Macroeconomics Assignment

1)

a. If the nominal interest rate is 0.05% and the inflation rate is 1%, what is the real interest rate?

b. The US nominal GDP in 2000 was $10,472.3 billions of dollars and $18,869.4 billions of dollars in 2016. The CPI was 172.2 in 2000 and 240 in 2016. What was the percentage change (i.e. the growth rate) in real GDP between 2000 and 2016?

c. Suppose that your annual (nominal) salary in 2015 was $20,000. Suppose that the CPI had a value of 80 in 2015 and of 84 in 2016. Suppose also that the real increase in your salary between 2015 and 2016 was 2%. What was your annual (nominal) salary in 2016?

2)

a) In 2016 the US labor force was 159,186 thousands of persons and there were 7,750 thousands of unemployed. What was the number of employed persons? What was the unemployment rate? Was this unemployment rate abnormal by historical standards?

b) Briefly explain the relationship between unemployment and the position of the long-run aggregate supply curve in the AD/AS graph.

3) Suppose worker productivity increased at the rate of 0.5% per year. If the labor force grew by 1.2% per year, what rate of increase in RGDP would be sustainable without increasing inflation pressures?

4)

a) Draw a supply/demand diagram of the market for "loanable funds" in the U.S. Put the interest rate on the vertical axis and the quantity of loanable funds on the horizontal axis. Indicate the equilibrium interest rate and the equilibrium loanable funds. [continues below]

b) Suppose that the interest rate is below the equilibrium interest rate. Indicate this scenario on your graph. Is the quantity of loan demanded higher or lower than the quantity of loans supplied? Indicate on the graph the difference between the two. Is there a shortage or surplus of loans in the economy?

c) If the interest rate is below the equilibrium interest rate, what would you expect to happen in the market? Will "suppliers of loans" (i.e. lenders) have an incentive to offer loans at a different interest rate? And if so, why? Explain how the equilibrium interest rate is achieved.

5) Draw an Aggregate Demand-Aggregate Supply graph and indicate the long-run equilibrium.

a) Suppose now that the price of energy unexpectedly goes down. What happens to the SRAS curve? Show your answer on your graph and explain it in words.

b) What happens to output and unemployment when the price of energy unexpectedly goes down? Use your graph and words to explain your answer.

6)

a) Go to the Fred website and find information on US Real Gross Domestic Product (this is the series called GDPC1). What was the value of real GDP in the last quarter of 2007 (indicated as "Q4 2007)? What was the value of real GDP in the first quarter of 2009 (indicated as "Q1 2009)? What was the percentage change in GDP between these two quarters? Adjust the slider at the bottom of the Fred graph so that the graph includes only data since 2002 up to now. Save this graph and add it to your answer.

b) In December 2007 the US unemployment rate was 5% (as you can see in the Civilian Unemployment Rate series, called UNRATE, on the FRED website). Given this information, use an AS/AD graph to represent where the US economy was at the end of 2007. (Don't forget to draw the SRAS, LRAS and AD curves and clearly indicate on your graph where the US economy was at the end of 2007).

c) The Consumer Price Index for All Urban Consumers: All Items (the series named CPIAUCSL on the Fred website) was 211,445 at the end of 2007 and virtually unchanged at the beginning of 2009 at 211,933. Given this information on the price level and the information on real GDP in question a), represent on your graph in b) where the US economy was at the beginning of 2009. Which shift in which curve explains the new equilibrium point?

d) Given your graph in ,c), what do you think happened to unemployment in US between Q4 2007 and Q1 2009? Also, what is a possible explanation for the small change in the price level during this period while real GDP was decreasing?