1. Suppose in the first quarter of the year, Real GDP was $400 billion; in the second quarter it was $398 billion; in the third quarter it was $399 billion; and in the fourth quarter it was $395 billion. Has there been a recession? Explain your answer.

2. Suppose the total adult population of Neverland is 100 million. Of this total, 70 million have jobs, 7 million are full-time students, 3 million are retirees and 20 million are without jobs. Of the 20 million without jobs, 15 million are actively looking for work and 5 million have given up looking for work.

a. What is the labor force participation rate?

b. What is the unemployment rate?

c. How many people are discouraged workers?

3. If the frictional unemployment rate is 2 percent, natural unemployment rate is 5 percent, labor force is 100 million, and 82 million workers are employed, compute the following:

a. Structural unemployment rate

b. Unemployment rate

c. Cyclical unemployment rate

4. Briefly explain how each of the following will affect aggregate demand (i.e. increase/decrease/no effect and the reason why). Don’t draw any graph.

a. Interest rate rises.

b. Stock market crashes.

c. Dollar depreciates.

d. Global economy improves.

5. Briefly explain how each of the following will affect short-run aggregate supply (i.e. increase/decrease/no effect and the reason why). Don’t draw any graph.

a. Wages rise.

b. Labor productivity increases.

c. Crude oil price drops.

d. Producers become optimistic about the economy