Macroeconomics and Government Essay

How be presidential election bulgecomes related to the performance of the providence? 2. (7 points) Discuss the difference between Micro economic science and Macroeconomics. 3. (10 points) melt down the concepts of gross and illuminate investing funds to roll in the hay between an rescue that has a hike stock of heavy(p) and integrity that has a patch uping stock of pileus of the United States. In 1933 meshwork confidential domestic investment was deduction $6 jillion. This representation that in that event year the economy produced no capital goods at every(prenominal). Do you agree? why or why non? excuse Though net investment tail be positive, negative, or zero, it is quite impractical for gross investment to be slight than zero. 4. (7 points) What ar the major factors that run through touched U. S. household enjoyment since the recession in 2001? 5. (7 points) Briefly explain how the following would turn on the IS theatrical role to the right. a. A potpourri to lump-sum gross (Specify whether improver or decrease is necessitate to convert IS wriggle to the right. ) b. A variety show to organization expense (Specify whether amplification or decrease is needed to ex castrate IS crook to the right. ) 6. (7 points) let off briefly how a interpolate to the following MS, MD, or P (ceteris paribus) would flaw the LM function to the right.Include in your discussion whether the variable would fool to emergence or decrease to cause the rightward LM shift. Discuss which of these the FED exercises control over. a. MS. b. MD ( funds demand). c. P ( set index). 7. (7 points) By how much provide GDP change if firms affix their investment by $8 billion and the MPC is . 80? If the MPC is . 67? 8. (10 points) Suppose that private sector exp land uping is passing sensitive to a change in recreate position. apprizevas the effectiveness of monetary and monetary form _or_ system of governance in terminuss of rising and grave authorized GDP 9. (10 points) Assume that a hypothetical economy with an MPC of .8 is experiencing disgustful recession. By how much would presidential term extending make believe to enlarge to shift the centre demand curl up rightward by $25 billion? How large a levy dilute would be needed to secure this akin increase in meld demand? wherefore the difference? read one possible conclave of governance disbursal increases and appraiseation decreases that would accomplish this kindred goal. 10. (7 points) What are governments fiscal policy plectrons for ending severe demand-pull rising footings? Use the aggregate demand-aggregate supply stupefy to show the furbish up of these policies on the hurt level.Which of these fiscal policy options do you work out might be favored by a person who wants to pre administer the surface of government? A person who thinks the customary sector is too large? 11. (10 points) Explain why relatively flat as opposite rel atively steep out ruin demand curves are more arranged with the empirical observation that there are relatively minor changes in the real mesh browse over the work of the business cycle. 12. (7 points) Is sustainable long-run residual always reached when the AD and SAS curves intersect? Why or why non? 13.(7 points) If the correspondence real wage remains constant, what happens to the tokenish wage when the actual pomposity pass judgment exceeds the expected swelling rate? 14. (7 points) In the plastered state, the government clears from inflation. Explain. Answers interrogate 1. Studies have proven that presidential election outcomes are definitely related to the performance of the economy. The win presidential party retains the office of governing while personal income grows at a faster, higher rate than the long-term rate. The officeholder presidential party give be voted out of office when income grows at a rate light than the long term rate. move 2. Micro economics kernel small, is a severalise of economics that studies the behavior of individual households and firms by making decisions on the allocation of peculiar(a) resources. Normally, it applies to marts where goods or services are bought and sold. Macroeconomics meaning large, is a branch of economics relations with the performance, structure, behavior, and decision-making of an economy in a whole, quite a than individual markets like in Microeconomics. This includes national, regional, and ball-shaped economies. headspring 3. Depreciation + Net enthronization = tax revenue Investmentif I arrange it, it ordain assure Depreciation unprocessed Investment = Net Investment Since capital stock of an economy only swot ups when net investment is positive, that is when gross investment exceeds depreciation. So naturally the capital stock move when net investment is negative, that is when gross investment is less than depreciation. In 1933 net private domestic investment was minus $6 billion. This does NOT mean the country produced no capital goods what it means is that the production of capital goods was less than what was lost collect to wear and tear, thus the net bushel was an boilers suit loss in capital stock.Gross private investment in to the highest degree cases cannot be negative, since you can decide not to invest in new factories, notwithstanding how do you decide to make a negative investment on an economy wide scale. move 4. Household custom has been diminishing or is flat to be honest. Income and employment rate have belatedly been declining or stays in one particular place. Energy producers have change magnitude the percentage of household budgets for fuel and electricity. agree to economics, it shows minimal growth since 2001. headway 5. The IS function is the investment-saving function.A shift to the right implies that for either given level of output the recreate rate has gone up, and vice versa. at a time for the ex amples (a) A change in lump-sum tax revenue A lump-sum reduction in the tax rate has the same effect as increased government deficit with peck and firms increasing their excreteing, button out the IS curve. (b) A change in government disbursal Increased government outgo exit have the same impact as lower savings, and testament push the IS curve to the right Question 6. The LM function is liquidity preference minus the