Introduction to Macroeconomics

Econ 102 Online

Econ 102 Problem Set One Questions

Please read each question very carefully to ensure your full comprehension of the question. You are asked to provide a full explanation of all mathematical problems, including graphs if required. All short answer questions must be in full, complete sentences bullet points are not acceptable. Questions cover content in Modules one, two, and three.

Questions
1 Provide two everyday examples to illustrate what is meant by choosing at the margin. What do you believe is the role of marginal analysis in the use of economics as a policy tool provide an example to support your answer. 2 In one hour, Sue can produce 40 caps or 4 jackets and Tessa can produce 80 caps or 4 jackets. a) Calculate Sues opportunity cost of producing a cap. b) Calculate Tessas opportunity cost of producing a cap. c) Who has a comparative advantage in producing caps? d) If Sue and Tessa specialize in producing the good in which each of them has a comparative advantage, and they trade 1 jacket for 15 caps, who gains from the specialization and trade? 3 How does the production possibilities frontier illustrate scarcity and production efficiency? 4 A farm grows wheat and produces pork. The marginal cost of producing each of these products increases as more of it is produced. a) Create a graph that illustrates the farms PPF. b) The farm adopts a new technology that allows it to use fewer resources to fatten pigs. Use your graph to illustrate the impact of the new technology on the farms PPF. c) With the farm using the new technology described in (b), has the opportunity cost of producing a tonne of wheat increased, decreased, or remained the same? Explain and illustrate your answer. d) Is the farm more efficient with the new technology than it was with the old one? Explain why? 5 a) Define GDP. b) Identify and describe the two ways to measure GDP. c) Calculate GDP for a country that has the following annual values: Consumption = 2280 billion Investment = 980 billion

Date: 1/12/2014 Filename: Winter 2014 - Econ 102 Problem Set One Questions.pdf

Page: 1 Author: W. Roth

Introduction to Macroeconomics

Econ 102 Online

Government Expenditure = 1400 billion Net Exports = 140 billion d) In Canada, many children receive day-care from commercial providers. In parts of Africa, day-care commercial providers are often unknown as children are almost all cared for by relatives. How would this difference affect comparisons of GDP per person? 6 The term recession is defined as two consecutive quarterly drop is GDP why might this definition be too simplistic? Why would some people still feel the pain of a recession after expansion begins? 7 a) Define the unemployment rate. b) Why is the unemployment rate an imperfect measure? c) During some months, the unemployment rate declines, but the number of unemployed rises how can this happen? d) Identify an impact of unemployment that you believe strongly impacts society and explain why. 8 In July 2009, in the economy of Sandy Island, 10,000 people were employed, 1,000 were unemployed, and 5,000 were not in the labour force. During August 2009, 80 people lost their jobs and didnt look for new ones, 20 people quit their jobs and retired, 150 people were hired or recalled, 50 people withdrew from the labour force, and 40 people entered or reentered the labour force. Calculate for July 2009 a) The unemployment rate. b) The employment-to-population ratio. Calculate for the end of August 2009 c) The number of people unemployed. d) The number of people employed. e) The unemployment rate. 9 a) Define frictional unemployment, structural unemployment, and cyclical unemployment. Give an example of each type of unemployment. b) What is the natural unemployment rate? 10 Statistics Canada reported the following data: CPI in June 2006: 109.5 CPI in June 2007: 111.9 CPI in June 2008: 114.6 a) What do these numbers tell you about the price level in these three years? b) Calculate the inflation rates for the years ended June 2007 and June 2008. c) How did the inflation rate change in 2008? d) Why might these CPI numbers be biased?
Date: 1/12/2014 Filename: Winter 2014 - Econ 102 Problem Set One Questions.pdf Page: 2 Author: W. Roth