E-Portfolio Signature Assignment Salt Lake Community College Macroeconomics - Econ 2020 Professor: Heather A Schumacker

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1 Name: Whitney Smith (80 points total) E-Portfolio Signature Assignment Salt Lake Community College Macroeconomics - Econ 2020 Professor: Heather A Schumacker Section: ECON Please type your answers to the following questions. If you need to hand draw the graphs and then scan them in you may. When you have completed this assignment post it to your e-portfolio. Make sure to put your reflection statement on your web site. (4pts) 1. What is the formula for PAE (write out the full name)? Circle the largest component and fill in the chart. Under each put the components and something unique. (19pts) PAE = Consumption (C) + Investments (I) + Government (G) + Net Exports (X-M) Components: Components: Components: Components: Circle the largest category 1. Durable Goods 1. Business Fixed Investments 1. Final Goods 1. Imports 2. Nondurable Goods 2. Construction/Residential 2. Services 2. Exports Investments 3. Services 3. Inventory Investments Excludes: 1.Transfer of ownership (of both paper and real assets) Excludes: 1. Transfer payments 2. Interest paid on government debt 2. Given the following information, what is the short-run equilibrium output (show your work) 1305 What is the autonomous expenditure 1305 What is the induced expenditure 0.5Y Where would it cross the Y axis 1305 What is the slope of PAE 0.5 What is the multiplier 2 If there is a 10 unit increase in PAE what will happen to the short run equilibrium (increase or decrease) Increase And by how much 20 and will it lead to a recessionary gap or an expansionary gap Expansionary Gap (9pts) C a = 890 MPC = 0.5 I P = 220 G = 300 X-M = 20 T = 250 FORMULAS: PAE = C+I+G+(X-M) & C= Ca +MPC(Y-T) & Multiplier =1/(1-MPC) PAE = (Y-250) PAE = Y PAE = Y Multiplier = 1(1-0.5) = 2

2 3. What is the problem associated with being at AD 2 that makes policy makers concerned? (1pt) Inflation (Too much AD) Creates uncertainty for the future. 4. Who does fiscal and monetary policy? What are 2 fiscal policies and 3 monetary policies to correct a situation where the economy is naturally at AD * but finds itself at AD 2, as seen in the graph on the previous page. Briefly explain how each of these policies would work to correct the situation. (12pts) Who does fiscal policy: Federal Government 1. Budget Cut 2. Raise Taxes Who does monetary policy: Federal Reserve 1. Reserve Requirement A change in excess reserves A change in the money multiplier 2. Discount Rate Federal Funds Rate Market Reduce the reserves 3. Open Market Operations Open Market Sale - The sale by the Fed of government bonds to the public for the purpose of reducing bank reserves and the money supply 5. Use the excel sheets provided to complete this problem. Scenario 1: If the initial deposit into a bank is $5,000 and the reserve requirement is 10% use formulas to fill in the chart all the way to completion (where there will be 0 new deposits). Fix the cell references for the reserve requirement when entering your formulas on the first line such that you can drag your information down the rows. For scenario 2, change the reserve requirement to 40%. (10 pts) See Excel Spreadsheet

3 6. Create a third page of the excel spreadsheet and label it GDP. Enter in the data given below for 2010 U.S. expenditure numbers and then create a pie chart with percentages. (Under insert then click pie. When the graph comes up click Chart Tools, Design, Quick Layout and select a pie chart with percentages. Create your own personal color selections for each piece of the pie and put a background color on the percentages.) Make sure to title your chart: GDP 2012 U.S. (5pts) See Excel Spreadsheet Consumption Expenditures Investment Expenditures Government Expenditures Net Exports Begin in equilibrium in each of the following graphs; draw the effects from question 2 above as they would apply in each graph below. Next draw the effects of an anti-inflationary policy taken by the fed to correct the result from question 2 - use all three graphs (Money Supply and Money Demand, AD/AS, and PAE). Explain what is happening in each graph and overall in the economy as the due to the anti-inflationary policy. (20 pts) Money Supply and Money Demand Graph Nominal Interest Rate Money Supply Curve (MS) Aggregate Demand and Aggregate Supply AS i PL Money Demand (MD) AD Real GDP PAE PAE PAE = Y 45 Y

