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Economics 100 Class 2: In-Class Assignment Form into groups of three or four people. Since this is your first in-class assignment, take a few minutes to introduce yourselves. Then, do the following two questions. Write your answers as a group in the space provided. 1. We have described four factors of production: natural resources, labor, capital, and entrepreneurship. Think of any restaurant you have ever been to: Dennys, MacDonalds, Taco Bell, Pizza Hut, or any other. Write a list of some of the things used by that restaurant that would qualify as natural resources. Write a list of some of the things used by that restaurant that would qualify as labor. Write a list of some of the things used by that restaurant that would qualify as capital. Who is the entrepreneur in this restaurant and what does the entrepreneur do? 2. We have defined opportunity cost as the value of everything that is sacrificed when one decides to do something. You have decided to take Principles of Microeconomics this semester. What is the opportunity cost of this decision? Try to consider all of the sacrifices you expect to make. Then, try to put a dollar value on them so that you can determine exactly what you are giving-up. The opportunity costs are composed of: I estimate that the dollar value of the opportunity costs of taking Principles of Microeconomics is: $_____________________________________ Show how you arrived at this number. 3. This class is concerned with rational decision-making. This involves considering the marginal benefit and marginal opportunity cost for each unit. Form into groups. Discuss among yourselves how you would use the procedure for rational decision making in each of the following situations. Then write briefly in the space what you have concluded. 1. A family must decide how many children to have. 2. You have taken a quiz and received a grade of 3 out of a possible 10 points (F). You are allowed to take a second version of the quiz. If you do so, you can raise your grade to a maximum of 7 out of 10 (C) as long as your score on the second quiz is at least 7. Since you scored poorly on the first version, you will need to study carefully. There are 570 maximum possible points in the course. Will you take the second version of the quiz? Why? 3. You are driving home from Phoenix. You stop at a Dennys in a small town for dinner. You have never been in this small town before and are not likely to ever be there again. Your dinner is fine and so is the service. Your bill is $10. Use the procedures for rational decision-making to determine whether or not you will leave a tip for the person who waited on your table.

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Economics 100/102 Name________________________ Class 3: In Class Assignment 1. In each case, state whether you believe the demand for the product is relatively elastic or relatively inelastic? Then, provide reasons for your conclusion. 1. American Online (AOL).for access to the Internet as well as other services 2. Paying a bill by first class mail 3. Services of a doctor to fix a broken arm 4. Services of a doctor for plastic surgery (changing one's appearance) 5. Japanese automobiles (such as Toyota or Nissan) 6. A burger at MacDonalds 7. Use of cigarettes

8. Flights on American Airlines to see New York City as a tourist 9. Tickets to the movies 10. Courses at Palomar College

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Economics 100 Name_______________________ Class 5: In Class Assignment #1 In Class 4, you were given a demand schedule for new homes. Earlier in this chapter, you were given a supply schedule for new homes. These are repeated here. Price Quantity Demanded Quantity Supplied 1 $340,000 0 14,000 2 $320,000 1000 13,000 3 $300,000 2000 12,000 4 $280,000 3000 11,000 5 $260,000 4000 10,000 6 $240,000 5000 9,000 7 $220,000 6000 8,000 8 $200,000 7000 7,000 9 $180,000 8000 6,000 10 $160,000 9000 5,000 11 $140,000 10000 4,000 12 $120,000 11000 3,000 13 $100,000 12000 2,000 If the price of homes is $320,000, there will be a _______________(shortage or surplus?) equal to _____________________ homes. If the price of homes is $120,000, there will be a _______________(shortage or surplus?) equal to _____________________ homes. The equilibrium price is equal to $_________________ and the equilibrium quantity of homes is equal to ___________________. Draw the demand curve and the supply curve on the graph paper on the back of the page. Show the equilibrium price and the equilibrium quantity on the graph. In Chapter 5, there was a shift in the demand for new homes to the right. The data are given below. Price The quantity demanded is: The quantity supplied is Demand1 Demand2 1 $340,000 0 2000 14000 2 $320,000 1000 3000 13000 3 $300,000 2000 4000 12000 4 $280,000 3000 5000 11000 5 $260,000 4000 6000 10000 6 $240,000 5000 7000 9000 7 $220,000 6000 8000 8000 8 $200,000 7000 9000 7000 9 $180,000 8000 10000 6000 10 $160,000 9000 11000 5000 11 $140,000 10000 12000 4000 12 $120,000 11000 13000 3000

