Okay I got a Macro-Econ take home final that I really need to ace. I have finished the final but I need it double checked. If you really know your econ, please reply with a quick answer on the following questions.
1) Assume that the national econmy is at full employment equilibrium. Both the Congress and the President decide to downsize the federal government by firing federal employees and cutting the federal budget by 10%.
A) What sector of the GDP is impacted? (C, I, G, NX)
ANSWER: All sectors would decrease except NX would increase.
B) Which curve shifts and in what direction? Why does the curve shift? Please include the GDP expenditure equation (with arrows).
ANSWER: Aggregate Demand would shift to the left since Consumption decreases.
C) Now that the unemployed federal employees must find jobs in the private sector. What curve must shift and in what direction?
ANSWER: Short Run Aggregate Supply would shift to the right.
D) Do the overall prices rise or fall? Do wages increase or decrease?
ANSWER: Overall prices would fall. Wages would fall as well.
2) Assume that the United States national economy has an inflationary gap.
A) Please diagram. Assume there is an inflationary gap. Label original long-run aggregate supply LRAS0 (sub zero), original short-run aggregate supply SRAS0(subzero), original aggregate demand AD0(subzero), original price level P0(subzero), original GDP0(subzero).
B) Assume that neither monetary nor fiscal policies are implemented and the long-run aggregate supply curve does not shift. Both the Unitd States government and Federal Reserve decide to allow the economy to self correct in full employment. Describe the self correction process. You must state what causes the curves to shift. Labeling the shifting curves SRAS1 and AD1, the new price level P1, and new output GDP1.
ANSWER: During inflationary gap, there is a shortage of skilled workers and the actual rate of unemployment is below natural rate of employment. Employers will have to raise wages to attract and keep skilled workers. The rise in wages will shift Short-Run Aggregate Supply left and Aggregate Demand right.
C) Assume that the Federal Reserve decides to respond to the inflationary gap. Does the Federal Reserve pursue expansionary or contractionary (tight) monetary policy? Does the Fed buy or sell government bonds? Does the price of government bonds go up or down? Diagram the money demand and money supply. Please label the original money demand MD0, original money supply MS0, original interest rate R0. Show the appropriate money curves shifting and label the new money demand MD1, the money supply MS1, and new interest rate R1. Does the market interest rate increase or decrease? Now diagram the investment demand curve. label the original demand curve for Investment Demand ID0, the original interest rate R0, original investment I0. After the Federal Reserve pursues its monetary policy, label the new interest rate R1, new investment I1. Does Investment increase or decrease? Please diagram. Assume ther eis an inflationary gap. label original long-run aggregate supply LRAS0, original short-run aggregate supply SRAS0, original aggregate demand AD0, original price level P0, original GDP0. After the Federal Reserve pursues its monetary policy, show the appropriate curves shifting to achieve full employment. Please explain why the appropriate curves shift. Label the new SRAS1, new AD1, new price P1, new GDP1.
ANSWER: The FEDS would pursue a contractionary policy to counter inflation. It would buy government bonds, thus increasing the price of bonds. In terms of Money Supply and Money Demand, the FEDS will try to decrease the money supply, thus increase the demand for money. Not sure about Interest rates rising or falling. I'd assume Investments would increase since there is a decrease in the money supply.
3) Assume that the Unitd States national economy has an inflationary gap.
A) Please diagram. Assume there is an inflationary gap and the long-run aggregate supply curve does not shift in the immediate future. Label original long-run aggregate supply LRAS0, original short-run aggregate supply SRAS0, original aggregate demand AD0, original price level P0, original GDP0. The candidate George Bush wants to pursue a supply-sie economics policy. Assume that he will implement a substantial tax cut. The lower taxes does increase disposable personal incomes. What sectors of the gross domestic product are impacted by the tax cut? Does the ag gregate demand curve shift and in what direction? Does the tax cut impact the short-run aggregate supply and in what direction does the SRAS shift? please state the reason? Show the AD and SRAS shifts and label the new curves AD1 and SRAS1. Please label the new price level P1 and GDP1. If the LRAS curve does not shift, can the economy stay at the new equilibrium? Why? What curve or curves shift and in what direction? Please label the new curves AD2, and SRAS2. Label the new full employment equilibrium price P2.
ANSWER: Consumption would increase from the tax cut. Investments could increase or decrease based on how consumers want to spend the extra money. Government spending might decrease due to a decrease in revenues and net exports would increase if government spending decreases. And No the economy cannot stay in such an equilibrium.
B) Federal Reserve is pursuing what type of policy in Question 2? The supply-sie tax cut in Question 3 is what kind of policy? Is ther ea conflict between the Federal Reserve policy in question 2 and supply side tax cut in question 3? (Fiscal/Monetary conflict?)
ANSWER: There is a conflict as the FED pusued a contractionary policy, shorting the money supply, and supply-side tax cut increases the money supply.
4)
A) What is the monetarist equation of exchange? Explain each component.
B) What asumptions are placed on the equation of exchange to generate the quantity theory of money?
C) Explain the quantity theory of money and what it implies about the impact of changes in the money supply on real output and prices.
