Answer the following questions concisely, giving brief explanations for your answers.

Consider what impact the following events would have on the market for athletic shoes. Using supply and demand diagrams, indicate what would happen to equilibrium price and quantity.

a. Rubber, canvas, and leather all become cheaper.

b. Most employers abandon formal dress requirements.

c. Shoe factory workers unionize and demand higher wages.

d. Americans stop exercising as much and adopt a more sedentary lifestyle.

1. Congress just passed a bill that dramatically cuts taxes. Currently, the national unemployment rate is below five percent.

a. What will be the short-run impact of this bill on output, prices, and unemployment?

b. How will this affect long-run economic growth and inflation?

c. Which policy should the Federal Reserve adopt in response to this bill?

2. Suppose you run a bar and grill. Assume that eating out is a normal good (people consume more as incomes increase) while drinking is an inferior good (people consume more when incomes fall). Briefly explain how each of the following events affect what types of workers you will need to employ (cooks, bartenders, etc.) and whether the wages you pay are likely to increase or decrease.

a. A large deposit of natural gas is found in your region.

b. The local and state government are both cutting spending to reign in budget deficits.

c. Firms in your region are expanding in expectation of increased consumer demand.

3. Indicate what impact the following events would have on U.S. GDP. Indicate which component(s) is (are) affected.

a. More and more Americans choose not to buy houses, instead choosing to save more money and spend the rest on other goods and services.

b. The government bans the export of oil, coal, and natural gas in an attempt to increase energy independence.

c. The government reduces the rate at which income is taxed.

4. If the economy added 300,000 new jobs and only 250,000 people lost their jobs in the same time period, is it possible for the unemployment rate to be going up? Explain.

5. Before the financial crisis and recession at the end of the last decade, banks tended to lend as much money as the Fed allowed. Since then, banks tend to hold a lot more money as reserves and are more cautious in giving loans. Does this make it easier or harder for the Fed to change the money supply? Explain.

6. Unemployment rates are consistently higher in Canada and most Northern European nations than they are in the United States. This implies that the natural rate of unemployment is lower in the U.S. What could explain this difference?