Economics 102
Quiz 2 (25 points)
L. Stone
1. The following gives some data for everything produced in a simple economy.
Mushrooms Apples Price of Mushrooms Price of Apples
2008 1000 500 $1 $2
2009 1500 600 $2 $1.50
a. Calculate real GDP for 2009. (5 points)
1500*1 + 600*2 = 2,700
b. Calculate the growth rate of real GDP. (2 points)
1,000*1 + 500*2 = 2,000
[2700-2000/2000]*100 = 35%
c. Find the GDP deflator and the inflation rate. (4 points)
[3900/2700]*100 = 144
Inflation rate = 44%
2. A job paid $20,000 in 1960. The CPI in 1960 was approximately 30, as compared to 164 in 1999. In 1999, a comparable job paid 36,000. Has the real wage increased, decreased, or stayed the same? (Show some evidence supporting your answer.) (6 points)
20,000/.30=$66,667
36,000/1.64=$21,951
The real wage has decreased
(answer with no work is worth 2 points)
3. Why are we more concerned about cyclical unemployment than the other two types of unemployment? Your answer should show that you understand what each of the three types of unemployment is. (8 points)
Frictional unemployment is temporary unemployment due to quits, graduating from school, etc. Structural unemployment is due to a mismatch of jobs and skills, resulting from shifts in industries. Cyclical unemployment is temporary layoffs due to the business cycle.
Frictional and structural
unemployment will always exist, but cyclical employment can, in theory, be
prevented by eliminating business cycles.