Question

Short essay questions.

1. Describe the four phases of a complete business cycle. Use graph to show the sequence of the four phases of a business cycle.

2. Identify the economic and non-economic/social costs of unemployment.

3. Based on their income, list three groups of people in the society who are hurt more from unanticipated/unexpected inflation than others.

4. Discuss how investment expenditure is affected by changes in interest rate. Indicate their relationship.

II. Problem Solving Questions. Show your computations step by step. Orderly presentation is very important.

A. Based on the following data, compute the unemployment rate for this economy.

Total population………………………………..205 million

Population under sixteen years………………….50 million

People not in the labor force…………………….37 million

Total civilian labor force……………………….118 million

Number of people employed…..……………… 109 million

B. Use the following data to answer the unemployment rate for this nation.

Total population ………………………………500 million

Population under sixteen years………………….90 million

Number of people in the armed forces………....30 million

Number of people not in the labor force……...150 million

Number of people employed………………….207million

Number of people unemployed………………...23 million

C. Refer to table given below.

1. Fill-in the missing items in the table.

2. Identify the break-even level of income.

Income consumption Saving APC

$ 240 ________ $ -4 $ ______

260 ________ 0 ______

280 ________ 4 ______

300 ________ 8 ______

320 ________ 12 ______

340 ________ 16 ______

3. Compute the multiplier (M0 if:

a). MPC =0.25, b). MPC=0.75 and c). MPC=0.9

2. Based on the results form question # 1.above, explain how multiplier

(M) is related to MPC.

B. Answer the following questions on the basis of the consumption expenditure

function given below.

C = 200 + 0.8Yd

1. Compute the value of C when Yd is $9000.

2. What are the values of:

a). MPC.

b). MPS.

3. Compute the multiplier for this function

Answer 1

There are four pahses of business cycle depicted in below figure.

Expansion : It is characterized by increasing employment, economic growth, and upward pressure on prices.

Peak: It is the highets point on the business cycle, when the economy is producing at maximum allowable output, employment is at or above the full employment and there is inflationary pressure on prices.

Contraction: After peak, economy enters into correction where growth slows, employment declines and pricing pressure subside.

Trough: At this point, the economy has hit the bottom and from here on the next phases of expansion and contraction will start.