Question

1. In the 1970s, the United States federal government created a Department of Energy. This is a time when the OPEC (Organization of Petroleum Exporting Countries) cartel first became prominent. Identify how this action might have impacted the three major macroeconomic goals of our economy.

2. Suppose you live in a community of 100 people where everyone is able and seeks to work. If 80 people are over 16 years old and 72 of them are employed, what is the unemployment rate in this community?

3. What are the three major types of unemployment? What are their causes?

4.  What is the business cycle? Explain the four phases of the business cycle.

5. Suppose a consumer buys 10 units of good X and 20 units of good Y every year. The following table lists the prices of goods X and Y in the years 2005-2007. Assume that these two goods constitute the typical market basket. Calculate the price indices for these years with 2005 as the base year. Comment on the inflation picture for these years.

Year	Good X	Good Y
2005	$3	$6
2006	4	7
2007	4.5	7.5

Answer 1

1.

Cartel is a group effort of influencing price. The group is created with a formal agreement between the OPEC member countries. The main purpose of such agreement is to hold back oil extraction so that oil price increases in the market because of huge demand. In this way the extracting countries make a huge profit too.

Creation of an energy department within the country can meet the domestic demand. It helps not to depend on OPEC; therefore, its cartel has no impact in the US.

Macroeconomic goals are as below:

Inflation: Inflation indicates increase in commodity price steadily. This is a macroeconomic indicator. Since the production energy (like power) is supplied within the country, it brings down production cost compare to the other countries. Therefore, inflation would be low in such case.

Gross domestic product (GDP): This is the monetary value of all finished goods produced in an economy domestically during a year. Real GDP of the country would increase, since the inflation is low. (Real GDP = Nominal GDP – Inflation).

Purchasing power parity (PPP): The theory indicates if the purchasing powers in two different countries are same, their exchange rates will be in equilibrium. If inflation is down its currency, dollar would be valuable to other countries. This indicates that the exchange rate of dollar with other country’s currency would decrease. The currency would be demanded more if it has higher amount of purchasing power. This is good for the economy.