Homework #1, Chapter 5.

This homework has 40 questions.  We will use the following grading scale:

A = 32+
B = 31, 30, 29, 28
C = 27, 26, 25, 24
D = 23, 22, 21, 20
F = 19 or less

Answer all questions. Properly identify your score sheet. Submit the score sheet by the posted closing date in class, to the TA's or to the instructor.

1.  5. OECD. 2/16. MC. first entry is total output.

2.  5. OECD. 3/16. MC. Graph potential RGDP, do not attach.

3.  5. OECD. 4/16. MC. First "blank" is upper; graph Real GDP, mark upper turning points, do not attach.

4.  5. OECD. 6/16. MC. Second "blank" is two, ignore one through six, graph RGDP growth rate, mark years with negative rates of growth (recession years), do not attach.

5.  5. OECD. 9/16. TF. Graph both RGDP and potential GDP, print screen.

6.  5. OECD. 12/16. MC. Graph RGDP and potential GDP, mark peak years, mark trough years, mark expansion years, mark recession years, do not attach graph.

7.  5. OECD. 13/16. MC. Graph RGDP growth rate, mark year with largest negative growth, mark year with largest positive growth, do not attach graph.

8.  5. OECD. 14/16. MC. Graph RGDP growth rates of U.S. and Canada, explain the observed relationship, do not attach explanation.

9.  5. Economic Growth. 1/13. MC. Graph the unemployment rate, do you note cyclicity; do you observe trends; what explains the cyclicity; what explains the trends?

10.  5. Economic Growth. 2/13. MC. First blank is "who are unemployed"; construct a cross plot between Real GDP growth and the unemployment rate. Do you see any apparent relationship? Does that strike you as odd?

11.  5. Economic Growth. 3/13. MC. First blank is rises. Produce a time series graph of (1) the unemployment rate, (2) the % fluctuations around potential GDP. Can you detect a relationship? Try to reinvent Okun's Law. Make an eyeball estimate of the coefficient a. Change in unemployment rate = a * change in % fluctuations around pot. GDP.

12.  5. Economic Growth. 4/13. MC. Make a time series graph of the U.S. labor force. Does this time series show a lot of large fluctuations? What dominates this series (1) trend or (2) cyclicity? Why do you expect this to be so (check the definition of "labor force").

13.  5. Economic Growth. 6/13. TF.

14.  5. Economic Growth. 7/13. TF.

15.  5. Economic Growth. 9/13. TF.

16.  5. Economic Growth. 11/13. MC. Graph the unemployment rates for the U.S. and Canada. Do you observe a relationship between these relationships? How would you explain such a relationship? Is such a relationship desirable for either country? What does NAFTA stand for?

17.  5. Economic Growth. 12/13. MC. Graph the unemployment rate for the U.S. since 1929. In doing macroeconomics should we forget about the pre-war period 1929-1941 and limit ourselves to the post-war period 1945-1999? If you are bullish about the U.S. economy, which period would you focus on?

18.  5. Economic Growth. 13/13. MC. Make time series graphs of the labor force and the unemployment rate. Does immigration (legal or illegal) increase the unemployment rate?

19.  5. Jobs. 2/11. MC. Draw a graph of the CPI. What was the numerical value of the CPI in 1970. What was the numerical value of the CPI in 1990? What was the average annual percentage rate of increase in the CPI for the period 1970 to 1990? How many years did it take for prices to double, starting with 1970?

20.  5. Jobs. 4/11. TF. Suppose an economy that produces apples, pears and bananas. Should the CPI be comprehensive, i.e. calculate the average price of all three fruits? Graph two measures of inflation the CPI (for consumption goods) and GDP price index (for consumption and capital goods). Are the rates of inflation the same? Which index indicates higher rates of inflation? Which index is the better measure of inflation?

21.  5. Jobs. 7/11. TF. Make a graph of the CPI. Go to Tools. Go to key terms. Check the definition of CPI. Now go to the www.economagic.com. Search for CPI. How many different series do you find listed? Which one are we using in our homeworks?

22.  5. Jobs. 8/11. MC. Make sure you can do this calculation. It is a favorite exam question. Experiment with your own set of numbers.

23.  5. Jobs. 9/11. MC. Make a graph of the inflation rate in developing countries and industrial countries. Give an example of a developing country. Give an example of an industrial country. Is the Iowa economy agricultural or industrial? In terms of employment? In terms of GDP originating from agriculture? Is Iowa a lesser developed state?

24.  5. Jobs. 10/11. MC. Graph the inflation rates for the U.S. and Canada. Why are the inflation rates approximately the same (1) by design (2) by accident (3) because Canadians use U.S. dollars, rather than Canadian dollars. Would Canada benefit from a higher rate of inflation?

