GDP = Connsumption + Investments + Government Spending + Exports - Imports

Transcription

1 Name: Erik Ishimatsu Section: E-Portfolio Signature Assignment Salt Lake Community College Macroeconomics - Econ 2020 Professor: Heather A Schumacker Please type your answers to the following questions. If you need to hand draw the graphs on page 3 you may and then scan them as a separate document. When you have completed this assignment post it to your e-portfolio along with your chosen article and 20 terms article write up. (20pts) Make sure to put an explanation of the assignments and a reflection statement on your eportfolio web site. For examples of reflection prompts please see SLCC s website: (10 pts) Link your eportfolio URL to your MyPage under the student tab so that instructors can view your work. (5pts) 1. What are the 3 main macroeconomic goals economists would like to see for an economy: (3pts) 1. Economic Growth 2. Low Unemployment 3. Low Inflation 2. What is the formula for GDP (write out the full name)? Circle or highlight the largest component and fill in the chart. Under each put the components and something unique. (19pts) GDP = Connsumption + Investments + Government Spending + Exports - Imports Components: Components: Components: Components: Circle the largest sub-category 1. Durable 1. Business Fixed 1. Federal 1. Exports 2. Non-Durable 2. Construction 2. State 2. Imports 3. Services 3. Inventory Investment Good Excludes: 1. Transfer of ownership of paper assets: Stocks and Excludes: 1. Transfer Payments 2. Interest paid on gov. debt bonds or real assets 3. What is the problem associated with being at AD 2 that makes policy makers concerned? (1pt) High Levels of Inflation Q1 Q Full Employment Q2 REAL OUTPUT (quantity per year)

2 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. (22pts) Who does fiscal policy: Federal Government 1. Government Raises Taxes_ A contractionary Policy is to raise taxes, when they do this the populous is less likely to spend as much and AD will move along the line until equilibrium is reached. 2. _Decrease Government Spending The Government simply starts spending less money and that will decrease the amount of money in circulation causing a contractionary policy to take place and AD will again reach equilibrium. Who does monetary policy: Federal Reserve 1. _Raise the Reserve Requirment Banks have to hold onto more of their deposits, this takes money out of the system and it just sits in the banks. This is a contractionary policy and will take the AD back to Equilibrium. 2. _Raise Interest Rates When the interest rate is incressed, less people will take out loans and the economy will contract. 3. Sell Bonds Selling government bonds is the easiest and fastest way to implement a contractionary policy for the economy. When the Government sells bonds, money leaves the populous s hands and is put in the government reserve. Less amounts of money is spent by consumers.

3 5. 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 both graphs. 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 i 2 PL 1 PL i 1 Money Demand (MD) $$$ Amount PL 2 Eq* Real GDP Eq AD < AS AD 2 AD Steps: 1. Anti-Inflationary Policy is put into place by raising interest rate 2. Higher interest rate causes AD to shift in and down to AD 2 because less people want to borrow at higher interest rate 3. A raise in the interest rate leads to a decrease in the money supply 4. At the original price level AD < AS 5. PL Decreases, Real GDP Decreases and the economy experiences a contraction 6. New Equilibrium is reached where AD 2 = AS at desired GDP 6. Given the situation our economy has been in the past several years why have fiscal and monetary policy had a difficult time getting us back to the optimal level of GDP. (5pts) See Powerpoint

4 7. FRED: Follow the instructions for this assignment on PDF handout. Before you start, make sure to log in to your free account so that you can save your graphs! FRED unemployment graph: Watch the video Introduction to FRED and complete your own unemployment graph. Instead of using St. Louis use Salt Lake City. Have the graph span the last 10 years. Write about what inferences you can make from this graph. Save and paste the graph here: (5pts for the graph and 5 pts for write-up) From this graph it is easy to see the correlation between the 2008 recession and unemployment. They grey area shows that recession, and that is when the unemployment spiked. It has gradually come down from where it was since then, and the unemployment levels today are almost back to where they were before the recession hit. The other thing that you can see from this graph is that, compared to the rest of the country, Utah s unemployment rate was significantly lower. Although it did follow the same pattern, the percentage was just much lower. For example: in April 2010, when it looked like unemployment was at or near its peak, the unemployment rate in the USA was 9.9% while in Salt Lake City it was 7.8%. Then in Jan 2013, USA was at 8.0% and Salt Lake was at 4.9%. It would also appear that Salt Lake City recovered faster than the country.

5 8. List the 3 types of Unemployment, define each, and put a star next to those that are included in the natural rate of unemployment. (8pts) 1. _Frictional Unemployment Between Jobs. Short term unemployment that is associated with match workers and jobs. Workers who have quit, been fired, laid, off, or just entered the labor force. Have skills and either live in areas where jobs exist or are able to move to areas where they do 2. Structural Unemployment Due to changes in the structure of demand for labor. Lack of skills, language barriers, or discrimination. Economic changes create long-term mismatch between the skills some workers have and the available jobs 3. _Cyclical Unemployment Cause by the extra unemployment that occurs during the recession phace of the business cycle Associated with significance declines in real GDP Very costly economically What is the difference between nominal and real, why is each important? (4pts) Nominal includes inflation while Real does not. Nominal is important to know how much money is getting passed around. Real is important because it truly reflects how much the actual GDP has changed. 9. FRED Create a GDP graph following the instructions on the handout: Based on the graph, what is the Real Personal Consumption Expenditures for the second quarter of 2008? $10, Based on the graph, what is the Real Government Consumption Expenditures and Gross Investment amount for the second quarter of 2008? $ Based on the graph, what is the Real Gross Private Domestic Investment amount for the second quarter of 2008? $ Based on the graph, what is the real net exports of goods and services amount for the second quarter of 2008? (4pts) -$550.4

6 10. Write about what inferences you can make from this graph. Save and paste the area graph here: (5pts for the graph and 5 pts for write-up) From this graph about expenditures, you can clearly see which expenditures have increased over the last 70 years. From this graph, the largest part of the expenditure model is Real Personal Consumption Expenditures, and the one that is fastest growing. Real Government Consumption Expenditures and Gross Investment has increased very slowly overtime, same with Real Gross Private Domestic Investment. Real Net Exports has gone down and has gone into the negative. Which means that we are importing more than we are exporting, which makes sense because almost all of our goods these days are made in China made in Taiwan etc As the population increases and as they spend more money, GDP will rise.

7 11. Change the graph type to a pie graph: Put the curser over the pie graph: What is the value of the current Real Personal Consumption Expenditures $11,330.7 in billions of chained 2009 dollars and what % of GDP is it 66% What is the value of the current Real Government Consumption Expenditures and Gross Investment $2,870.6 in billions of chained 2009 dollars and what % of GDP is it 17% What is the value of the current Real Gross Private Domestic Investment Expenditures chained 2009 dollars and what % of GDP is it 17% (6pts) Paste the pie graph here: (3 pts) $ in billions of 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 for new deposits). Use formulas and cell references whenever possible. 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. Fixing a cell reference is done by putting dollar signs in front of the cell row and column references ex. $B$3 this will mean that no matter where you copy that cell to it will always refer to cell B3. For scenario 2, change the reserve requirement to 40%. (20)