4 Scenario 1: Initial Deposit $ 5, Reserve requirement = 10% Money Multiplier 10 Bank number New Deposits Required Reserves Excess Reserves 1 $ 5, $ $ 4, $ 4, $ $ 4, $ 4, $ $ 3, $ 3, $ $ 3, $ 3, $ $ 2, $ 2, $ $ 2, $ 2, $ $ 2, $ 2, $ $ 2, $ 2, $ $ 1, $ 1, $ $ 1, $ 1, $ $ 1, $ 1, $ $ 1, $ 1, $ $ 1, $ 1, $ $ 1, $ 1, $ $ 1, $ 1, $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 9.12 $ $ $ 8.21 $ $ $ 7.39 $ $ $ 6.65 $ $ $ 5.99 $ $ $ 5.39 $ $ $ 4.85 $ $ $ 4.36 $ $ $ 3.93 $ $ $ 3.53 $ $ $ 3.18 $ $ $ 2.86 $ $ $ 2.58 $ $ $ 2.32 $ $ $ 2.09 $ $ $ 1.88 $ $ $ 1.69 $ $ $ 1.52 $ $ $ 1.37 $ $ $ 1.23 $ $ $ 1.11 $ $ 9.98 $ 1.00 $ $ 8.99 $ 0.90 $ $ 8.09 $ 0.81 $ $ 7.28 $ 0.73 $ $ 6.55 $ 0.66 $ $ 5.90 $ 0.59 $ $ 5.31 $ 0.53 $ $ 4.78 $ 0.48 $ $ 4.30 $ 0.43 $ $ 3.87 $ 0.39 $ $ 3.48 $ 0.35 $ $ 3.13 $ 0.31 $ $ 2.82 $ 0.28 $ $ 2.54 $ 0.25 $ $ 2.28 $ 0.23 $ $ 2.06 $ 0.21 $ $ 1.85 $ 0.18 $ $ 1.66 $ 0.17 $ $ 1.50 $ 0.15 $ $ 1.35 $ 0.13 $ $ 1.21 $ 0.12 $ $ 1.09 $ 0.11 $ $ 0.98 $ 0.10 $ $ 0.88 $ 0.09 $ $ 0.80 $ 0.08 $ $ 0.72 $ 0.07 $ $ 0.65 $ 0.06 $ $ 0.58 $ 0.06 $ $ 0.52 $ 0.05 $ 0.47

5 89 $ 0.47 $ 0.05 $ $ 0.42 $ 0.04 $ $ 0.38 $ 0.04 $ $ 0.34 $ 0.03 $ $ 0.31 $ 0.03 $ $ 0.28 $ 0.03 $ $ 0.25 $ 0.02 $ $ 0.22 $ 0.02 $ $ 0.20 $ 0.02 $ $ 0.18 $ 0.02 $ $ 0.16 $ 0.02 $ $ 0.15 $ 0.01 $ $ 0.13 $ 0.01 $ $ 0.12 $ 0.01 $ $ 0.11 $ 0.01 $ $ 0.10 $ 0.01 $ $ 0.09 $ 0.01 $ $ 0.08 $ 0.01 $ $ 0.07 $ 0.01 $ $ 0.06 $ 0.01 $ $ 0.06 $ 0.01 $ $ 0.05 $ 0.01 $ $ 0.05 $ 0.00 $ $ 0.04 $ 0.00 $ $ 0.04 $ 0.00 $ $ 0.03 $ 0.00 $ $ 0.03 $ 0.00 $ 0.03

6 Scenario 2: Initial Deposit $ 5, Reserve requirement = 40% Money Multiplier 2.5 Bank number New Deposits Required Reserves Excess Reserves 1 $ 5, $ 2, $ 3, $ 3, $ 1, $ 1, $ 1, $ $ 1, $ 1, $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 7.26 $ $ $ 4.35 $ $ 6.53 $ 2.61 $ $ 3.92 $ 1.57 $ $ 2.35 $ 0.94 $ $ 1.41 $ 0.56 $ $ 0.85 $ 0.34 $ $ 0.51 $ 0.20 $ $ 0.30 $ 0.12 $ $ 0.18 $ 0.07 $ $ 0.11 $ 0.04 $ $ 0.07 $ 0.03 $ $ 0.04 $ 0.02 $ $ 0.02 $ 0.01 $ $ 0.01 $ 0.01 $ $ 0.01 $ 0.00 $ $ 0.01 $ 0.00 $ $ 0.00 $ 0.00 $ 0.00

7 Consumption Expenditures Investment Expenditures Government Expenditures Net Exports GDP 2012 U.S. Consumption Expenditures Investment Expenditures Government Expenditures Net Exports -3% 19% 11% 67%