Greetings. Please write your name on the line above and write your quiz number but NOT your name on the cover of your blue book. You must turn in BOTH your test copy AND your blue book to receive a passing grade for the quiz.
    Please answer each of the quiz questions as well as you can. Available quiz points are distributed in proportion to the recommended time limits listed in the quiz. The recommended times sum to 45 minutes, but you will be given 55 minutes to complete the quiz. Do the best you can on each question, and keep in mind that plenty of partial credit is available.

Don't forget the Oxy spirit of honor. Please do NOT discuss this quiz AT ALL until 2:30 this afternoon. Good luck!

    1. (8 minutes) Answer in your blue book any one of the Cooperative Learning Lab (CLL) questions which appears on the page attached to the end of this exam.  (Available only at CLL.)

    2. (9 minutes) When I was in college, I earned a minimum wage of $1.65 per hour, compared to the minimum wage of $5.15 per hour now. The CPI (1982-84=100.0) has risen from 50.0 to 161.2 over the same time period.
    a. Calculate values for the real minimum wage I earned and the current real minimum wage.
    b. Use a supply and demand diagram for unskilled labor (with the real wage on the vertical axis) to illustrate the current real minimum wage. (Hint: don't forget that the minimum wage is a price floor.) Also, be sure to indicate where the number of unemployed workers shows up in your diagram.
    c. What would the minimum wage have to be now to give a current unskilled worker the same purchasing power that I had when I was a minimum-wage worker?

    3. (6 minutes) Use appropriate words or phrases to fill in the following blanks in your blue book (hint: this is taken from the workbook worksheet, "The basic AD/AS Macro model: Recap"):
    a. In the AD/AS diagram, Y stands for ______ and  P stands for ______.
    b. Types of unemployment: At full employment, ______ unemployment = 0, but ______ unemployment and ______ unemployment remain.
    c. The equation for aggregate demand is AD = ______.
    d. Two reasons that AD slopes downward are ______ and ______.
    e. The reason that SRAS slopes upward is ______.
    f. Two causes for a simultaneous shift of both SRAS and LRAS are ______ and ______.
    g. What change causes SRAS to shift without shifting LRAS? ______

    4. (10 minutes) Suppose that some U.S. government data files get corrupted, and you have to try to figure out what some of the unlabeled values for 1983 correspond to. You know that the full- employment unemployment rate back then was considered to be about 6 percent of the labor force and that the base year for the GDP deflator was 1982. The unlabeled data values are 9.6, 103.9, 3279.1 and 3510.8.
    a. Decide which of the 1983 values are most likely to be: (1) real GDP, (2) full-employment real GDP, (3) the GDP deflator and (4) the unemployment rate.
    b. Depict your information (except the unemployment rate) in an AD/AS diagram.
    c. Does the economy show an inflationary or recessionary gap for 1983? How large?
    d. Carefully explain how the economy would, in theory, self-correct from its 1983 situation. Illustrate the self-correction in your diagram.
 
    5. (12 minutes) Currently, the U.S. unemployment rate is 4.7%. Suppose you are an analyst who shares the conventional view that the full-employment unemployment rate is about 5.5%.
    a. Depict the current U.S. macroeconomic equilibrium in an AD/AS diagram. Use the label "a" for your initial equilibrium and your AD, SRAS and LRAS curves.
    b. In your diagram, show how self-correction would restore the economy's full-employment equilibrium. Use the label "b" for your new equilibrium and for any new curves you draw. Many recent news articles have reported that analysts have been concerned about potential "overheating" and inflation. Based on what you've illustrated, are you surprised? Explain briefly.
    c. Recently there has been evidence of a possible coming recession in Southeast Asia, a major market for U.S. output. Starting again from point "a" in your diagram, show how this foreign recession could affect the U.S. economy. Use the label "c" for your new equilibrium and any new curves you draw. Does this prospect reduce concerns about potential inflation? Explain briefly.
    d. Some economists have argued that in fact we are not in a boom at all. Instead the full-employment unemployment rate has fallen in recent years to, say, 4.5% or so. Again starting from equilibrium "a", illustrate the implication of this development. Use the label "d" for any new curves you draw. Does this reduce concerns about potential inflation? Explain briefly.