Economics 101 Internet Assignment for Class #2 1. Follow the path: http://www.bea.gov/ GDP and Related Data Tables (HTML) What is the Nominal GDP for the most recent quarter? (State which quarter this is.) (See http://www.bea.gov/bea/dn/gdplev.xls) Explain in your own words what this number tells you. How much of the Nominal GDP in this year was Personal Consumption Expenditures and how much was Gross Private Domestic Investment? What do each of these numbers mean? What is the Real GDP for the most recent quarter? What explains the difference between this number and the Nominal GDP? (See http://www.bea.gov/bea/dn/gdplev.xls) 2. Follow the path: http://www.census.gov/ Subjects A - Z S Statistical Abstract Frequently Requested Tables Gross Domestic Product, Personal Income, and Expenditures --- Per Capita What was the per capita GDP in current dollars in the most recent year? What does this mean? What was the per capita GDP in 1959? By what percent did per capita grow Between 1959 and the current year? (You need to calculate this yourself)?
Economics 101 Assignment for Class #2 You may do this individually or in groups of two or three people. 1. Assume that there are only three goods produced. The following represent the prices
and quantities sold in the base year (1996) and the current year (2003): Price96 Quantity96 Price03 Quantity03 A $100 50 $150 100 B $ 50 40 $ 80 50 C $ 25 20 $ 50 20 What was the Nominal Gross Domestic Product (GDP) in 1996? Show calculations. What was the Nominal Gross Domestic Product (GDP) in 2003? Show calculations. What was the Real Gross Domestic Product (Real GDP) in 2003? Show calculations.
Economics 101 Internet Assignment for Class #3 Follow the path: http://stats.bls.gov/blshome.html Data Most Requested Series Labor Force Statistics from the Current Population Survey On the Form: Click on all that are necessary to answer the questions below Click on the most recent year Click Retrieve Data (Click Continue if asked) What is the most recent month? What is the overall unemployment rate in the most recent month? What is the total civilian labor force? What is the total number of people unemployed? How many of the unemployed have been unemployed 27 weeks or longer? What is the unemployment rate for males age 20 and over? for females age 20 and over? What is the unemployment rate for whites overall? for blacks overall? for Hispanics overall? What is the unemployment rate for people age 16 to 19? Go Back to Most Requested Series Local Area Unemployment Statistics California A form appears. Click the box for CA Unemployment Rate and the box for San Diego, CA MSA Unemployment Rate Move down the form. Click on the most recent year. Click on the Retrieve Button (Click on CONTINUE if you get a warning message) What is the most recent month available in each case? What was the California unemployment rate for this month? What was the San Diego unemployment rate for this month? Go to the following site: http://www.tcb-indicators.org/leihistory/hindex.htm 1. What happened to the Index of Leading Indicators in the most recent month reported? 2. What does this say about the future standard of living in the economy? 3. How has the Index changed over the past three months? Six months? Year? What
does this tell you about the future of the economy?
Economics 101 Internet Assignment for Class #4 Follow the path: http://www.bls.gov/ Data Most Requested Series Consumer Price Index --- All Urban Consumers Fill-out the Form: Click on U.S. All Items, 1982 - 1984 = 100 Move Down and Click on All Years in the Box Click the Retrieve Data Button (Click on the Continue Button on the Warning Box if it Appears) 1. What is the most recent month? What is the CPI in this month? 2. Considering the January figure alone, a market basket that cost $9.80 in 1913 would cost how much in the most recent month? 3. What was the last year that prices fell from January to January? What was the last time that prices fell for two + consecutive years from January to January? 4. By approximately what percent did prices rise from January, 1970 to January, 1980? (You need to calculate this.) 5. How many years did it take for prices to triple from their January, 1913 value? How many years did it take for prices to triple from their January, 1970 value? 6. In June, 1965, I started working at an accounting firm for $7,200 per year. I was straight out of college and had no significant work experience. Assume that you begin your work career in the most recent month noted. What starting salary do you need to have now to have the same purchasing power as I had in June, 1965?
Economics 101 Homework Assignment for Class #4 1. Assume that Mary lends Linda $1,000 for one year at a time when there is no inflation. They agree on an interest rate of 5%. After the loan is made, inflation begins! During the year, prices rise 5%. What is the real rate of interest Linda receives? 1. In 1979, I was driving to work when my car (a Fiat) caught on fire. After getting the
fire out, I realized that I had to have a new car. But I didnt have the money. So I borrowed from the bank for a three year loan at 9% interest. In 1980, to the surprise of everyone, prices rose 13 1/2%! For 1980, what was my real rate of interest?
