Macroeconomics Answers

6) Which of the following fiscal policy changes would have a larger overall negative impact on AD and RGDP?

Explain your answer in a paragraph or two with credible logics and analysis.

A) A program of tax hike, distributed uniformly across the households earning over $300K annually filing tax returns, amounting to $85 billion in total tax hikes.

B) An $85 billion sequester (called automatic federal government spending cut) that went into effect on March 1, 2013. This was an across-the-board spending cut in federal government’s various existing programs and services, including maintenance of major infrastructures and aviation traffic control systems.

Use the data in the Table to answer the questions asked in 4a and 4b on each of the 3 variables for the US economy:

a. Calculate the changes in inflation rates, unemployment rates and the RGDP growth rates for the years from Year 2007 through 2014 and show them in a new column next to each of the values of the three variables (a template of the table is given below). 5 pts

Year Real GDP RGDP growth rate in % Unemployment Rate Change in U rate in % CPI Indices Inflation rate in %
2006 14,613.8 - 4.6% - 201.6 -
2007 14,873.7 ? 4.6% ? 207.3 ?
2008 14,830.4 ? 5.8% ? 215.3 ?
2009 14,418.7 ? 9.3% ? 214.53 ?
2010 14,783.8 ? 9.6% ? 218.05 ?
2011 15,020.6 ? 8.9% ? 224.93 ?
2012 15,369.2 ? 8.1% ? 229.59 ?
2013 15,710.3 ? 7.4% ? 232.96 ?
2014 16,089.8 6.2 236.74

Source: for CPI and U-Rate date: www.bls.gov
For RGDP data: www.bea.gov

b. Based on those calculations, briefly describe the overall economic performance over the last 8 years (2007-2014) and critically predict about these three macroeconomic variables for 2015-16.

Suppose a government collects $10B in income taxes, pays a firm $2B to build a bridge, pays its own workers $1B, transfers $4B to poor citizens and pays $3B in interest payments to government bondholders. This government’s operations add $10B to the measurement of GDP. True, false or uncertain. please explain.

Using diagrams for aggregate expenditures (AE) and aggregate demand and supply (AD-AS), show the short run effects each of the following scenarios has on the relevant economy. Be sure to identify the cause of any shift or movement along AE, AD, and/or SRAS. [Hint: Your diagrams for each part should look something like those in Figure 23-8, or 23-10 in your text.]
(a) Due to the decrease in world oil prices, Canadian oil and gas companies reduce investment spending.
(b) Depreciation of the Euro leads to an increase in exports for the Euro-zone and a reduction in the marginal propensity to import in the Euro-zone.
(c) Canadian productivity rapidly increases, while at the same time Canadian exports increase due to a growing US economy.

Consider the following aggregate expenditure model of the Canadian economy operating with given wages and other factor prices, price level, interest rates, exchange rates, and expectations:
C = 50 + 0.8YD I = 400 G = 500 T = 0.3Y X = 650 IM = 0.36Y
where C is consumption (the 0.8 term represents the marginal propensity to consume) YD is disposable income, I is investment, G is government spending on goods and services, T is the total value of taxes net of transfers (the 0.3 term represents the net tax rate on national income), X is exports, and IM is imports (the 0.36 term represents the marginal propensity to import).
(d) Nowsupposethatthegovernmentdecidestouseitsspendingpowertorestorenationalincometoits original level. By how much must the government increase G to restore the original level of national income? What will happen to the government’s budget balance? How do you explain the new level of the budget balance compared to that in part (c) and in part (b)?

Consider the following aggregate expenditure model of the Canadian economy operating with given wages and other factor prices, price level, interest rates, exchange rates, and expectations:
C = 50 + 0.8YD I = 400 G = 500 T = 0.3Y X = 650 IM = 0.36Y
where C is consumption (the 0.8 term represents the marginal propensity to consume) YD is disposable income, I is investment, G is government spending on goods and services, T is the total value of taxes net of transfers (the 0.3 term represents the net tax rate on national income), X is exports, and IM is imports (the 0.36 term represents the marginal propensity to import).
(c) Suppose that (due to the decrease in world oil prices) Canadian exports decrease by 100 from 650 to 550. What is the new level of GDP? Illustrate in your diagram. What is the effect on the government’s budget balance? What happens to net exports? Can you explain why the change in net exports less than the decrease in exports?

Consider the following aggregate expenditure model of the Canadian economy operating with given wages and other factor prices, price level, interest rates, exchange rates, and expectations:
C = 50 + 0.8YD I = 400 G = 500 T = 0.3Y X = 650 IM = 0.36Y
where C is consumption (the 0.8 term represents the marginal propensity to consume) YD is disposable income, I is investment, G is government spending on goods and services, T is the total value of taxes net of transfers (the 0.3 term represents the net tax rate on national income), X is exports, and IM is imports (the 0.36 term represents the marginal propensity to import).
(b) Calculatethelevelofdisposableincome,consumption,privatesaving,governmentbudgetbalance, and net exports at the equilibrium. Express the components of aggregate expenditure (C, I, G, and NX) as percentages of GDP (to one decimal place).

Consider the following aggregate expenditure model of the Canadian economy operating with given wages and other factor prices, price level, interest rates, exchange rates, and expectations:
C = 50 + 0.8YD I = 400 G = 500 T = 0.3Y X = 650 IM = 0.36Y
where C is consumption (the 0.8 term represents the marginal propensity to consume) YD is disposable income, I is investment, G is government spending on goods and services, T is the total value of taxes net of transfers (the 0.3 term represents the net tax rate on national income), X is exports, and IM is imports (the 0.36 term represents the marginal propensity to import).
(a) Solve for aggregate expenditures (AE) as a function of Y, and calculate the equilibrium level of national income. Illustrate your equilibrium in a diagram with AE on the vertical and Y on the horizontal axis. What is the value of the multiplier?

Suppose the data below represents the entire production of an economy, where the table shows the
production of goods and their prices for 2012 and 2013:
(a) Calculate nominal GDP for each year. Calculate the percentage growth rate of nominal GDP.
(b) Calculate real GDP for each year using 2012 as the base year. Calculate its growth rate.
(c) Calculate the GDP deflator for each year and its inflation rater. Briefly explain the relationship between the inflation rate and the growth rates of nominal and real GDP.
Please HELP! I am struggling with this!!

Good 1 Good 2
2012 {quantity, price/unit} {400, $1.00} {200, $2.00}
2013 {quantity, price/unit} {420, $0.90} {215, $2.20}

The short run aggregate supply curve is upward sloping.
Explain in detail: True False or Uncertain