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Page 2 What is the new equilibrium price? $_______________ What is the new equilibrium quantity of new homes? ________________ Show the shift on the graph on the back of the page. Show the new equilibrium price and quantity of new homes. Because of the shift in the demand, there is now a _________(shortage or surplus?) equal to _________ new homes. This will cause the price of new homes to ________(rise or fall?). The change in the price will __________(increase or decrease?) the quantity demanded for new homes and ___________(increase or decrease?) the quantity supplied of new homes. In Class 5, there was a shift in the supply of new homes to the right. The data are given below: Price quantity demanded quantity supplied new quantity supplied 1 $340,000 0 14000 16000 2 $320,000 1000 13000 15000 3 $300,000 2000 12000 14000 4 $280,000 3000 11000 13000 5 $260,000 4000 10000 12000 6 $240,000 5000 9000 11000 7 $220,000 6000 8000 10000 8 $200,000 7000 7000 9000 9 $180,000 8000 6000 8000 10 $160,000 9000 5000 7000 11 $140,000 10000 4000 6000 12 $120,000 11000 3000 5000 What is the new equilibrium price? $_______________ What is the new equilibrium quantity of new homes? ________________ On a different graph on the next page, redraw the original demand and supply curves. Then, show the shift in supply. Show the new equilibrium price and quantity of new homes. Because of the shift in the supply, there is now a _________(shortage or surplus?) equal to _________ new homes. This will cause the price of new homes to ________(rise or fall?). The change in the price will __________(increase or decrease?) the quantity demanded for new homes and ___________(increase or decrease?) the quantity supplied of new homes.

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Class #5: Case Using Demand and Supply Analysis Assume there is a well-defined geographic area of a city. The area is composed exclusively of apartments and is populated by low-income residents. The people who live in the area tend to stay in that area because (1) they cannot afford to live in other areas of the city, (2) they prefer to live with people of their own ethnic group, or (3) there is discrimination against them in other areas of the city. Rents paid are a very high percent of peoples' incomes. (1) Would the demand for apartments in this area be relatively inelastic or relatively elastic? State why. (2) Would the supply of apartments in this area be relatively inelastic or relatively elastic? State why. (3) Draw the demand and supply curves as you have described them, showing the initial equilibrium price and quantity. Label carefully. Price 0 Quantity (4) Now assume the government creates a rent supplement program. Under this program, the renter is required to pay 30% of income in rent. Any additional rent is paid by the government --- up to a limit. For example, a low-income person with an income of $500 a month would be required to pay $150 in rent (30%). If the rent is $350, the other $200 would be paid by the government. Analyze the results of this program. Show the changes on the graph and explain what will result. Who gains and who loses from this program? (5) Instead, now assume that the government decides to provide a building subsidy to people who build apartments in this low-income area. A certain percent of their costs will be paid by the government. Analyze the results of this program. Show the results on the graph and explain what will result.

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Economics 100 Class 6 In Class Assignment #1 Under the Immigration Act of 1990. the United States grants permits for legal immigration to approximately 800,000 people each year (not considering refugees). While there is a great opportunity cost for people migrating to the United States, the charge for the permit is virtually zero. (1) Draw the demand for immigration rights into the United States on the graph. Draw the supply as perfectly inelastic (at 800,000 permits). Show that, at a price of zero, there is a large shortage. Price 0 Quantity (2) Since there is a price ceiling on entry permits, name some ways that the shortage might be resolved. That is, how might it be decided who will be allowed to enter? (3) Is there a black or gray market in this case? (4) How might the market be used to resolve the shortage problem? What would be the

advantages and the disadvantages of a market solution?