3. In 1982, Joe bought a house. Figuring that inflation would continue at least 10% a year, Joe accepted a 30 year loan at 17% nominal interest. In reality, by 1983, prices were rising at a bit over 3% per year. What real interest rate did Joe expect he was paying? What real interest rate did Joe actually pay in 1983? 4. Do you believe that each of the following would be better off or worse off because of unexpected inflation: 1. People who already own homes ____________ 2. People on fixed incomes ____________ 3. People with considerable funds in a savings account ___________ 4. The Federal Government ___________ 5. The Middle Class ___________ 6. The Rich People ___________ 5. If you believed that large inflation were coming soon, what would happen to each of the following: 1. The amount you would save in a bank ___________ 2. The amount of debt you would want ___________ 3. The number of homes you would want to own ___________
Economics 101 Internet Assignment for Class #5 This chapter has considered factors that affect the demand for homes. Consider the demand for homes in California. Go to the following site.
In each of the following cases, describe what the data say has been happening over time. Then, explain how these changes would affect the demand for homes in California. 1. The population of California (Table B1) 2. The per capita income of California (You can get the income data in Table D4. You then have to divide by the population from question 1 to have the per capita income.) 3. The prices of homes in California (Table I11) The table gives only the prices of existing homes. But the prices of new homes have been changing in the same direction. 4. Rents on Apartments (Table I2) 5. Mortgage Interest Rates. (Interest rates in California are basically the same as in
the rest of the country. For this, you need to go to the following site: http://www.census.gov/statab/freq/98s0827.txt 6. Then, write a brief conclusion. What has been happening to the demand for homes in California (see Table I3)? Based on your answers above, why might this have been happening?
Economics 101 Assignment for Class #6 Most people who buy a home pay for it by borrowing money from a bank, savings and loan, or other such institution. Such a loan is called a mortgage. At present, the interest on a mortgage is deductible for tax purposes. To illustrate how this works, assume that a person is in a tax rate of 28% and has a mortgage of $80,000 at 8% interest with 15 years left to be paid. The annual interest payment is $6,400 (8% of $80,000). Of this, the taxes are reduced by $1,792 (28% of $6,400). Thus, the actual cost to the borrower is not $6,400, but $4,608 ($6,400 - $1,792). There have been many proposals to reduce or eliminate the tax deduction for mortgage interest. Assume in this case that such a proposal is enacted and that the mortgage interest deduction is completely eliminated. Show first what will occur in the market to borrow money. Then, show what will occur in the market for homes. In each case, explain what will happen to the equilibrium price and to the equilibrium interest rate. Interest Rate Supply Demand _____________________________ 0 Quantity of Money to Borrow (Lend) Price of Homes Supply of Homes Demand for Homes ____________________________ 0 Quantity of Homes State whether you would favor or oppose this proposal is you were a (1) homeowner; (2) owner of a bank; (3) prospective homebuyer who does not now own a home; (4) renter who intends to continue renting an apartment; (5) someone who intends to borrow from a bank to buy a new car. WHY?
