Download Course Student Name

Course
Course Number
University or College
Professor’s Name
Macro3 Module Assignment #1 (
Student Name: ____________________________
Section: __________________________________
points)
Please limit your answers to the spaces provided. If necessary, write on the back of the page.
Do not attach printout or additional pages. All questions pertain to the Macro3 module in the
SimEcon® software package.
Make sure that you have read the “Macro3 Manual” and “SimEcon® Operation
Instructions.” These materials may be found at the Class Web site prior to beginning the
assignment. For many of the assignment’s questions, it will be necessary to refer to those
instructions. For many of the assignment’s questions, it will be necessary to refer to your text.
Open the Macro3 module. You will see a table entitled, “State of the Macroeconomy.” Select
the button entitled “Inflation” and click “Continue.” You will see a table entitled “Initial State of
the Economy.” Print out or copy this page for reference. Click “Continue.” In order to combat
inflation and with no other policy goals, the government should ____________ (increase,
decrease, leave unchanged) government spending, ____________ (increase, decrease, leave
unchanged) taxes and ____________ (increase, decrease, leave unchanged) the money supply.
First set government spending equal to $820 and leave all other policies unchanged. Click “No
Shock.” As a result of this increase in government spending, the inflation rate ____________
(increased, decreased, remained unchanged). State the actual new inflation rate here: ____.
Given that the stated policy goal was to combat inflation, was this a wise policy? ___ (Yes,
No). Did this policy have a big effect on real GDP? ________________________
.
If the government spending multiplier was 1/(1-Marginal Propensity to Spend) what would the
multiplier analysis predict for the effect of government spending on real GDP? ____________
______________________________________________________________________________
______________________________________________________________________________
____________. Why was the prediction of the multiplier analysis so different from the actual
result? ____________________________________________________________________ __
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
_____________________________________________________________________________
Click “New Policy” and continue to reset the choices. Keep government spending at its original
level of $800 and change taxes to $780. Do not change the money supply. Click “No Shock.”
Compared to the original state of the economy, inflation has ___________ (increased, decreased,
remain unchanged). State the actual new inflation rate here: _____ Note that the absolute
value of the change in taxes was equal to the absolute value of the change in government
spending in the last example. Were the respective changes in inflation equal to each other? ___
(Yes, No). Why or why not? (Hint: consider the respective multipliers.) __________
__
Course
Macro3 Module Exercise #1
Page 2
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
__________________________________. What is the ratio of the usual spending multiplier to
the usual tax multiplier? ____________ . What is the ratio of the impact of government
spending on GDP in this module to the impact of taxes? ____________ . Explain why the two
ratios are related in this way________________________________________________
________________________________________________________________________.
Click “New Policy,” keep government spending and taxes at their original levels of $800 and
increase the money supply to 74. Click “No Shock.” Compared to the original state of the
economy, inflation has ____________ (increased, decreased, remained the same). State the
actual new inflation rate here: _____
How did this policy affect aggregate demand and what caused this change in inflation? Explain
your answer in terms of aggregate demand and supply and distinguish between the short and
long run. ____________________________________________________________ _____ ___
______________________________________________________________________________
______________________________________________________________________________
________________.
Click “Back” twice and you will again see the “State of the Macroeconomy.” Select
“Recession” and click “Continue.” You will see the “Initial State of the Economy.” Print out or
copy this table for future reference. What is the initial unemployment rate? _____ Click
“Continue.” In order to combat a recession and with no other policy goals, the government
should ____________ (increase, decrease, leave unchanged) government spending,
____________ (increase, decrease, leave unchanged) taxes and ____________ (increase,
decrease, leave unchanged) the money supply.
Set government spending to $525 and leave all other policies unchanged. Click “No Shock.” As
a result of this decrease in government spending, the unemployment rate ____________
(increased, decreased, remained unchanged). State the actual unemployment rate here: _____
Given that the stated policy goal was to combat the recession, was this a wise policy? ___ (Yes,
No).