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Economics 100 Class 6 In Class Assignment #2 Assume there are two products: gas-guzzling cars and small fuel-efficient cars. Show the demand and supply curves for each on the graphs as well as the equilibrium prices and quantities. Then, the price of gasoline rises to over $2.00 per gallon as a result of a decrease in the production of oil (oil is used to produce gasoline). Show the changes on the two graphs as well as the new equilibrium prices and equilibrium quantities. Price Price 0 Quantity 0 Quantity Gas-Guzzling Cars Fuel-Efficient Cars When oil becomes scarce, it is desired that people will conserve on oil and oil products. Based on your graphs, does the market lead people to do so? WHY or WHY NOT? What is the function of the price in the case of each type of car?

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Economics 100 Assignment #1 Name____________________ Janice decides to quit her $20,000 a year job and open a small store selling high fashion. To start her store, she takes $100,000 out of her savings account. She had inherited this money from her parents. During the first year, her expenses are as follows: Rent for the Store $15,000 Four Hired Workers $80,000 Clothes $100,000 Accounting Firm $3,000 Electricity $2,000 Insurance $5,000 Janice also works in the store ordering the clothes and doing some selling. During the first year, Janice’s store sold $250,000 worth of clothing. Her Explicit Costs were $___________________ Her Implicit Costs were $___________________ Her Total Economic Costs were $___________________ Her Fixed Costs were $___________________ Her Variable Costs were $___________________ Her Economic Profit was $___________________

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Economics 100 Class 7 In Class Assignment #2 The following is a Production Function for sewing blue jeans in a day: Capital (Sewing Machines) Labor (Workers Per Day) 0 1 2 3 4 5 6 7 1 0 15 34 44 48 50 51 47 2 0 20 46 64 72 78 81 80 1. Assume that there is only one sewing machine (this is the short-run). Calculate the

marginal physical product of each worker:

Labor Marginal Physical Product Marginal Cost 1 2 3 4 5 6 7

2. Assume that each worker is paid $80 per day ($10 per hour for an 8-hour shift). Assume also

that there are no other variable costs of production besides labor. In the table above, calculate the marginal cost. (Hint: if one worker is paid $80 and produces 15 pairs of blue jeans, the marginal cost of each pair of blue jeans must be $80 divided by 15 = $5.33.)

3. If the marginal physical product is rising (falling), the marginal cost must be ____________

(________________). Answer “rising” or “falling”.

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Economics 100 Class #8 In Class Assignments 1. San Marcos Market is a grocery store of about 5,000 square feet. Albertsons is a

grocery store of about 20,000 square feet. Albertsons can sell groceries at a lower price than San Marcos Market because its costs of production are lower. Explain why Albertson’s costs of production are lower. That is, what cost advantages does Albertsons (or Vons or Ralphs) have just because it is a larger company?

2. When new products first are introduced, they are very expensive. So, for example,

the first color television sets sold more over $2,000 in today’s money, the first VCRs sold for over $3,000 in today’s money, the first pocket calculators sold for over $300 in today’s money, and so forth. After the products are on the market for awhile, the prices tend to fall greatly. Use the principles of economies of scale and dynamic increasing returns to scale to explain why this phenomenon occurs.

3. Recently, there have been many mergers. Large banks have merged with other large banks. Computer companies have merged with other computer companies. These mergers are justified by the cost savings that occur if the two competing companies become one. In this question, let us consider gas stations. Exxon and Mobil, have merged together into one company, as have Chevron and Texaco. Use the principle of economies of scale to explain why there might be a reduction in the cost of production of selling gasoline if these companies merge into one. 4. In each case, state whether you believe the industry should be characterized as perfect competition, pure monopoly, monopolistic competition, or oligopoly. STATE YOUR REASONS. 1. Growers of avocados _____________________________ 2. Fast-food restaurants _____________________________ 3. Automobile Producers _____________________________ 4. Television stations _____________________________ 5. Computer manufacturers _____________________________ 6. Owners of Radio Stations _____________________________ 7. Producers of Electricity _____________________________

