Intro to MacroEcon - College level - 13 questions total - some one-paragraph answers and some graphs - Essay Example

Also the employment rate does not appear to have crossed the NAIRU level as the November CPI indicated an increase of only 0.1%. B) As employment increases there are more wage earners. An increase in the amount of people with money to buy goods and services increases aggregate demand and pushes up prices. The US is currently in recovery as the GDP is and has been positive while the economy is beginning to create jobs in sufficient quantity to begin decreasing the unemployment rate. C) 2) A) [(108,000-100,000)/100,000]*(160/168)=7.

62% per year B) The CPI is more appropriate in this case because it is calculated using changes in the prices of products used by consumers. The GDP Deflator is calculated using the inflation rate for the entire economy. The CPI will therefore give a more accurate comparison of Jean’s purchasing power as a consumer. 3)A) The starting nominal return on the bonds can be calculated by adding the nominal market inflation expectation and the real yield required. The starting nominal rate is therefore 3%.

If inflation expectations increase to 3.5% it causes bond demand to decrease and bond supply to increase. This lowers the price of bonds and therefore pushes interest rates up. The nominal rate would then be 4.5%. An increase in the expected real rate of return to 1.5% would lower demand for bonds and shift the demand curve. This shift increases interest rates to a nominal return of 5%. B) 4) A) Year Real GDP Growth rate of RGDP in % Unemployment Rate % Change in U rate in % CPI Indices Inflation rate in % 2004 12,263.8 - 5.5 - 188.

9 - 2005 12,638.4 3.05% 5.1 -7.27% 195.3 3.39% 2006 12,976.2 2.67% 4.6 -9.80% 201.6 3.23% 2007 13,228.9 1.95% 4.6 0.00% 207.342 2.85% 2008 13,228.8 0.00% 5.8 26.09% 215.303 3.84% 2009 12,880.6 -2.63% 9.3 60.34% 214.537 -0.36% b) Historically as RGDP has been above 2% there has been growth in employment. When RGDP growth fell below 2% unemployment began to rise. As unemployment rose inflation decreased even reaching a short period of deflation. The leading indicator is RGDP followed by unemployment finally followed by the CPI.

There has been growth in RGDP. This growth has lead to moderate decreases in the unemployment rate. The lagging nature of the CPI is confirmed by current data growing as RGDP and employment both increase. If RGDP continues to grow then the unemployment rate will continue to decrease and the CPI will continue to increase. If for some reason RGDP growth should slow or turn negative then unemployment will increase and CPI will decrease. 5) P1=$145 P2=$40 P3=$90 The higher the price of oil the more expensive inputs that require any type of energy become.

Thus the higher the price of oil the less firms can supply at any given price level. This effect aggregates into the overall economy decreasing output while increasing price level. The decrease in the price of oil caused output to increase and the price level to fall. As oil prices increase again they will act as a headwind to the economic recovery, pushing output lower and price up for oil dependant resources. A decline in the price of oil may not have a positive effect upon equity markets because it will not have an effect upon the amount of products that consumers are demanding.

Although inputs may fall, the demand curve is not shifted. 6) Infrastructure projects would have more simulative effect than tax rebates because of a larger