Macroeconomics Homework

Question

1.1 Use the following data: total population, 500; population under 16 years of age or institutionalized, 120; not in labor force, 150; unemployed, 23; part-time workers looking for full-time jobs, 10.

a. Calculate the unemployment rate.

b. Calculate the labor participation rate.

c. If 50 workers were not counted in the labor force one month recalculate unemployment and labor force participation.

1.2 Assume only two countries, China and the US. If China decides to stimulate growth through a policy of running a large export trade surplus, does China’s national savings increase? Show the relationship between China’s national savings, domestic investment and net capital outflow (NCO).

1.3 Turning to the US, given China’s trade surplus, why does the US have to run a trade deficit (NX<0) and a net capital account deficit (NCO<0) if China runs a trade surplus?

1.4 Assume that domestic US savings equals domestic US investment, why would you think that in this case the “glut of savings” from China could be destabilizing in the US?

1.5 Suppose autonomous consumption is $500, government spending $1,000, panned investment is $1,250, and net exports are -$250 and the MPC is 0.8. What is the equilibrium value GDP?

1.6 If the marginal propensity to consume is 0.8, by how much will an increase in planned investment spending of $400 billion increase equilibrium real GDP?

Answer 1