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Economics 100 Class #10 In Class Assignment 1. Assume that this housing construction company sells homes in perfect competition at a market price of $200,000 per home. Quantity Price Total Revenue Marginal Revenue Total Cost Marginal Cost 0 $200,000 $180,000 1 $200,000 $340,000 $160,000 2 $200,000 $480,000 $140,000 3 $200,000 $600,000 $120,000 4 $200,000 $740,000 $140,000 5 $200,000 $900,000 $160,000 6 $200,000 $1,080,000 $180,000 7 $200,000 $1,280,000 $200,000 8 $200,000 $1,500,000 $220,000 9 $200,000 $1,740,000 $240,000

10 $200,000 $2,000,000 $260,000 11 $200,000 $2,280,000 $280,000 12 $200,000 $2,580,000 $300,000

Fill in the table. Ultimately how many units will be produced?_______________ What is the Economic Profit? _____________________________ 2. Now assume that the market price falls to $160,000. Fill in the table. Quantity Price Total Revenue Marginal Revenue Total Cost Marginal Cost 0 $160,000 $180,000 1 $160,000 $340,000 $160,000 2 $160,000 $480,000 $140,000 3 $160,000 $600,000 $120,000 4 $160,000 $740,000 $140,000 5 $160,000 $900,000 $160,000 6 $160,000 $1,080,000 $180,000 7 $160,000 $1,280,000 $200,000 8 $160,000 $1,500,000 $220,000 9 $160,000 $1,740,000 $240,000

10 $160,000 $2,000,000 $260,000 11 $160,000 $2,280,000 $280,000 12 $160,000 $2,580,000 $300,000

How many units will be produced? _________________ The economic profits are now equal to $_________________. Since there is an economic loss, should the company continue to produce in the short-run? Or should the company shut-down temporarily? ___________________________ Why? _________________________________________________________________

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Page 2 3. Now assume that the market price falls to $120,000. Fill in the table on the back side. Quantity Price Total Revenue Marginal Revenue Total Cost Marginal Cost 0 $120,000 $180,000 1 $120,000 $340,000 $160,000 2 $120,000 $480,000 $140,000 3 $120,000 $600,000 $120,000 4 $120,000 $740,000 $140,000 5 $120,000 $900,000 $160,000 6 $120,000 $1,080,000 $180,000 7 $120,000 $1,280,000 $200,000 8 $120,000 $1,500,000 $220,000 9 $120,000 $1,740,000 $240,000

10 $120,000 $2,000,000 $260,000 11 $120,000 $2,280,000 $280,000 12 $120,000 $2,580,000 $300,000

How many units will be produced? _________________ The economic profits are now equal to $_________________. Since there is an economic loss, should the company continue to produce in the short-run? Or should the company shut-down temporarily? ___________________________ Why? _________________________________________________________________ 4. Fill-in the following table. Assume there are 1,000 companies in this industry. Price Supply of One Company Market Supply Market Demand $140,000 10,000 160,000 9,000 180,000 8,000 200,000 7 7,000 7,000 220,000 6,000 240,000 5,000 260,000 4,000 280,000 3,000 300,000 2,000 320,000 1,000 340,000 0 The equilibrium quantity produced in the market is ______________________. The equilibrium price is $__________________________. 5. What price would have to exist in the market so that each of the 1,000 companies earned an economic profit equal to zero? ____________________ What does “economic profit of zero” mean?___________________________________________________________________

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Economics 100 Class #11 Assignment The following demand and total cost prevail for a monopolist: Quantity Price Total Revenue Marginal Revenue Total Cost Marginal Cost 0 $11 $ 7

1 $10 $11

2 $ 9 $16

3 $ 8 $22

4 $ 7 $29

5 $ 6 $37

6 $ 5 $46

7 $ 4 $56

Fill in the Table. Remember that the total revenue is equal to the price time the quantity. The marginal revenue is the change in the total revenue from producing one more unit. And the marginal cost is the change in the total cost from producing one more unit. Using the principles developed in the class, the quantity this monopolist should produce in order to maximize profits is ________________. The price that this monopolist should charge is $_________________. The economic profits earned will equal $______________________. (Remember that economic profits equal total revenue minus total cost.)

