Week 6 Personal Assignment

There are Internet Questions with this assignment after the following problems.

Problem 1

If the price level were below PE in Figure 11.5, what macro problems would we observe?  Why is PE considered an equilibrium?


Problem 2

Why would job losses in the construction industry cause a loss of retail jobs, as in the News Wire “Undesirable Outcomes” on p. 223 suggests?

Problem 3

Why did President Obama assert that government intervention was needed to get the economy out of the 2008-2009 recession? Could the economy have recovered on its own?

Problem 4

What should the new president do in 2017? Is more government intervention in the macro economy needed? For what purpose? Which policy tools should be used?

Problem 5

Refer to the below graph while answering these questions:

If AD were to increase (shift to the right), which AS curve would lead to

  1. The biggest increase in output?
  2. The largest jump in prices?
  3. The least inflation?


Problem 6

Would a constitutional amendment that would require the federal government to balance its budget (incur no deficits) be desirable?  Explain.

Problem 7

If the MPC were 0.8:

  1. How much spending would occur in the third round of Figure 12.6 on p. 242?
  2. How many spending rounds would occur before consumer spending increased by $200 billion?

Show your work.

Problem 8

If consumers had an MPC of 0.90, by how much would aggregate demand have eventually increased with Obama’s first-year spending stimulus assuming the stimulus was entirely government spending (News Wire “Fiscal Stimulus: Government Spending,” p. 240)?  Show your work.

Internet Questions

Question 1

Go to the Congressional Budget Office’s (CBO) Budget and Economic Information page https://www.cbo.gov/about/products/budget_economic_data#2.  Use the Historical Budget Data link on this page to answer the question below.

  1. Identify all periods where the government ran a budget surplus in the past 40 years. (Refer to the “on-budget” deficits and surpluses.)
  2. Refer to the Bureau of Labor Statistics website, http://www.bls.gov/, for data on inflation during the periods of budget surplus that you identified in part (a). Was inflation relatively high (over 3%) or low (under 2%) during these budget surpluses? Were the budget surpluses you identified in part (a) consistent with the inflation at the time? Why or why not?

Question 2

Go to the Conference Board’s website http://www.conference-board.org/.  Under the “Economic Indicators” section, click on “Consumer Confidence.” From there, you can find the most recent memo just to the left and below the Consumer Confidence Index®. (Hint: If you need more information to answer the questions below, try this additional website: http://www.tradingeconomics.com/united-states/consumer-confidence )

  1. What has been happening to consumer confidence over the last six months? What explanation for consumer confidence does the memo give?
  2. What component of AD is affected by consumer confidence? Is this likely to have a large impact on AD? Why or why not?




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