25.  5. Inflation. 1/10. MC. Make a graph of government receipts and a graph of government expenditures. Is it true that prior to 1980 the U.S. on balance had surpluses? Is it true that after 1980 the U.S. had large deficits? Did those surpluses or deficits occur by (1) design (2) through unforeseen business cycle developments?

26.  5. Inflation. 2/10. MC. Make a graph of the government surplus or deficit for the period 1965-1999. What are the principal features of this graph? What caused the increasingly large deficits up till 1993? What caused the reversal? Go to www.cbo.gov. Is the budget going to be in deficit for the period 2001-2004?

27.  5. Inflation. 5/10. TF. Graph the U.S. current account balance for the period 1965 through 2000. Why did the current account deficit increase very rapidly after 1990?

28.  5. Inflation. 6/10. MC. Graph government receipts as a % of GDP and also government expenditures as a % of GDP. Check the handout on the Budget Outlook or go to www.cbo.gov. Do government receipts and expenditures include transfer payments such as social security? Do government expenditures reflect only federal expenditures, but also state and local expenditures? Did government expenditures as a % of GDP increase faster than receipts prior to 1991? Why did we have such large surpluses in 2000/2001? Do you expect a reversal in the declining share of government expenditures as a % of GDP? What will happen to budget surpluses under that assumption?

29.  5. Inflation. 8/10. MC. Draw a graph of real exports as a % of GDP. Do the same for imports. Did both exports and imports increase at the same rate? Why would you expect both exports and imports to increase at the same rate? Is the U.S. economy becoming increasingly integrated with the rest of the world? Why did imports grow faster than exports since 1985? What does that imply for the deficit on current account? What does it imply for the surplus on capital account? What does it imply for the balance of payments?

30.  5. Tool Kit; "the U.S. Economy", 1a/4. Economic Growth. Produce a graph of real GDP. Identify 3 recessions. TF question: real GDP more than doubled between 1970 and 1997.

31.  5. Tool Kit; "the U.S. Economy", 1c/4. Draw a graph of the Consumer Price Index. Can you find a year in which the CPI decreased? What does this imply about the rate of inflation? TF question: The consumer price index increased more than five fold between 1970 and 1997.

32.  5. Tool Kit; "the U.S. Economy", 1d/4. Deficit. Make a graph of the government surplus/deficit. Why did we have increasing deficits between 1965 and 1991? TF question: the largest U.S. government deficit on record was over 300 billion dollars.

33.  5. Tool Kit. 1e/4. Current Account Deficit. What explains the increasing deficit since 1990? TF question: The current account deficit for 2001 is going to be larger than 300 billion dollars.

34.  5. Tool Kit. 2a/4. Graph the growth rates of the U.S. and Japan. Prior to 1970 which country had the highest growth rate? After 1995 which country had the highest growth rate? TF question: The real GDP growth rate of Japan typically has been higher than the U.S. growth rate for the period 1968-1999.

35.  5. Tool Kit. 2b/4. Unemployment. Graph the unemployment rates for the U.S. and Japan. Which country has the higher rate of unemployment? Which country exhibits a great deal of cyclical unemployment? Why are unemployment rates in Japan approaching those of the U.S.? TF: The unemployment rate of Japan typically is less than the unemployment rate for the U.S.

36.  5. Tool Kit. 2c/4. Graph the inflation rate for Japan and the U.S. What has been the average rate for both countries in recent years? TF question: Since 1975 inflation rates have shown a downward trend in both the U.S. and Japan.

37.  5. Tool Kit. 2d/4. Graph the budget deficit as a % of GDP for the U.S. and Japan. TF question: Since the middle eighties government budget deficits as a % of GDP have declined in both Japan and the U.S.

38.  5. Tool Kit. 2e/4. Graph the current account deficit for the U.S. and Japan. Which country has an increasingly large deficit? Which country has an increasingly large surplus? Is the U.S. happy about the large Japanese export surplus? What would happen if the Japanese economy were to open its market to U.S. made products? TF question: Since the late seventies Japan has typically had a surplus on current account, whereas the U.S. typically has had a deficit on current account.

39.  5. Tool Kit. 4a/4. Graph the real GDP growth rate for the U.S. economy for the period 1929-1999. Divide these 70 years into two segments. At about what year would you place the dividing line? Should Econ 102 ignore the U.S. experience as to economic growth prior to 1945? Why was the economy much more stable since 1945? (1) We learned how to "control" the economy through active monetary and fiscal policy. (2) The period 1929-1945 was exceptional in a longer historical context. (3) We really don't fully understand the causes of the Great Depression. TF question: The peace after World War II caused a very sharp decrease in U.S. RGDP.