1. Explain why the price is greater than the marginal revenue.

2. Explain why this monopolist cannot change any price she wants, such as $11.

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Economics 102 Name___________________________ Class #12 --- In-Class Assignment 1. In this section, the reasons for the phenomenon of natural monopolies were described.

The bus system in North County is a natural monopoly while the airline industry is not. Using the reasons discussed in this section, explain why this is so.

2. Use the principles of price discrimination to explain the following: 1. Why do students and the elderly pay a lower price for movies than others? 2. Why does SDG&E charge a lower price to business users than to household users? 3. Why do long-distance companies charge a higher price to business users than to household users?

4. Other than cost savings, why do gasoline stations charge a lower price to people who pump their own gasoline than to people who have an attendant do it for them?

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Economics 100 Assignment for Class #13 Name___________________ 1. Fill in the table below. Assume that all workers are hired in a perfectly competitive labor market at a wage of $9. Labor Total Product MPP Price MRP MRC = Wage 1 10 $1 2 21 1 3 33 1 4 44 1 5 54 1 6 63 1 7 71 1 8 78 1 How many workers will a profit maximizing employer hire? ______________ If the wage were to fall to $8, how many workers would be hired? ______ If the wage were to rise to $10, how many workers would be hired?______ In the graph below, draw the MRP curve and the MRC curve (assuming a wage of $9). Show the profit-maximizing number of workers hired. $ ___________________________________ 0 Number of Workers 2. Would the demand for the following workers be relatively elastic or relatively inelastic? Why? 1. Free agent football players try to raise their salaries by switching teams. Elastic or Inelastic? __________________________________ Why?____________________________________________________ 2. The Presidents (CEOs) of corporations try to get raises in their own salaries. Elastic or Inelastic?___________________________________ Why?____________________________________________________ 3. Those who run cash registers at grocery stores try to get increases in their wages. Elastic or Inelastic?__________________________________ Why?____________________________________________________

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Economics 100 In Class Assignment for Class #14 The previous class discussed the derivation of the demand for labor. Wages are determined by the demand for labor and the supply of labor. This class will discuss the factors that are responsible for the fact that some people receive higher wages than other people. Before we do this, take a few minutes to try to provide some reasons why certain people might earn higher wages than others. In particular, what reasons can you give for the fact that, on average, men receive higher wages than women do? 1. 2. 3. 4. 5.

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Economics 100 Class #15 In Class Assignment 1. State whether the following mergers are horizontal, vertical, or conglomerate: 1. Washington Mutual buys Home Savings Bank _______________ 2. ABC buys ESPN (A TV sports network) _______________ 3. The owner of the Fox TV network buys the Los Angeles Dodgers ______________ 4. Disney buys ABC _______________ 5. Albertsons buys Lucky ______________ 6. RJR, a maker of cigarettes, buys Nabisco, maker of cookies, crackers, etc. ______________ 7. Ralston Purina, maker of dog and cat food, buys Jack in the Box ______________

8. ITT buys Hartford Insurance and Continental Baking ______________ 9. BP (a gasoline producer) buys ARCO ______________ 10. AOL Time Warner owns AOL, Warner Brothers Studio, CNN, Time Magazine, Sports Illustrated, People Magazine, Turner Broadcasting, and so forth._____________

2. An industry has 10 companies with the following share of sales: A 20% F 10% B 20% G 5% C 10% H 5% D 10% I 5% E 10% J 5% Under the Merger Guidelines, would companies A and B be allowed to merge? Why or why not? Under the Merger Guidelines, would companies I and J be allowed to merge? Why or why not? Show Calculations.

