1. (2 points total) For each sentence below, determine whether or not it is a positive or normative statement. For full
credit, briefly explain your answer for each sentence.
a. The official unemployment rate is a better indicator of economic health than GDP growth over the same period.
b. Other things being equal, if the labor-force participation rate increased and more workers entered the economy the
amount of goods and services produced by the economy would grow.
c. Raising the Federal Reserve’s target for the federal funds rate in December 2015 has not resulted in a recession.
d. While there would be significant—and often adverse—impacts for many businesses and industries, raising the
minimum wage to $15 per hour in the United States is a moral imperative.
5. (2 points) In each of the situations described, state which component of aggregate demand (C, I, G, or NX) of the
United States is affected and whether aggregate demand will increase or decrease as a result.
a. The recent hike in the federal-funds rate target increases the value of dollars relative to other currencies.
b. Uncertainty about how the presidential primaries and general election will play out cause firms to scale back and
delay some of their planned projects.
c. The Chinese economy grows at a slower pace that it has in recent years.
d. A decline in the value of stocks decreases the wealth of many households.
e. Breakthroughs in additive manufacturing (i.e., 3D printing) increase productivity for a wide variety of
f. With a lower unemployment rate, households are increasingly confident about where the economy is headed.
g. Britain’s minor renegotiations with the European Union conclude, leading to more certainty and a slight increase
in economic growth in Europe.
h. As controlling the size of the deficit recedes as an issue of political importance, Congress and the President
increase federal spending in an election year.