ANSWER; I actually dont need help with Question 4 since they're all technical questions with answers from the book.
1) Assume that the national econmy is at full employment equilibrium. Both the Congress and the President decide to downsize the federal government by firing federal employees and cutting the federal budget by 10%.
A) What sector of the GDP is impacted? (C, I, G, NX)
ANSWER: All sectors would decrease except NX would increase.
B) Which curve shifts and in what direction? Why does the curve shift? Please include the GDP expenditure equation (with arrows).
ANSWER: Aggregate Demand would shift to the left since Consumption decreases.
C) Now that the unemployed federal employees must find jobs in the private sector. What curve must shift and in what direction?
ANSWER: Short Run Aggregate Supply would shift to the right.
D) Do the overall prices rise or fall? Do wages increase or decrease?
ANSWER: Overall prices would fall. Wages would fall as well.
2) Assume that the United States national economy has an inflationary gap.
A) Please diagram. Assume there is an inflationary gap. Label original long-run aggregate supply LRAS0 (sub zero), original short-run aggregate supply SRAS0(subzero), original aggregate demand AD0(subzero), original price level P0(subzero), original GDP0(subzero).
B) Assume that neither monetary nor fiscal policies are implemented and the long-run aggregate supply curve does not shift. Both the Unitd States government and Federal Reserve decide to allow the economy to self correct in full employment. Describe the self correction process. You must state what causes the curves to shift. Labeling the shifting curves SRAS1 and AD1, the new price level P1, and new output GDP1.
ANSWER: During inflationary gap, there is a shortage of skilled workers and the actual rate of unemployment is below natural rate of employment. Employers will have to raise wages to attract and keep skilled workers. The rise in wages will shift Short-Run Aggregate Supply left and Aggregate Demand right.
C) Assume that the Federal Reserve decides to respond to the inflationary gap. Does the Federal Reserve pursue expansionary or contractionary (tight) monetary policy? Does the Fed buy or sell government bonds? Does the price of government bonds go up or down? Diagram the money demand and money supply. Please label the original money demand MD0, original money supply MS0, original interest rate R0. Show the appropriate money curves shifting and label the new money demand MD1, the money supply MS1, and new interest rate R1. Does the market interest rate increase or decrease? Now diagram the investment demand curve. label the original demand curve for Investment Demand ID0, the original interest rate R0, original investment I0. After the Federal Reserve pursues its monetary policy, label the new interest rate R1, new investment I1. Does Investment increase or decrease? Please diagram. Assume ther eis an inflationary gap. label original long-run aggregate supply LRAS0, original short-run aggregate supply SRAS0, original aggregate demand AD0, original price level P0, original GDP0. After the Federal Reserve pursues its monetary policy, show the appropriate curves shifting to achieve full employment. Please explain why the appropriate curves shift. Label the new SRAS1, new AD1, new price P1, new GDP1.
ANSWER: The FEDS would pursue a contractionary policy to counter inflation. It would buy government bonds, thus increasing the price of bonds. In terms of Money Supply and Money Demand, the FEDS will try to decrease the money supply, thus increase the demand for money. Not sure about Interest rates rising or falling. I'd assume Investments would increase since there is a decrease in the money supply.
3) Assume that the Unitd States national economy has an inflationary gap.
A) Please diagram. Assume there is an inflationary gap and the long-run aggregate supply curve does not shift in the immediate future. Label original long-run aggregate supply LRAS0, original short-run aggregate supply SRAS0, original aggregate demand AD0, original price level P0, original GDP0. The candidate George Bush wants to pursue a supply-sie economics policy. Assume that he will implement a substantial tax cut. The lower taxes does increase disposable personal incomes. What sectors of the gross domestic product are impacted by the tax cut? Does the ag gregate demand curve shift and in what direction? Does the tax cut impact the short-run aggregate supply and in what direction does the SRAS shift? please state the reason? Show the AD and SRAS shifts and label the new curves AD1 and SRAS1. Please label the new price level P1 and GDP1. If the LRAS curve does not shift, can the economy stay at the new equilibrium? Why? What curve or curves shift and in what direction? Please label the new curves AD2, and SRAS2. Label the new full employment equilibrium price P2.
ANSWER: Consumption would increase from the tax cut. Investments could increase or decrease based on how consumers want to spend the extra money. Government spending might decrease due to a decrease in revenues and net exports would increase if government spending decreases. And No the economy cannot stay in such an equilibrium.
B) Federal Reserve is pursuing what type of policy in Question 2? The supply-sie tax cut in Question 3 is what kind of policy? Is ther ea conflict between the Federal Reserve policy in question 2 and supply side tax cut in question 3? (Fiscal/Monetary conflict?)
ANSWER: There is a conflict as the FED pusued a contractionary policy, shorting the money supply, and supply-side tax cut increases the money supply.
4)
A) What is the monetarist equation of exchange? Explain each component.
B) What asumptions are placed on the equation of exchange to generate the quantity theory of money?
C) Explain the quantity theory of money and what it implies about the impact of changes in the money supply on real output and prices.
ANSWER; I actually dont need help with Question 4 since they're all technical questions with answers from the book.
Facebook
Twitter