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Economics 100 In Class Assignment for Class #16 For each of the following, state whether the particular function is acceptable under laissez faire. If so, under which of the functions is it acceptable? 1. Government provides the national parks and the national forests. 2. Government requires you to have a smog control device on your automobile. 3. Government requires nutritional information be made available on all food packages. 4. Government has tax deductions for contributions to charities and churches. 5. Government makes it illegal to use cocaine and marijuana 6. Government provides Social Security and Medicare for those who are age 65 and up 7. Government has a price support program for farmers 8. Government subsidizes public television and public radio 9. Government provides the court system 10 Government sues Microsoft for violations of the anti-trust laws

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Economics 100 In Class Assignment for Class #17 1. Form into groups of three or four people. Discuss the following: If a household had an

annual income of each of the following, would you consider the household “rich”? $1,000,000 _____ $ 500,000 _____ $ 250,000 _____ $ 125,000 _____ $ 100,000 _____ $ 75,000 _____ $ 50,000 _____

2. If you have not examined the data in the chapter, consider the following questions:

1. How much income did a household need in 2002 to be in the 80th percentile (80% of American households would have less income while 20% would have more income)? ___________________ 2. How much income did a household need in 2002 to be in the 95th percentile (95% of American households would have less income while 5% would have more income)? ___________________

3. Using your answer to question 1, what percent of American households would your group consider “rich”? _______________ 3. Based on your best guess as to your own family’s income in 2002, approximately what percentile in the income distribution did your family fall? Do this for each person in the group. ___________________ 4. In 2002, the poverty threshold for a single person residing in San Diego was approximately $1,200 per month. Form a budget for yourself, assuming that you have exactly this income. Consider all of your expenses. (If you are not single, the poverty thresholds are different: about $1,400 for 2 adults, $1,500 for one adult and one child, $1,800 for 2 adults and one child or for one adult and two children, $2,200 for 2 adults and 2 children, etc. Use these numbers to prepare your budget. 5. Consider the following proposition: taxes should be raised on the richer people, with the money given as transfers to the poorer people, so as to make the distribution of income more equal. Your group will be assigned to argue either for or against this proposition. Name as many arguments as you can for the position your are assigned. 1. 2. 3. 4. 5.

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Economics 100 In Class Assignment -- Class #18 Name_________________ Go to the following site: http://www.whitehouse.gov Your Government. then Office of Management and Budget. then Budget Information then A Citizen’s Guide to the Federal Budget then Where the Money Comes From and Where It Goes (Or Click on Citizens Guide on my web site) 1. What will be the estimated total government spending in the current year? 2. In the current year, what percent is expected to be spent on defense? On Social Security? On Medicare? On other Health Care? On Income Security? 3. In the current year, what percent of the federal budget will be discretionary? 4. Over the next few years, what is projected to happen to each of the following (in total and as a percent of the total budget): (1) defense; (2) social security; (3) Medicare 5. Over the next few years, what is projected to happen to total government spending? 6. Besides defense, what categories of spending are considered discretionary? And besides Social Security, which categories if spending are considered mandatory?

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Economics 100 In Class Assignment for Class #20 Name_________________ 1. Income Taxes Paid Average Tax Rate Marginal Tax Rate 0 0 $10,000 $ 500 $20,000 2,000 $30,000 4,500 $40,000 8,000 $50,000 12,500 Fill-in the table above. Is the tax above progressive, regressive, or proportional? Why? 2. Given the definitions of progressive, regressive and proportional taxes, do you believe each of the following taxes to be progressive, regressive, or proportional. In each case, state WHY. 1. Federal Income Tax _____________________ 2. State Income Tax _____________________ 3. Sales Tax _____________________ 4. Social Security Tax _____________________ 5. Tax on Gasoline _____________________ 6. Property Tax _____________________ (Remember that renters also pay property taxes --- included in their rent.) 7. Cigarette Tax _____________________ 8. Overall Tax System _____________________ (All taxes together)

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Economics 100 Name_______________________ In Class Assignment Class #21 Form into groups of three or four people. 1. Assume that there are only four goods produced. The following represent the prices

and quantities sold in the base year (1996) and the current year (2003): Price96 Quantity96 Price03 Quantity03 Pizza $4 10 $8 12 Cola 12 20 36 15 T – Shirts 6 5 10 15 Bus. Equipment 25 10 30 12

What was the Nominal Gross Domestic Product (GDP) in 1996? Show calculations.