40.  5. Tool Kit. 4c/4. TF. During the second world war the annual inflation rate peaked at nearly 25 percent.

Frequently Asked Questions and Answers:  Please Read

Q:  Are the bubble sheets for the homework or for the online quizzes?

A:  The homeworks require you filling out a bubble sheet and submitting it for grading in class or put it in the marked manilla folder for that purpose outside my office, Heady 281.

Q:  What is the website so I can get to the online quizzes and homework?

A:  www.econ.iastate.edu

Q:  I have completed the homework and am wondering where I can get a bubble sheet.

A:  Extra bubble sheets are available outside my office, Heady 281.

Q:  I am not quite understanding which tool kit questions to use for #30-40 on the homework questions.  If you could clarify this for me that would be great.

A:  The tool kit directories uses two conventions:  by name (e.g. the US economy) and number (1, 2, 3, 4).  I used numbers, but probably I should have used both in writing the questions.  Therefore question 1a refers to the first question on the US economy in tool kit 1.

Q:  I was just wondering on the homework, for example question 2, if we are just supposed to leave that one blank or if you wanted us to answer the question and also do the graph?

A:  Read the general instructions before doing the homework.  It asks you to pull up the question (chap. 5, Quiz section OECD, question 3 out of 16).  Highlight potential.  Drag and drop it on the blank stripe.  Check your answer, which will turn out to be correct.  Click on variable graphing.  Produce a graph of Potential GDP.  Notice the features of this graph.  It shows a very steady upward trend, not at all cyclical as with real GDP.  Check the graphs in Chapter 5.  Can you find the graph with Potential GDP?  What is Potential GDP?  OK, you have the background and the correct answer.  Now for the bubble sheet.  Go back to question 3/16.

A=real
B=nominal
C=potential

Q:  I have a question about answering these questions to the answer sheet for Econ 102.  When there is a two part question and you give the answer for the first blank, do we omit that answer from the remaining answers?  For example:  for question 10.  5.  Economic Growth.  2/13.  MC, you give that the first blank is "who are unemployed."  The remaining answers are,

"who are employed"
"in the population"
"in the labor force"

"who are employed" = A
"in the population" = B
"in the labor force" = C

"who are unemployed" = A
"who are employed" = B
"in the population" = C
"in the labor force" = D

Q&A's:
(1)  I have a question about the chapter 5 homework.  How do I know what I need to print out as far as graphs?

Answer:  only attach materials to the bubble sheet if specifically instructed to do so.

(2)  I only printed out the graph that said print screen in the question.

Answer:  not all students are aware of the Print Screen capability.  I wanted to create an awareness of this possibility among students early on.

(3)  For chapter 5 homework I only printed out a graph for question nine out of thirteen (sixteen) in the OECD quiz.  Is this correct?

Answer:  Yes, you know how to print a screen shot.  You might want to build up a portfolio of screenshots highlighting problems and graphs you find interesting and had difficulty answering.  Look upon them as a set of personalized lecture notes.

(4)  Are the rest of the questions that tell me to graph just for my own study, and understanding of the question?

Answer:  Yes.  I typically pick questions that are basic, interesting or that may pose an important analytical problem.  The graphs provide additional context for the question.  For example:  What is a business cycle?  A period of expansion reaching a peak, followed by a period of contraction, reaching a lower turning point or trough.  Fine.  How do these concepts relate to the US Economy?  The advantage of this text is that you can find easily accessible and yet thorough and important practical answers to such questions by using EIA.  Throughout the semester you will be constantly challenged to find real world context to what might appear at first sight to be rather dry and abstract MC questions.

(5)  Also, it says on a handout that you gave us in class that section two is is to have blue bubble sheets?  Is this correct?

Answer:  We will use blue bubble sheets throughout the semester.

(6)  For the first question in the homework problem (no. 2/16 OECD) it says that the first entry is total output.  Does that mean that total output=A, B=next on list, and so on?  For this question I have that the answer to the second entry is constant dollars, which if I understand the procedure right, it would represent letter D in the multiple choice.  Is this correct?

Answer:  When you pull up question 5.OECD.2/16.MC look at the menu of choices:  trade=A; exports=B; total output=C; constant dollars=D; current dollars=E.  Question 1 tells you that the first blank is total output or C.  You must find the choice for the second blank, which you correctly identified as constant dollars=D.  Check your answer.  It turns out to be correct.  Fill out bubble 1D, now or after working through all fourty questions.  Back up bubble sheets are available in class or at my office Heady 281.