Question 1: A very small economy has a population of 1,000 people who work. Of these , 800 have jobs and 100 are looking for work. The rest are willing to work but have given up looking because they haven't been able to find work for a long time.

(a) What is the size of the labor force?

(b) What is the unemployment rate?

(c) A new firm enters the economy. It will employ 150 people, and doesn't care what their skills currently are, since it will retain all its new employees anyway. All 100 of those currently seeking work get jobs at this firm. Once this is accomplished, what will be the size of the labor force? What will be the new unemployment rate?

Question 2: In 1998, GDP was $600 billion and the price index is 117.5. By what percentage amount has Real GDP increased from 1998 to today?

Question 3: What do we mean by net exports? Why should we include net export as a component of aggregate expenditures (GDP)?

Question 4: The economy currently is experiencing an inflationary gap . What does that mean?

Question 5: In 1998, GDP was $600 billion and the price index is (2001 base year) was 94.3. Today, GDP is $890 billion and the price is 117.5. By what percentage amount has Real GDP increased from 1998 to today?