Economics 101 Assignment #2 for Class #6 Form into groups of two to three people. Pick out the stock of a particular company (any company). Find the value of the stock of that company in the most recent week. You will find this information either in a newspaper or on the Internet. Then, find the value of that stock one year ago (or as close to that date as you can). Value Now $_____________ Value Then $_____________ You will need to do some research as to what has been happening concerning this company. You know that the price is affected by the demand for and the supply of that stock. Demanded are those who wish to buy the stock. Suppliers are those who own the stock and are considering selling. There are six possible determinants of the demand and four possible determinants of the supply. Based on your research, explain what might be responsible for the change in the price you have discovered. Show your reasoning on the graph below. Price of the Stock Supply P1 Demand 0 Quantity of the Stock
Economics 101 Class #7 Assignment #1 The cases discussed in class have analyzed the effects on foreign exchange markets of an increase in interest rates in the United States and of an increase in inflation in the United States. Do the same analysis for each of the following cases: Show using the demand and supply graph. 1. Incomes rise in the United States and fall in Japan 2. Both Americans and Japanese believe that American goods are of higher quality than before 3. Both Americans and Japanese believe that the Japanese yen will depreciate in the near future 4. Laws change in Japan making it easier for Americans to buy or build companies in Japan 5. Interest rates fall in the United States while they rise in Japan
Economics 101 Class #7 Assignment #2 Go to the site of the Federal Reserve Bank of New York. http://www.ny.frb.org/pihome/statistics/forex12.shtml From this site, what is the most recent exchange rate for each of the following foreign monies? The Canadian Dollar The European Monetary Union Euro The Russian Ruble The Japanese Yen The Mexican Peso The British Pound The South Korean Won
2. A six pack of Labatts Beer sold in Windsor Ontario Canada for $6.60 Canadian. The same six pack of Labatts Beer sold in Detroit Michigan (directly across the river) for $2.75 American. Using the exchange rate you found in question 1, is the six pack cheaper in Windsor or in Detroit? 3. Analysis Case: In 1998, two factors happened regarding Indonesia. First, prices in Indonesia rose faster than prices in the United States. Second, both Indonesians and Americans expected the Indonesian Rupiah to depreciate. On the graph below, show the demand for and the supply of Rupiahs as of 1997. Then, show the results of these two events in 1998. Make the appropriate shifts in either demand or in supply or in both. Finally, state what would happen to the Indonesian Rupiah. $/Rupiah Supply1 P1 E1 Demand1 ______________________________
0 Quantity of Rupiahs
Economics 101 Class #8: Assignment #1 Municipal solid waste (garbage) has become a major problem in most large cities. A significant proportion of this waste (25% to 50%) comes from packaging. In San Diego, garbage collection is paid for out of the property tax revenues. There is no additional charge for garbage collection. The city will take almost everything left at the curbside on the garbage collection day. In some parts of the city, citizens are asked to voluntarily recycle newspaper, mixed paper, aluminum and tin cans, and certain plastic bottles into bins provided by the city. Many people do so! A longstanding problem in San Diego results because landfill space is being depleted. The city has responded by trying to find new space, by considering shipping the garbage to remote areas (such as Campo), or by approving trash-to-energy plants. These plants are very controversial because of the effects they have on air pollution. The garbage case is a classic price ceiling case with the price essentially at zero. (While people pay for garbage collection in their tax payment, each use of the service adds no additional price.) Draw the graph for this situation, with the supply perfectly inelastic (there is only so much landfill space available and the amount of space does not respond to a change in the price.) and a price of zero. Show the shortage. Price _________________________________ 0 Quantity of Garbage
Economics 101 Class #8: Assignment #2 Under the Immigration Act of 1990. the United States grants permits for legal immigration to approximately 800,000 people each year (not considering refugees). While there is a great opportunity cost for people migrating to the United States, the charge for the permit is virtually zero. (1) Draw the demand for immigration rights into the United States on the graph. Draw the supply as fixed at 800,000 permits. Show that, at a price of zero, there is a large shortage. Price ____________________________________ 0 Quantity of Permits (2) Since there is a price ceiling on entry permits, name some ways that the shortage might be resolved. That is, how might it be decided who will be allowed to enter? (3) Is there a black or gray market in this case?
Economics 101 Class #10 Assignment #1 In Mexico in 1982, there was a very large inflationary (expansionary) gap. Prices were rising very rapidly. Show the situation on the graph below. That is, show aggregate demand, aggregate supply, and potential real GDP (long-run aggregate supply) so that there is an inflationary gap. Price Level ___________________________________ 0 Real GDP 1. The government of Mexico responded to the problem with a program. First, it significantly reduced government spending. Second, it raised taxes. And third, it decreased the money supply. Show the result of these three changes on the graph above. Since all three of these changes have the same effect, you may show them as only one change. What happened to real GDP in Mexico? What happened to the Aggregate Price Level? 2. Another part of the governments program was to create a large depreciation of the peso. On the graph below, draw the original situation again. Then, draw the changes caused by the depreciation of the peso. There will be both a change in aggregate demand and also a change in aggregate supply. Draw both. Assume, as actually was the case, that the shift in aggregate supply was the larger shift. As a result of this policy, what happened to real GDP in Mexico? What happened to the aggregate price level? Price Level ________________________________ 0 Real GDP
Page 2 3. Yet a final part of the governments program was to reduce wages. In the graph below, again draw the original situation. Then, show the results of reducing wages. There will be changes in both aggregate demand and also in aggregate supply. Draw both. Assume, as actually happened, that the shift in aggregate demand was the larger shift in this case. What happened to the Mexican Real GDP from this policy? What happened to the aggregate price level? Price Level __________________________________ 0 Real GDP 4. Write a very brief conclusion: from these policies, what can you conclude would happen to the Mexican economy?
