Question

1) Suppose that GDP is $10,000, Consumption is $6,000, and Government spending is $1,500 with a deficit of $200. (Assume net exports are zero) What is the level of private saving in this economy?a) 1,500.b) 2,500.c) 7,200.d) 2,700.2) The population of Scottsdale is 100 people. 40 people work full time, 20 work half time but prefer to work full time, 10 are seeking work, 10 would like to work but are discouraged from seeking, 10 are full time students without a desire to work while in school, and 10 are retired. What is the unemployment rate?a) 10%b) 20%.c) 40%.d) 30%.3) Lately, talks about creating more barriers to trade has contributed to some volatility in the stock market. In this case, short downturns in the market would reflect the fact that firms are unsure about how to make investment plans. This uncertainty in the investment market would tend to _______ investment and _______ interest rates.a) raise, lower.b) raise, raise.c) lower, raise.d) lower, lower.4) In the Hans Rosling video discussing the magic washing machine, which of the following points is made?A) About half of the worldâs energy use is used by the least developed countries.B) Poor, less developed countries cannot mobilize to improve their standard of living.C) The washing machine, while valuable, cannot and should not be used by everyone due to energy crisis.D) One valuable aspect of the washing machine is the time it frees up to engage in other activities, such as learning, which ultimately promotes economic growth.

Answer 1

1) Suppose that GDP is $10,000, Consumption is $6,000, and Government spending is $1,500 with a deficit of $200. (Assume net exports are zero) What is the level of private saving in this economy?

• d) 2,700

GDP = C + (G - deficit) + I + NX

GDP = $10,000

C = $6,000

G - deficit = $1,300

NX = $0

$10,000 = $6,000 + $1,300 + I

I = $2,700

2) The population of Scottsdale is 100 people. 40 people work full time, 20 work half time but prefer to work full time, 10 are seeking work, 10 would like to work but are discouraged from seeking, 10 are full time students without a desire to work while in school, and 10 are retired. What is the unemployment rate?

• 14.29%

total work force = 40 (working full time) + 20 (working part time) + 10 (not working but seeking a job) = 70 people

Students are not part of the labor force, retired people are not part of it either and those without a job but not actively looking for one are not part of the labor force either.

unemployed = 10

unemployment rate = unemployed / total labor force = 10 / 70 = 14.29%

3) Lately, talks about creating more barriers to trade has contributed to some volatility in the stock market. In this case, short downturns in the market would reflect the fact that firms are unsure about how to make investment plans. This uncertainty in the investment market would tend to _______ investment and _______ interest rates.

• c) lower, raise.

Investors are risk averse, that means that the higher the risk, the higher the expected returns form an investment. Uncertainty increases risk, which decreases total investment and increases interest rates (price of money).

4) In the Hans Rosling video discussing the magic washing machine, which of the following points is made?

• D) One valuable aspect of the washing machine is the time it frees up to engage in other activities, such as learning, which ultimately promotes economic growth.

The consumption of energy is divided almost equally between rich people and poor people, the problem is that poor people represent more than 86% of the world's population. You must also remember that not all the people living in developed countries are rich, e.g. in the US, 11% of the population is poor. The % of poor people increase as you go from developed to developing countries.

If you combine total energy consumption of developing countries, it only represents 30% of the world's energy consumption.