What was the Nominal Gross Domestic Product (GDP) in 2003? Show calculations.

What was the Real Gross Domestic Product (Real GDP) in 2003? Show calculations.

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Economics 100 Name_______________________ Class #22: In Class Assignment 1. In a certain month, the Labor Department estimated the following: Worked full-time for the whole Month 80 million Worked part-time for the whole month 10 million Did not work but did search for work 10 million Discouraged workers 1 million Full-time students 5 million The official unemployment rate is _________________________ . SHOW CALCULATIONS. 2. In each of the following situations, state whether the person is employed, unemployed, or not in the labor force: 1. William works part-time and attends school part-time _______________ 2. Jose is a full-time student who does not want a job _______________ 3. Jane does not work now but she is looking for a part-time job _______________ 4. Mary is a single mother; she looked for a job for six months without luck. Last month, she gave up looking. _______________ 3. In each of the following cases, state whether the unemployment would be classified as "frictional"; “seasonal”; "structural"; or "cyclical". 1. Robert lost his job at General Dynamics. There is a job available at 7 - 11, but he refuses to take it. He has been looking for a job similar to his old job for nine months. _______________ 2. Mary quit her job at Sears and found a better-paying job at Nordstroms. She was unemployed for one month while she found her new job. _______________ 3. Maria lost her job with a construction company because of the recession. When the economy improves, she will be called back to her old job. _______________

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Economics 100 Name__________________ Class 23 --- In Class Assignment Assume there are three goods in the economy: Quantity

1982 Quantity

2003 Price

1982 Price

2003

A 10 15 $1 $3 B 5 10 $3 $4 C 20 20 $5 $10 1. Using this data, calculate the Consumer Price Index (CPI) for 2003. Assume that A, B, and C are all consumer goods and that the Base Year is 1982. 2. Assume that you have a COLA tied to the CPI. In 1982, you earned $15,000. How much do you need to earn in 2003 to have the same purchasing power as you had in 1982? 3. Using the numbers above, calculate the GDP Deflator. Assume that the Base Year is 1982 (in reality, it is 1996). 4. In reality, the GDP Deflator number is likely to be different from the CPI number? Why is this so? 5. In 1979, the CPI was 72.6. In 1980, the CPI was 82.4. What was the percentage increase in the CPI in 1980?

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Economics 100 Class 23 In Class Assignment #2 1. Assume that Mary lends Linda $1,000 for one year at a time when there is no

inflation. They agree on an interest rate of 5%. After the loan is made, inflation begins! During the year, prices rise 5%. What is the real rate of interest Linda receives?

2. In 1979, I was driving to work when my car (a Fiat) caught on fire. After getting the

fire out, I realized that I had to have a new car. But I didn’t have the money. So I borrowed from the bank for a three year loan at 9% interest. In 1980, to the surprise of everyone, prices rose 13 1/2%! For 1980, what was my real rate of interest?

3. In 1982, Joe bought a house. Figuring that inflation would continue at least 10% a

year, Joe accepted a 30 year loan at 17% nominal interest. In reality, by 1983, prices were rising at a bit over 3% per year. What real interest rate did Joe expect he was paying? What real interest rate did Joe actually pay in 1983?

