second year?

C. What was the rate of inflation in this economy between year one and year two?

Practice Problem - Unemployment - The country of Elbonia has a population of 1600 people.  Currently 500 people are either too young to be legally employed for work or are retired.  In this population there are 100 people who are unemployed and actively looking for work and 100 people are unemployed but are not actively looking for work.  (Answer)

A. What is the current unemployment rate in Elbonia?

B.  The economy of Elbonia improves and the 60 people who are currently not looking for work decide to begin looking for work (however, they have not yet found work).  What is the unemployment rate in Ebonia now? 

Homework # 4 - Working with Macroeconomic Statistics (Answers)

Printable Copy of Assignment - click here 

# 1 - Gross Domestic Product  - GDP is calculated based on economic transactions that are reported to the government, such as the sale of goods or money paid to workers currently. Economic activity that is not reported to the government or the sale of used goods is not recorded in GDP. How would the following be included in GDP accounting? (Write the dollar amount of the transaction that would be included in GDP)

A.  A person buys a box of pasta for dinner for $2.

B.   A person makes spaghetti sauce with tomatoes and spices they grew themselves - the same amount of spaghetti sauce would cost $5 in a store.

C.  A person buys a loaf of bread for $2 and butter for $1 and then makes garlic bread with garlic they grew themselves (but would have cost $1 in a store).

D.  Now, suppose this person is a chef in a restaurant and they are selling the meal they made described above for $15.  How much more would be added to GDP because they are selling the meal instead of eating it?

# 2 - Difference Between Real and Nominal GDP - Suppose there is an economy with only 1000 people in it and it only produces 5000 boxes of pasta that cost $1 each and 2500 jars of spaghetti sauce that cost $5 each.  The next year the economy has a population of 1500 people and it makes 7000 boxes of pasta that cost $2 each and 4000 jars of spaghetti sauce that cost $6 each.

A. How much did nominal GDP grow during this period?

B.  How much did nominal GDP per capita grow during this period?

C.  How much did real GDP grow during this period?

D.  How much did real GDP per capita grow during this period?

# 3 - Calculating Inflation - Consider an economy that produces three goods: boxes of pasta, jars of spaghetti sauce and loaves of garlic bread.   In the first year, the price of a box of pasta is $2, the price of a jar of spaghetti sauce is $5 and the price of a loaf of garlic bread is $2.   In the second year, the price of a box of pasta is $1, the price of a jar of spaghetti sauce is $6 and the price of a loaf of garlic bread is $3. The "market basket" of goods is three boxes of pasta, two jars of spaghetti sauce and four loaves of garlic bread.  

A. What is the cost of a market basket in the first year?

B. What is the cost of a market basket in the second year?

C. What was the rate of inflation in this economy between year one and year two?

# 4 - Unemployment Rate - Use the following information to calculate the size of the labor force and the official unemployment rate in a society. Total population is 500, the population under age 16 is 120, the population of retirees not in the labor force is 150, and the number of unemployed is 15.

A.  What is the labor force participation rate - the percent of the population in the labor force?

B.  What is the unemployment rate in this society?

C.  Suppose the population of the society changes and the number of retirees increases to 180. What effect will this have on the labor force participation rate and the unemployment rate? Should economists and society be concerned with this?

D.  Now, suppose there is a large influx of 70 immigrants of working age into this population and the number of unemployed goes up to 20.  Should economists and society be concerned by this?

Homework - Review of Macroeconomic Statistics (Answers)

Printable Copy of Assignment - click here

1.  Roofer Rob typically charges $10,000 to put a roof on a house.  However, he tells his friend Homeowner Hank that he will re-roof his house for only $3000 and the cost of materials.  The Roofer Rob has to buy $2000 in materials to complete the job.  How much has this added to GDP?

2.  Hot Rod Harry is a professional in car restoration.  He bought the body of a 56 Chevy at a junkyard for $500.  He then put in $3000 of his own time into building the frame into a custom built roadster.  In the process he spends $10,000 in new parts.  When he is all done, a car collector offers him $20,000 for the car.  Hot Rod Harry declines the offer and keeps the car in his home showroom.   How much has this added to GDP? 

B. How does the real GDP per capita in Year One compare with the real GDP per capita in Year Two?  Is the population better off in Year Two? 

A.  What was the unemployment rate in February, March and April?

B. How was the change in the unemployment rate caused by both the change in the number of unemployed and also by changes in the labor force?

C.  What would the unemployment rate have been if the size of the labor force was kept at 164,448 for March and April and the people who dropped out of the labor force were treated as unemployed?  Calculate the unemployment rates for both months using 164,448 for the size of the labor force and add the people removed from the labor force to the number of unemployed.

D.  The Bureau of Labor Statistics reported in August 2021 that the size of the labor force was 161,537,000 and the number of unemployed was 8,384,000.  Based on these numbers, what was the current unemployment rate and has the economy recovered from the pandemic at that point?