Click on “New Policy” to reset your choices. Set taxes equal to $765 and click “No Shock.” As
a result of the decrease in taxes, what has happened to the unemployment rate? _________
_______________. State the actual unemployment rate here: _____ Given that the stated
policy goal was to combat the recession, was this a wise policy? ___ (Yes, No). Click “No
Shock Long Run.” What is the long run unemployment rate? ___
Some economists consider a 5% unemployment rate to be the “natural” rate of unemployment in
the United States. What is meant by the “natural” rate of unemployment? __________
__
Course
Macro3 Module Exercise #1
Page 3
______________________________________________________________________________
________________________________________. Should society be satisfied with the long run
unemployment rate indicated above? ___ (Yes, No). Why or why not? ____________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
__________________
Click “See Graph” and draw this graph of the long run situation on the next page.
Is this economy close to full employment? ___ (Yes, No). Using the graph above, what are your
reasons for your answer? ________________________________________________ ____
______________________________________________________________________________
__________________________
Click “New Policy” and this time increase government spending to $1050, decrease taxes to 765,
and increase the money supply to $72. Will these changes have an expansionary effect on the
economy or a contractionary effect? ________________________. Click “No Shock.” What
has happened to the unemployment rate? ____________ . What is the new unemployment
rate? ____ What has happened to the inflation rate? ____________ . What is the new inflation
rate? ______
Which groups would be more inclined to support these policies in the last example, people on
“fixed incomes,” the wealthy, or unskilled low-wage workers and homeless people? _______
_____ ______________________________________________. What are your reasons for your
answer? _________________________________ ____________________ ___________ ____
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Course
Macro 3 Module Assignment #1
Page 4
What is the Phillips Curve, and what does the concept of a Phillips Curve say about these
results? ____________________________________________________________ _________
______________________________________________________________________________
______________________________________________________________________________
________________. Click “No Shock-Long Run.” What is the long run rate of unemployment?
___ Does this represent the full employment level of output? ___ (Yes, No). Why is the long
run unemployment rate for this example the same as the long run unemployment rate in the last
example? ____________________________________________________________ ______ _
________________________________________________________.
Click “Back” twice and this time go back to “Inflation” as the current state of the
macroeconomy. When you get to the table entitled, “Initial State of the Economy” click
“Continue.” Decrease government spending to $780, increase taxes to $805 and decrease the
money supply to $71. Is the government now experiencing a budget deficit, a budget surplus or
a balanced budget? ____________. What will be the combined effect of these policies on the
economy? _______ _____ (contractionary effect, expansionary effect, no effect). Will these
policies work in tandem, or will they contradict each other? ________________________.
Click “No Shock.” What has happened to the inflation rate as a result of these policies?
___________
_. What has happened to unemployment as a result of these policies?
___________
_. If the stated goal was to reduce inflation while eliminating all
unemployment, do you think that this government has totally and completely succeeded in its
goals? No (Yes, No). Why or why not? ___________________ __________ ______ __
______________________________________________________________________________
________________
______________________. Is this stated goal realistic? ___ (Yes, No).
If you considered 5% unemployment to the inevitable equilibrium “natural” rate of
unemployment, how would your answers change? _____________________ ___________ _
______________________________________________________________________________
________________________________
Click “Back” twice this time choose “Recession” as the current state of the macroeconomy.
Increase government spending to $570, increase taxes to $950, and increase the money supply to
$72. Assuming that the stated policy goal is to combat the recession and nothing else, are these
policies working in tandem or are they contradicting each other? ____________ _______ _ _ _
_ _. What are your reasons for your answer? ____________________________________
______________________________________________________________________________
______________________________________________________________________________
____________. Given the stated policy goal, before going further, do you think that these
policies taken together are the wisest choice possible? ___ (Yes, No).
Now click “No Shock.” What has happened to the unemployment rate as a result of these
policies? ________________________. What has happened to the inflation rate as a result of
Course
Macro 3 Module Assignment #1
Page 5
these policies? ________________________. Given a new overall policy goal of ending the
recession and controlling inflation, and given the relative magnitude of the indicated changes, is
this set of policies successful in achieving the new stated goals? ___ (Yes, No). In the real
world, are there times when a government enacts policies that contradict each other? ____
(Yes, No). Why or why not? ________________________________________________
______________________________________________________________________________
__________________________________________________________________
. What
bearing would the concept of a Phillips Curve have on this discussion?
____________
________________________________________________________________________.