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    Trying to understand Microeconomics

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    a. What is the relationship between inflation and unemployment (in numerical, percentage value, the natural rate of unemployment) and the danger we face if the unemployment rate drops below that natural rate. What percentage is the Natural Rate of Unemployment?

    b. What is the definition of Gross Domestic Product (GDP) and its components. What was the approximate size of the US GDP last year?

    c. What are opportunity costs and how do they help a firm decide how to maximize profits?

    d. What is the definition of inflation and why is it harmful?

    e. How do the laws of supply and demand determine that a basketball player can earn $2.2 million, but a teacher earns only $52,000.00? Is this fair?

    f. What are the opportunity costs of President Obama's proposed health care plan?

    g. What are the conditions of perfect competition and why would a firm want to violate them? What are examples of violations of each condition?

    h. If the US were to enter a serious recession (a condition we now find ourselves in,) what would the economist Keynes advise the US government to do--borrow money and spend it or cut spending to reduce the deficit?

    i. As a result of a hurricanes Katrina and Rita, thousands of Cajun evacuees immigrate to Little Rock. What will happen to the price of the average dinner at a Cajun restaurant ceteris paribus? Has the change caused the Demand or Supply curve to shift left or right causing movement along the supply or demand curve to a higher or lower equilibrium point?

    j. The Florida experiences great economic growth as well as growth in the population. Chart what will happen as a result of the bad tomato harvest and the growth on the same chart ceteris paribus. Has the change caused the Demand or Supply curve to shift left or right causing movement along the supply or demand curve to a higher or lower equilibrium point?

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    1. What is the relationship between inflation and unemployment (in numerical, percentage value, the natural rate of unemployment) and the danger we face if the unemployment rate drops below that natural rate. What percentage is the Natural Rate of Unemployment?
    When we think of the economy and the business cycle we see that three key outcomes are interrelated. Inflation, unemployment, and GDP. In general, as GDP increases more labor hours are needed so unemployment tends to decrease. If increased GDP is caused by increased aggregate demand then as the AD curve moves rightward there is upward pressure on prices especially if the economy is approaching full employment.

    The exact numerical or percentage relationship between inflation and unemployment must be estimated. The Phillips curve is based on an equation that demonstrates the negative relationship between inflation and unemployment. As I said above as GDP increases there is inflationary pressure and unemployment decreases. similarly as GDP decreases inflation diminishes and unemployment increases. The Phillips curve captures this relationship.

    The natural rate of unemployment is the long run level of unemployment determined by structural forces in the product and labor markets. In general the economy gravitates toward the natural rate of unemployment. As mentioned above if unemployment drops too low then the economy is at or near full capacity. The AS curve is very steep and increased demand does little to increase output further (since we have a fixed level of factors of production). The result is an increase in prices as too many dollars chase too few products. Definitions of the natural rate of unemployment vary. In the 1950's it was determined to be at 4%. during the 70's with various structural changes in the economy it was determined to be 6%-7%. during the 80's it fell again to 4%.

    2. What is the definition of Gross Domestic Product (GDP) and its components. What was the approximate size of the US GDP last year?
    U.S. GDP was about 13.8 trillion in 2007 and about 14.2 trillion in 2008 depending on how you adjust for inflation. GDP consists can be calculated from the supply side of the economy or the demand side. From the demand side (expenditures) we have household consumption, business investment, government expenditures, exports and imports. The national income accounting identity is GDP = C + I + G + (X-M)

    3. What are opportunity costs and how do they help a firm decide how to maximize ...

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    The expert examines multiple scenarios of trying to understand microeconomics.

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