Economics 101 Class #10 Assignment #2 1. On the graph below, show the aggregate demand and short-run aggregate supply for Japan as of 1996. Show potential real GDP so that there is no gap. Then, in 1997, the following events occur. For each event, show the change on the graph by either shifting aggregate demand or aggregate supply or both. (1) Japan typically exports greatly to countries in the rest of Asia. Because of economic problems in Asia, Japanese exports fell greatly. (2) The value of real estate has fallen greatly in Japan, making people substantially poorer. As a result of the decline in their wealth, Japanese consumers reduced their spending. (3) In April of 1997, the Japanese government raised sales taxes from 3% to 5%. (4) Many Japanese banks have failed, reducing the money supply in Japan. Putting these four events together, explain what happened to the Japanese economy in 1997. Aggregate Price Level ___________________________________ 0 Real GDP
Economics 101 Class #11 Assignment #1 1. Assume that, there is only one product produced, which we will call a "widget". If there were full-employment, production would equal 1,000 widgets to sell at $100 per widget. Therefore production in the United States is valued at $100,000. Domestic income also must equal $100,000. This income involves 10 workers being paid $10,000 per year. (Ignore profits for now.) Each worker produces 100 widgets. Of their $100,000 of income, the workers pay $10,000 in taxes, save $5,000, spend $85,000 on consumer goods, of which $80,000 were produced in the United States and $5,000 were imported. Businesses wish to spend $10,000 on private business investment spending, that is, on capital goods produced in the United States. Foreigners are spending $6,000 on American exports. If the government spent the same amount that it raised in taxes ($10,000), what would happen to production in this economy (inflation, recession, or neither?)? Why? In order to avoid any problem of unemployment or inflation, how much should the government spend? Why? If it did so, the government would have a (budget deficit or surplus?) equal to $_________________. If there is a deficit, where would the government get the money to pay for this deficit? If there is a surplus, what would be done with the surplus?
Economics 101 Class #11: Assignment #2 1. Assume that, there is only one product produced, which we will call a "widget". If there were full-employment, production would equal 1,000 widgets to sell at $100 per widget. Therefore production in the United States is valued at $100,000. National income also must equal $100,000. This income involves 10 workers being paid $10,000 per year. (Ignore profits for now.) Each worker produces 100 widgets. Of their $100,000 of income, the workers pay $10,000 in taxes, save $10,000, spend $70,000 on consumer goods produced in the United States, and spend $10,000 on imports. Businesses wish to spend $5,000 on private business investment spending, that is, on capital goods produced in the United States. Foreigners are spending $5,000 on American exports. If the government spent the same amount that it raised in taxes ($10,000), what would happen to production in this economy? Why? If the government decided to spend $30,000, without raising taxes, what would happen to this economy? Why? In order to avoid any problem of unemployment or inflation, how much should the government spend? Why? If it did so, the government would have a budget deficit equal to $_________________. Where would the government get the money to pay for this deficit?
