Exam 16: Household and Firm Behavior in the Macroeconomy: a Further Look

-Refer to above figure. Suppose the economy is currently at Point B. If investors are optimistic about future growth in GDP what would you expect to happen?

-Refer to the figure above. What could cause a movement from Point C to Point B?

Define the real wage rate.

Refer to the information provided in the table below to answer the questions that follow. -Refer to the above table. What is the real wage rate in 2007 using 2006 as the base year? Make sure to show your work.

Why is it not obvious what will be the impact of a decline in the interest rate on present consumption?

How is it possible to have negative wealth?

Rick has net assets of $50,000. How will an increase in the interest rate affect Rick's consumption? How will your answer change if Rick's fortunes change and his net assets fall to -$10,000?

Refer to the information provided in the table below to answer the questions that follow. -Refer to the above table. What is the real wage rate in 2008 using 2007 as the base year? Make sure to show your work.

A 1% increase in output tends to correspond to a less-than-1% decrease in the unemployment rate. What are the three "slippages" that occur between changes in output and changes in the unemployment rate?

Using the life-cycle theory of consumption, explain each of the following: (a) Mary and Tom both earn $15,000. Mary spends $30,000 a year and Tom spends $14,000 a year. Mary is working on her MBA degree and Tom, a high school dropout, works as a window washer. (b) Paul's current income has not changed, but he becomes pessimistic about the economy and worries about losing his job. As a result, he reduces his current consumption.

To calculate the real wage rate, we divide the nominal wage rate by the price index. Suppose the wage rate rose from $10 per hour in 1998 to $18 per hour in 2010 and the price level rose 50 percent during the same period. Calculate the real wage rate in 2010 using 1998 as the base year. Show your work.

Explain what impact each of the following is likely to have on consumption. (a) Stock prices fall. (b) The government announces that in 2014 and only in 2014 every family will have to pay an additional lump-sum tax of $100. (c) Most economic forecasts indicate that the growth rate will slow down considerably over the next decade.

How is it that people are able to consume greater than their income during their early working careers? What are some of the things that they consume which causes this to happen in the first place?

Define what is meant by the "discouraged-worker effect".

Summarize the factors that govern firm behavior with regard to investment and employment decisions. · ·

Assume people have positive wealth. Explain how the income effect of an increase in interest rates can affect consumption.

Define labor productivity.

What is meant by "desired" or "optimal" level of inventories?

Consider the effect of a fall in the interest rate on consumption. Explain your answer using the substitution effect argument.

Consider the effect of a fall in the interest rate on consumption. Explain your answer using the income effect argument. Make sure to compare and contrast the effects between a household with positive wealth and a household that is a net debtor.