Download Name: Ivan Bakubi Section: 2020 E

Name:
Ivan
Bakubi
Section: 2020
E-Portfolio – Signature Assignment
Salt Lake Community College
Macroeconomics - Econ 2020
Professor: Heather A Schumacker
Please type your answers to the following 5 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 = C + I +
G
+
(X-M)
Planned Aggregate Expenditure = Consumption + Investment + Government Spending + (Imports – Exports)
Components:
Circle the largest category
Components: Consumption
Components: Investment
Components: Government
Expenditure
Expenditure
expenditure
1.
1. Durable Goods
1. Business Fixed Investment
1. Federal Purchases
2.
2. Non Durables
2. Residential Investment
2. State Purchases
3.
3. Services
3. Inventory Investment
3. Local government purchases
Excludes:
Excludes:
Excludes: Transfer payments
1. Purchases of illegal goods
1. Stocks and Bonds
and services.
2. Real Estates
2.
Given the following information, what is the short-run equilibrium output (show your work) 2,610 What is the autonomous
expenditure 1305
what is the induced expenditure .5y where would it cross the Y axis 1305 what is the slope of PAE .5 y
what is the multiplier
decrease)
2
Increase
if there is a 10 unit increase in PAE what will happen to the short run equilibrium (increase or
and by how much 20 Units and will it lead to a recessionary gap or an expansionary gap Expansionary
Gap (9pts)
Ca = 890
MPC = 0.5
IP = 220
G = 300
X-M = 20
Ca + MPC + (Y- Ta – t(y) + I + G + (X-M)
what happens in the short run
890+0.5 (y-25-0 (y) + 220 + 300 + 20
Multiplier x 10 (2 x 10 = 20)
Y = 1305 + .5y
.5y
=
.5
Y=
.5
2,610
Multiplier:
2,610 = 2
1,305
1305
T = 25
3.
What is the problem associated with being at AD2 that makes policy makers concerned? (1pt)
It may lead to inflation which concerns the policy makers.
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 AD2, 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: A fiscal policy is a tool which is used by national governments to influence the direction of the
economy, generally with the goal of promoting economic health and growth
1.
Government spending and taxation (Expansionary fiscal policy):
When the government uses this policy, it will increase its spending and decrease its taxes. This will shift the
aggregate demand curve to the right which will increase real GDP and decrease on the unemployment rate.
2.
Contradictionary fiscal policy:
When the government is using this policy, it will reduce its spending and increase in taxes with the goal of
decreasing inflation rate. However, this may also cause some unemployment.
Who does monetary policy? This is the term used to refer to the actions of the central bank to achieve macroeconomic policy
objectives such as price stability, full employment and stable economic growth.
1.
Federal reserve policy:
This policy is used by the Federal Reserve Bank when it discovers that there is an inflationary pressure in the
economy. It increases the federal fund rate which makes it more expensive to borrow the reserves. As a result,
this will reduce the money supply. As a result, this will expand the money supply.
2.
Open Market Monetary Policy:
This policy involves the purchase and sale of government securities on open market by central bank. Through
this policy the central reserve sells securities to other banks and gets reserves as payments, which lowers those
bank’s supply of reserve.
3.
Bank reserve requirement policy:
Under this policy the central bank requires banks to hold a certain amount of money in reserve to meet the out
flow of money. This policy helps the reserve bank to expand money supply when it wants to use it towards
economic growth.
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
Aggregate Demand and
Aggregate Supply
Money Supply Curve (MS)
AS
’ AS
MS
PL
5.
AD’
i
i’
A
M
B
AD
Money Demand (MD)
Real GDP
M’
PAE
PAE
PAE = Y
Inflationary gap
Expenditure line
PAE= 890+.5
Slope = 0.5
890
45°
2610
Y