Chapter 6 Worksheet

Activity 1- Introduction to the Macroeconomic Perspective

1. What is the focus of Macroeconomics? Give some examples of Macroeconomic-focused questions.

2. What are the three Macroeconomic goals?

3. Discuss the framework of Macroeconomics- what model does it use to explain changes in GDP, unemployment, and the price level?

4. Compare and contrast the two main policy tools that Macroeconomists and policymakers can use to help achieve the macroeconomic goals.

Activity 2- Measuring the Size of the Economy: Gross Domestic Product

5. Define Gross Domestic Product (GDP).

6. From the demand-side of GDP, state the four GDP components, the value of these components for the US in 2014, and the percentage that it makes up of total GDP. Give an example of a good from each category.

7. From the supply-side of GDP, state the five GDP components, the value of these components for the US in 2014, and the percentage that it makes up of total GDP. Give an example from each category.

8. What is the problem of double counting when calculating GDP, and what does it imply about counting intermediate goods vs. final goods and services?

9. What else is not counted in GDP calculations?

10. Contrast Gross National Product (GNP) from GDP.

11. Contrast Net National Product (NNP) from GNP.

12. What is National Income?

Activity 3- Measuring the Size of the Economy: Gross Domestic Product

13. What is the difference between nominal value and real value?

14. State the formula for Real GDP. The tiny country of Estrellian has a GDP of $3 billion. If the price index is 120, what is its real GDP? What does this figure mean in words?

15. When tracking GDP overtime, why is often better to look at real GDP instead of nominal GDP?

16. Contrast a recession from a depression.

17. Graph a theoretical business cycle over time. Label the peaks and the troughs.

Activity 4- Comparing GDP among Countries

18. Why is it necessary to first convert currencies when comparing two different country's GDPs?

19. Assume that the exchange rate between the Mexican peso and the US dollar is 17 pesos = $1. Also assume that the current Mexican GDP is 21.437 trillion pesos. How big is the Mexican economy in US dollars? If the US GDP is $17 trillion, how much smaller (in percentage) is the Mexican economy relative to the US economy?

20. Canada's GDP (in US dollars) is $1,826.8 billion and has a population size of 35.1 million people. The US GDP is $16,768.1 billion and has a population of 316.3 million people. Which country has a bigger GDP per capita? Show your work.

Activity 5- How Well GDP Measures the Well-Being of Society

21. A country's GDP per capita is only a rough measure of that country's standard of living or well-being. Explain how GDP falls short in measuring well-being by discussing the problems of

a. Leisure time -
b. Production not exchanged in markets-
c. The level of inequality in society-
d. The availability of technology and products-
e. Environmental Health-

22. For these reasons, does a rise in GDP tend to understate or overstate the rise in the standard of living?

Section7.1- The Relatively Recent Rise of Economic Growth

1. What is economic growth, and why should people care about their country's economic growth rate?

2. Discuss what is meant by modern economic growth, and how it relates to the Industrial Revolution .

3. How does a country's adherence to the rule of law and protection of property rights and contractual rights promote economic growth?'

Section7.2- Labor Productivity and Economic Growth

4. Discuss how improvements in labor productivity largely determines a nation's economic growth. Give an equation that represents labor productivity.

5. What determines how productive workers are? Explain by defining the following terms:

a. Human capital:

b. Technological Change (invention and innovation)

c. Economies of scale

6. a. Recreate the Aggregate Production Function from figure 7 (a). What does it mean in words?

b. Recreate the Aggregate Production (AP) Function from figure 7 (b). What does it mean in words, and how is it different from the AP in part a?

7. a. What has been the historical trend in labor productivity in the US over the last 55 years (see figure 7.3)?

b. How has productivity changed between 1970s-1990s and 1990s today? Discuss a hypothesis for why there was a change in productivity between the two periods.

8. Both Country A and Country B currently have a $100 billion economy, but Country A is growing at a 2% growth rate and Country B is growing at a 3% growth rate. Assuming that both will maintain their constant growth rate, estimate how large their respective economies will be 30 years from now.

Section 7.3 - Components of Economic Growth

9. What will make one economy grow at a faster rate than another? For each of the following, define and explain how it contributes to economic growth:

a. Market Economic System:

b. Physical capital/infrastructure:

c. Technology

d. Capital Deepening

e. Human capital/ education:

f. Savings and Investment:

g. Free Trade/ Special Economic Zones:

h. Scientific Research

Section 7.4 - Economic Convergence

10. Explain what is meant by economic convergence, and assess the evidence if it is taking pace.

11. Outline the argument for why we are likely to see economic convergence continue into the future.

12. Outline the argument that economic convergence is neither inevitable nor likely.

Kid Rock Podcast Assignment: below is the link to listen to the podcast. Afterwards, you'll need to answer the following questions.

http://www.npr.org/sections/money/2013/06/25/195641030/episode-468-kid-rock-vs-the-scalpers

(Links to an external site.)

Episode 468: Kid Rock Vs. The Scalpers

You will answer following questions.

1. Why do scalpers exist? What need do they fulfill in marketplace? Do they have legitimate business model, why or why not?

2. Graph marketplace of Kid Rock's concert tickets (using supply and demand). Show equilibrium price of tickets (where price of tickets should be) and show where concert promoters are pricing tickets that allows for scalpers to exist.

3. Do you agree with Kid Rock's tactics in dealing with scalpers, why or why not? Again graph (using supply and demand) what Kid Rock is trying to do by lowering ticket prices and driving scalpers out of market.