4. Between borrower and lender, who is better off and who is worse off because of

unexpected inflation? 5. Do you believe that each of the following would be better off or worse off because of

unexpected inflation: 1. People who already own homes ____________ 2. People on fixed incomes ____________ 3. People with considerable funds in a savings account ___________ 4. The Federal Government ___________ 5. The Middle Class ___________ 6. The Rich People ___________ 6. If you believed that large inflation was coming soon, what would happen to each of the following: 1. The amount you would save in a bank ___________ 2. The amount of debt you would want to be in ___________ 3. The number of homes you would want to own ___________

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Economics 100 Class #24 In Class Assignment Name_____________________ 1. Assume that, there is only one product produced, which we will call a "widget". If there were full-employment, production would equal 1,000 widgets to sell at $100 per widget. Therefore production in the United States is valued at $100,000. Domestic income also must equal $100,000. This income involves 10 workers being paid $10,000 per year. (Ignore profits for now.) Each worker produces 100 widgets. Of their $100,000 of income, the workers pay $10,000 in taxes, save $5,000, spend $85,000 on consumer goods, of which $80,000 were produced in the United States and $5,000 were imported. Businesses wish to spend $10,000 on private business investment spending, that is, on capital goods produced in the United States. Foreigners are spending $6,000 on American exports. If the government spent the same amount that it raised in taxes ($10,000), what would happen to production in this economy (inflation, recession, or neither?)? Why? In order to avoid any problem of unemployment or inflation, how much should the government spend? Why? If it did so, the government would have a (budget deficit or surplus?) equal to $_________________. If there is a deficit, where would the government get the money to pay for this deficit? If there is a surplus, what would be done with the surplus?

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Economics 100 Name_______________________ Class #26 In Class Assignment 1. Go to the Money Supply link on my web site. What is the total value of M-1 for the most recent period? _________________ What is the value of each component of M-1? 2. Take out some currency. Any amount will do. Examine the front of the bill. Based on your examination, what does this piece of paper represent? That is, what is currency? 3. "I have $200 in my checking account." If I go into the bank and tell them that I want to see my $200, what will they show me? That is, what is a checking account? 4. What is a credit card? 5. What is the total value of M-2 in the most recent period? ___________________ 6. Go to the site: http://www.bankofamerica.com

Find the Annual Report

What are the main assets of Bank of America? What are the main liabilities of Bank of America? What percent of the assets of Bank of America was provided by owners? (Calculate the stockholders’ equity as a percent of the total assets)

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Economics 100 Assignment for Class #26 Name______________ 1. Assume that Bank A has $10,000 in checkable deposits, $2000 in reserves, and $8,000 in loans when the reserve requirement is 20%. If the reserve requirement (ratio) is lowered to 10%, Bank A's excess reserves increase by $_____________________ the money supply will ultimately ___________(increase or decrease?) by $______________________. The money multiplier increases from _________ to ______________. 2. Assume that the discount rate is lowered from 6% to 4%. As a result, Bank A (see question #1) borrows $1,000 from the Fed. The monetary base ____________(increases or decreases?) by $_________________ Bank A's excess reserves ________(increase or decrease?) by $_________________ With a reserve ratio of 20%, the money supply will ______________(increase or decrease?) by $______________________. 3. Now, assume that the Fed buys $1,000 worth of Treasury Bills from Bank A. The monetary base ______________(increases or decreases?) by $________________ Bank A's excess reserves ____________(increase or decrease?) by $_______________ With a reserve ratio of 20%, the money supply will ______________(increase or decrease?) by $__________________. 4. If the Fed wishes to increase (ease) the money supply, it should ___________________ the reserve requirement (raise or lower?) ___________________ the discount rate (raise or lower?) ___________________ Treasury securities (buy or sell?)

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Economics 100 In Class Assignment for Class 29 The two cases discussed in class analyzed the effects on foreign exchange markets of an increase in interest rates in the United States and of an increase in inflation in the United States. Do the same analysis for each of the following cases: 1. Incomes rise in the United States and fall in Japan 2. Both Americans and Japanese believe that American goods are of higher quality than before 3. Both Americans and Japanese believe that the Japanese yen will depreciate in the near future 4. Laws change in Japan making it easier for Americans to buy or build companies in Japan 5. Interest rates fall in the United States while they rise in Japan