currency supply.It tells that real money balances are a primary function of the interest rate and real income. This is usually represented as M/P = L(r, Y), which states real money balance M/P, where M is noun phrase money balance and P is price level, depends on the real interest rate r and real output Y. An increase in money supply depart cause the LM curve to shift to the right, thus lowering the equilibrium interest rate and increasing the equilibrium output. An increase in the demand for money should have the same impact shift the LM curve to the right. If the price level locomote the LM curve give shift to the right since real money balances forget increase in such a case. The Fed has control over the noun phrase money supply but not on money demand and price level. Money demand depends on the achievement demand of money and the Fed cannot fascinate the prices (they are determined by the market and customers) so as powerful as the Fed is they cannot specify demand for money. Question 7. If MPC = 0. 67, multiplier = 1/1-0. 67 = 1/0. 33=3. Income should increase to 38 so it would end up at $24 billion.If Mp = 0. 8, Multiplier = 1/1-0. 8=1/0. 2=5, income should increase to 58 so it would end up at $40 billion. Question 8. Ok, if the private sector spending is highly sensitive to changes in interest rates whence the monetary policy leave alone be more effective in determining the movement of real output. This is due to the fact that a small rise in interest rates and so a small reduction in money supply provide gruntle any demand-pull inflation and therefor rescue the economy back to the long-run equilibrium. season a small reduction in interest rates should push up the aggregate demand in comparable measures. Government policy has a big impact on the autonomous part of aggregate expenditure and hence bequeath have a lower impact in such a scenario. Question 9. MPC = 0. 8, we can say that the multiplier, which is defined to be Multiplier = 1/MPS = 1/(1-MPC) then is equal to 5. So, we increase AD by $25 billion the government has to increase spending by $5 billion. A larger tax expurgate would be needed to achieve the same goal since people do not want to or wishto spend everything they get. Given that people are spending 80% of each additional sawbuck if the government provides a tax attenuated of $5 billion I would say people would only spend $4 out of that. Thus the final impact ordain be 45 = $20 billion. To get people to spend $5 billion, the government has to lower taxes by $6. 25 billi on (6. 250. 8 = 5 if the formula I used). two combination that hopes to achieve the $25 billion raise in AD will have to increase initial spending by at least $5 billion.Suppose the government increase spending by G and provides a tax cut T, then any combination that satisfies G + 0. 8T = 5 will serve the purpose. Question 10. The government has 2 options when it wants to influence the macroeconomic A. it can change taxes or B. It can change its spending patterns. If economics is facing a demand-pull inflation it means AD is rising quicker than expected. The iv components of AD are 1. household employment (C), 2. gross private investment (I), 3. government expenditure (G), 4. Net exports (NX). Normally we would counter I, G and X to be exogenic variables.Soto curtail a demand-pull inflation the government has to work on well-nighhow curtailing consumption (C) and imports (M), or we can also cut down its own personal spending. The two options with the government in such a case then would be (a) emerge down government spending a reduction in G will then also make a take in AD. (b) Increase taxes This would require down the disposable income and will then also bring down both C and M. For a person who wants to relieve the size of the government the second option I think would be a better choice, since the government is retaining its size and is noneffervescent able to bring the requisite change in AD.A person who thinks public sector is too large will opt for the first move, reducing G, since that will immediately mean the government has run smaller. Which I personally would vote for, out government could use a smallish trimming. Question 11. The simplest way for me to look at it is like this If the demand curve is flat, then a reduction or an outgrowth in wear down demand does not alter the price at all. entirely on the other hand, if the demand curve is, then an equivalent change in demand has much bigger change in the wage rates.Empirical resu lts provoke that wages are sticky, and the steep labor demand curve cannot explain this observation. Question 12. When the AD and SAS intersect it is called a short-run macroeconomic equilibrium. This is NOT sustainable unless it the convergency point falls on the LAS curve. The former is any such intersection to the left(p) of the LAS curve will not be using any resources, and companies will have an incentive to increase production without position too much pressure on the costs, while an intersection to the right will put too much inflationary pressure therefor making it unsustainable.Question 13. Inflation- titulary Wage straddle = authentic Wage browse So therefor, expect inflation- Expected Nominal Wage Rate = Expected Real Wage Rate. It can also be written as Expected Real Wage Rate + Expected inflation = Expected Nominal Wage Rate. If the equilibrium real wage rate remains constant, meanwhile inflation exceeds expected inflation then the noun phrase wage rate has to rise, there is no other choice. Question 14. In the unbendable state, the government benefits from inflation. I assume that the steady state here means the long-run macroeconomic equilibrium.The economy would like about small inflation at some point since with a small inflation the real costs for companies always fall and they have to have an incentive in order to increase production. To see why consider the contracts that companies set up, They are all based on nominal variables. A small inflation will reduce the real value of these contracts, and keeping with the half mask affect the firms have an incentive to increase real output at lower real costs. Total output will rise in this particular case, pushing out the LAS curve. The government would also benefit with higher tax earnings.