Answers to Textbook Questions and Problems_Mankiw.pdf

CHAPTER 2 The Data of Macroeconomics
Questions for Review
1. GDP measures both the total e of everyone in the economy and the total expendi-
ture on the economy’s output of goods and services. GDP can measure two things at
once because both are really the same thing: for an economy as a whole, e must
equal expenditure. As the circular flow diagram in the text illustrates, these are alter-
native, equivalent ways of measuring the flow of dollars in the economy.
2. The consumer price index measures the overall level of prices in the economy. It tells us
the price of a fixed basket of goods relative to the price of the same basket in the base
year.
3. The Bureau of Labor Statistics classifies each person into one of the following three cat-
egories: employed, unemployed, or not in the labor force. The unemployment rate,
which is the percentage of the labor force that is unemployed, puted as follows:
Number of Unemployed × 100
Unemployment Rate = .
Labor Force
Note that the labor force is the number of people employed plus the number of people
unemployed.
4. Okun’s law refers to the negative relationship that exists between unemployment and
real GDP. Employed workers help produce goods and services whereas unemployed
workers do not. Increases in the unemployment rate are therefore associated with
decreases in real GDP. Okun’s law can be summarized by the equation:
%∆Real GDP = 3% – 2 × (∆Unemployment Rate).
That is, if unemployment does not change, the growth rate of real GDP is 3 percent. For
every percentage-point change in unemployment (for example, a fall from 6 percent to 5
percent, or an increase from 6 percent to 7 percent), output changes by 2 percent in the
opposite direction.
Problems and Applications
1. A large number of economic statistics are released regularly. These include the follow-
ing:
Gross Domestic Product—the market value of all final goods and services produced in a
year.
The Unemplo