Macro economics

timer Asked: Apr 18th, 2017

Question description

Directions: Answer ALL the sections below

You are expected to use your knowledge of Module 2 to answer these questions. You are NOT required to do research i.e hunt down data or statistics to answer any of these questions. In fact, I really don’t want any statistics or data I want you to use the economic definitions and concepts from Module 2 & 3 to explain your answers. This project is intended to help you examine concepts you have studied in the textbook and videos, and apply these concepts to potential situations. Your graphs should be correctly labeled and support your answers. A correctly labeled graph or diagram must have all axes and curves clearly labeled and must show directional changes.

Assume that the United States economy is operating below full employment.

  • a)Define full employment – hint this is what economist call the natural rate of unemployment
  • b)Explain why we expect to have some degree of unemployment regardless of how well the economy is doing
  • c)Draw a correctly labeled graph of long-run aggregate supply, short-run aggregate supply, and aggregate demand, AND show each of the following when the economy is below full employment
    • i.Current equilibrium output and price level, labeled as Y1 and PL1
    • ii.Full employment output, labeled as Yf
  • d)Assume that the Federal Reserve targets a new federal funds rate to reach full employment. Should the Federal Reserve target a higher or lower federal funds rate
  • e)Given the Federal Reserve action you identified in part (b), draw a separate correctly labeled graph of the money market and what the effect on the nominal interest rate
  • f)Assume that policy makers pursue a fiscal policy rather than a monetary policy in (B). Assume that the marginal propensity to consume is 0.6, and the value of the recessionary gap is $400 billion.
    • i.If the government changes its spending without changing taxes to eliminate the recessionary gap, calculate the minimum required change in government spending.
    • ii.If the government changes taxes without changing government spending to eliminate the recessionary gap, will the required change in taxes be greater than, smaller than, or equal to the minimum change in government spending in part (Fi)? Explain your answer.
  • g)Assume the government lowers income tax rates to eliminate the recessionary gap. Will each of the following increase, decrease, or stay the same. Explain your answers.
    • i.Aggregate Demand
    • ii.Long-run Aggregate Supply.

Studypool has helped 1,244,100 students
flag Report DMCA
Similar Questions
Hot Questions
Related Tags

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors