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The USD is rising quickly relative to the Indian rupee (INR). Will an Indian company that imports cars made in the United States find that car prices in INR will rise or fall? Explain.
3. In Country X, GDP is $400B below the full-employment level of output. Government officials have measured the marginal propensity to consume at 0.75.
b. Say that, for a variety of reasons, the government shows it is not up to the task of conducting fiscal policy. The central bank steps up and does something about it. If a 1% decrease in interest rates leads to an increase in investment of $50B, how should the central bank's interest rate targets change?
b. Say that, for a variety of reasons, the government shows it is not up to the task of conducting fiscal policy. The central bank steps up and does something about it. If a 1% decrease in interest rates leads to an increase in investment of $50B, how should the central bank's interest rate targets change?
3. In Country X, GDP is $400B below the full-employment level of output. Government officials have measured the marginal propensity to consume at 0.75.
a. The government wants to use fiscal policy to bring the economy back to full employment.
(i) If the government wants to achieve this through a change in spending, what change would be necessary?
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(ii) If the government wants to achieve this through a change in taxes, what change would be necessary?
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(iii) If the government wants to achieve this without creating a budget deficit, what change would be necessary?
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a. The government wants to use fiscal policy to bring the economy back to full employment.
(i) If the government wants to achieve this through a change in spending, what change would be necessary?
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(ii) If the government wants to achieve this through a change in taxes, what change would be necessary?
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(iii) If the government wants to achieve this without creating a budget deficit, what change would be necessary?
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2. The U.S. economy experienced large trade deficits in the 1980s and 1990s and tremendous economic growth in the mid- and late-1990s.
c. Many people believe trade deficits are a serious problem and need to be eliminated.
(i) Explain the three actions the Fed could take to reduce the trade deficit in the U.S., and explain carefully how these actions would result in a reduced trade deficit.
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(ii) What effect would these three actions from part I of the question have on GDP? Describe the effects on each of the components of aggregate demand. Include an AD/AS graphical analysis of your answer.
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c. Many people believe trade deficits are a serious problem and need to be eliminated.
(i) Explain the three actions the Fed could take to reduce the trade deficit in the U.S., and explain carefully how these actions would result in a reduced trade deficit.
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(ii) What effect would these three actions from part I of the question have on GDP? Describe the effects on each of the components of aggregate demand. Include an AD/AS graphical analysis of your answer.
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2. The U.S. economy experienced large trade deficits in the 1980s and 1990s and tremendous economic growth in the mid- and late-1990s.
b. Explain verbally the relationship between investment and long-term economic growth and describe the relationship graphically in an AD/AS graph.
b. Explain verbally the relationship between investment and long-term economic growth and describe the relationship graphically in an AD/AS graph.
2. The U.S. economy experienced large trade deficits in the 1980s and 1990s and tremendous economic growth in the mid- and late-1990s.
a. Trade deficits have an effect on inflation. Explain the relationship between trade deficits and investment verbally and mathematically using the concept of the balance of payments.
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a. Trade deficits have an effect on inflation. Explain the relationship between trade deficits and investment verbally and mathematically using the concept of the balance of payments.
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d. Consider the relationship between interest rates and inflation.
(i) Explain the difference between real and nominal interest rates.
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(ii) If the Fed takes actions that will change interest rates, how is this likely to affect inflation?
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(i) Explain the difference between real and nominal interest rates.
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(ii) If the Fed takes actions that will change interest rates, how is this likely to affect inflation?
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c. Explain the relationship between interest rates and unemployment. How do changes in the interest rate affect the level of unemployment in the economy?
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b. The Phillips curve relates inflation and unemployment.
(i) Using the AD/AS model, discuss the changes to the economy that the Phillips curve explains well, and describe under what conditions the Phillips curve fails to explain economic behavior. Include graphs of the Phillips curve and the AD/AS model in your answer.
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(ii) In the late 1990s, the U.S. economy experienced a period of extremely low inflation and extremely low unemployment. Use the AD/AS model to explain what sort of change in the economy would cause this. Include a graphical analysis in your answer, and provide two examples of what might bring about this event.
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(i) Using the AD/AS model, discuss the changes to the economy that the Phillips curve explains well, and describe under what conditions the Phillips curve fails to explain economic behavior. Include graphs of the Phillips curve and the AD/AS model in your answer.
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(ii) In the late 1990s, the U.S. economy experienced a period of extremely low inflation and extremely low unemployment. Use the AD/AS model to explain what sort of change in the economy would cause this. Include a graphical analysis in your answer, and provide two examples of what might bring about this event.
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1. Macroeconomics can be a difficult topic to define. For the most part, it can be defined by the specific topics with which it is concerned. Among these are output, inflation, unemployment, interest rates, and international trade. At first these topics may seem unrelated, but some thought shows that they are intimately related.
a. The AD/AS model describes changes in the economy by relating real GDP (output) and the price level.
(i) Compare and contrast the Keynesian portion of the AD/AS model with the classical portion of the AD/AS model, and explain how the level of production is determined in each situation. Use graphs to explain your answer.
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(ii) Compare and contrast changes in aggregate demand and changes in aggregate supply in the AD/AS model. Use graphs to explain your answer.
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a. The AD/AS model describes changes in the economy by relating real GDP (output) and the price level.
(i) Compare and contrast the Keynesian portion of the AD/AS model with the classical portion of the AD/AS model, and explain how the level of production is determined in each situation. Use graphs to explain your answer.
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(ii) Compare and contrast changes in aggregate demand and changes in aggregate supply in the AD/AS model. Use graphs to explain your answer.
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