Collegeville’s Economic Landscape: GDP, Inflation, and Unemployment AnalysisAccording to the information provided in the GDP background information handout: a) What are the 4 categories of the expenditures approach? b) How are these categories used to calculate GDP? a) The 4 categories of the expenditures approach are: Personal Consumption Expenditures (C) Gross Private Domestic Investment (I) Government Purchases of Goods and Services (G) Net Exports (NX) b) These categories are used to calculate GDP by summing up the total value of all final goods and services produced within the nation during a specific time period. The formula for calculating GDP using the expenditures approach is: GDP = C + I + G + NX According to table 2 in the GDP background information handout, what are the subcategories of Personal Consumption Expenditures? The subcategories of Personal Consumption Expenditures are: Consumption of Durable Goods Consumption of Nondurable Goods Consumption of Services According to table 2 in the GDP background information handout, what are the subcategories of Gross Private Domestic Investment? The subcategories of Gross Private Domestic Investment are: Fixed Residential Investment Fixed Nonresidential Investment Change in Inventories Use the data provided in Table 1 to calculate (show your work) the following macro aggregates: a) Personal Consumption Expenditures, b) Gross Private Domestic Investment, c) Net Exports, d) Government Purchases of Goods and Services, e) GDP using the expenditure approach, and f) GDP per Capita. a) Personal Consumption Expenditures: Personal Consumption Expenditures (C) = Consumption of Durable Goods + Consumption of Nondurable Goods + Consumption of Services C = $800,000 + $650,000 + $1,150,000 C = $2,600,000 b) Gross Private Domestic Investment: Gross Private Domestic Investment (I) = Fixed Residential Investment + Fixed Nonresidential Investment + Change in Inventories I = $200,000 + $600,000 + $300,000 I = $1,100,000 c) Net Exports: Net Exports (NX) = Exports – Imports NX = $300,000 – $70,000 NX = $230,000 d) Government Purchases of Goods and Services: Government Purchases of Goods and Services (G) = $1,200,000 e) GDP using the expenditure approach: GDP = C + I + G + NX GDP = $2,600,000 + $1,100,000 + $1,200,000 + $230,000 GDP = $5,130,000 f) GDP per Capita: GDP per Capita = GDP / Population GDP per Capita = $5,130,000 / 3,200 GDP per Capita = $1,603.125 Collegeville economists have been using 2018 as their base year to calculate inflation. a) What is the CPI during the base year (2018)? b) What is the CPI for 2019? c) What is the CPI for 2020? a) CPI during the base year (2018) = 100 (as the base year is always assigned a value of 100 in the CPI index). b) To calculate the CPI for 2019, use the formula: CPI (2019) = (Cost of the Market Basket in 2019 / Cost of the Market Basket in the base year) * 100 CPI (2019) = ($2,855 / $2,340) * 100 CPI (2019) ≈ 121.88 c) To calculate the CPI for 2020, use the formula: CPI (2020) = (Cost of the Market Basket in 2020 / Cost of the Market Basket in the base year) * 100 CPI (2020) = ($3,230 / $2,340) * 100 CPI (2020) ≈ 137.93 Calculate the rate of inflation for Collegeville between the base year (2018) and 2019. Inflation rate (2018 to 2019) = ((CPI (2019) – CPI (2018)) / CPI (2018)) * 100 Inflation rate (2018 to 2019) = ((121.88 – 100) / 100) * 100 Inflation rate (2018 to 2019) ≈ 21.88% Calculate the rate of inflation for Collegeville between 2019 and 2020. Inflation rate (2019 to 2020) = ((CPI (2020) – CPI (2019)) / CPI (2019)) * 100 Inflation rate (2019 to 2020) = ((137.93 – 121.88) / 121.88) * 100 Inflation rate (2019 to 2020) ≈ 13.17% How many discouraged workers does Collegeville currently have? Is this group considered to be in the Labor Force? Why or why not? Discouraged workers are those individuals who have given up searching for a job because they believe no jobs are available for them. According to the scenario, there are 451 residents who are without jobs and have given up searching for a job. This group is not considered to be in the Labor Force because they are not actively seeking employment. Calculate the unemployment rate for Collegeville. Unemployment Rate = (Number of Unemployed / Labor Force) * 100 Labor Force = Number of Employed + Number of Unemployed Labor Force = 3,200 (total population) – 689 (under 16 years) – 349 (institutionalized adults) Labor Force = 3,200 – 689 – 349 Labor Force = 2,162 Unemployment Rate = (240 / 2,162) * 100 Unemployment Rate ≈ 11.1% Once you have calculated the current unemployment rate in Collegeville, what is the corresponding “employment rate”? In other words, which proportion of the labor force is considered employed? Employment Rate = 100% – Unemployment Rate Employment Rate = 100% – 11.1% Employment Rate ≈ 88.9% Explain the relationship or connection between the Natural Rate of unemployment and the concept of Full Employment? The Natural Rate of unemployment is the level of unemployment that exists when the economy is operating at its potential output and is considered to be at full employment. At this level, there is some unemployment due to frictional and structural factors, but there is no cyclical unemployment (unemployment caused by economic downturns). Full employment is achieved when the unemployment rate equals the natural rate of unemployment. According to the data, is the economy of Collegeville performing at, above, or below full employment? Explain. To determine if the economy of Collegeville is performing at, above, or below full employment, we need to compare the actual unemployment rate with the natural rate of unemployment. The scenario mentions that the natural rate of unemployment in Collegeville is 8%. Actual Unemployment Rate ≈ 11.1% Natural Rate of Unemployment = 8% Since the actual unemployment rate (11.1%) is higher than the natural rate of unemployment (8%), the economy of Collegeville is currently performing above full employment. This suggests that there is an excess supply of labor in the economy, indicating an economic downturn or recession.