Economics 101 Class #11 Assignment #3 Go to the following site on the Internet: http://w3.access.gpo.gov/usbudget/fy2002/erp.html. 1. Click on Table B-1. What is the Nominal Gross Domestic Product for the most recent year (or quarter)? 2. What was the Consumer Spending for the most recent year (or quarter)? How much of this was for Durable Goods? How much of this was for Non-Durable Goods? How much of this was for Services? 3. What was the Business Investment Spending for the most recent year (or quarter)? 4. Go back to the Main Menu. Click on Table B-20. What was the total Government Spending for the current year (or quarter)? How much of this was done by the federal government and how much was done by state and local government? How much government spending qualifies as consumption and how much qualifies as investment? 5. Go back to the Main Menu. Click on Table B-31. What was the Disposable Income in the most recent year (or quarter)? How much did households spend on consumption? 6. Go back to the Main Menu. Click on Table B-32. What was Gross Private Saving in the most current year (or quarter)? How much of this saving was done by persons and how much was done by businesses? 7. Go back to the Main Menu. Click on Table B-42. What was the unemployment rate in the most current year (or quarter)? If we assume that the natural rate of unemployment is 4%, is the American economy experiencing a GDP Gap or not? 8. Go back to the Main Menu. Click on Table B-84. What are the governments tax revenues in the most current year (or quarter)? How much of this tax revenue is paid by persons? How much of this tax revenue is paid by businesses? How much of this tax revenue is paid for Social Insurance? What was the government spending equal to in the most current year (or quarter)? How much of this was Transfer Payments? Does the government currently have a budget deficit or a budget surplus (of how much?)? 9. Go back to the Main Menu. Click on Table B-103. In the most current year (or quarter), what were American exports of goods equal to? What were American imports of goods equal to? Did America have a trade deficit surplus on goods only? Did America have a trade deficit or surplus on goods and services? 10. Put the numbers from these 9 questions into the framework of this chapter. Using these numbers, analyze the state of the American economy in the most current year (or quarter). From these numbers, would you expect America to be experiencing recession, inflation, or neither? Why? Is your expectation confirmed?
Economics 101 Class #12: Assignment #1 In the graph below, draw the aggregate demand curve, the short-run aggregate supply curve, and the Long-run Aggregate Supply (Potential Real GDP) so that there is an Inflationary Gap. GDP Deflator _________________________________________ 0 Real GDP According to those who believe that an economy is self-correcting, what will happen to eliminate the inflationary gap? Name the changes that will occur and show their effect on the graph. 1. 2. 3. In this example, actual real GDP is greater than potential real GDP and the actual rate of unemployment is below the natural rate of unemployment. How can this occur?
Economics 101 Class #12 Assignment #2 The graph below shows the aggregate demand curve and the long-run aggregate supply curve as the classical economists would draw them. Now assume that there is an increase in the money supply for some reason. Show the results on the graph. Then, explain what will occur and why. Aggregate Price Level Long-Run Aggregate Supply P1 Aggregate Demand1 = M x V 0 Qpot Real GDP Explanation:
Economics 101 Class #13 Assignment The graph below shows the foreign exchange market for British pounds. The exchange rate is $5 equals one pound. $ Per Pound Supply of Pounds1 $5 Demand for Pounds1 0 Quantity of Pounds Now, assume that there is a deflation in the United States. Americans desire ______ (more or less?)British goods and the demand for pounds _______(rises or falls?). British people desire _______ (more or less?) British goods and the supply of pounds _______(rises or falls). The dollar price of the pound _______ (rises or falls?). This creates a profitable opportunity. Explain the profitable opportunity. Someone will take foreign exchange in one country (which one?), buy gold, ship the gold to the other country (which one?), and sell the gold for foreign exchange there. The new foreign exchange will then be sold on the foreign exchange market for the original currency. Explain in the space below, using numbers, what would be done and why a profit could be made. In the United States, gold would ______ (increase or decrease?). The money supply would _____________(increase or decrease?). Prices or real GDP would _______________ (increase or decrease?). In Britain, gold would ______ (increase or decrease?). The money supply would _____________(increase or decrease?). Prices or real GDP would _______________ (increase or decrease?)
Economics 101 Class # 13 Assignment #2 CASE ON THE GREAT DEPRESSION You may do this case in groups (up to 3 people per group). Write your answer on the back. Use the data to answer the question. Group 1. A Depression is a period of time during which Real GDP is falling. From 1929 to 1941, during what years was there a Depression (or recession)? How much (or by what percent) did Real GDP fall? See below. Group 2. During periods of Depression, the Classical Economists predicted that both wages prices would fall. Was this prediction valid for the Depression Decade of 1929 to 1941? Explain with data. You need to look up data on wages. For prices, see below. Group 3. During periods of Depression, the Classical Economists predicted that interest rates would fall. As a result of falling interest rates, they predicted that business investment spending would rise. This was to end the Depression. Were either of these two predictions valid for the Depression Decade of 1929 to 1941? Explain with data. See below. Group 4. As we shall see, Keynes argued that the aggregate supply is horizontal. This would mean that any change in aggregate demand would cause only a change in real GDP (with no change in prices). As discussed in Class #12, the Classical economists believed that the long-run aggregate supply is vertical. Plot the data for the aggregate price level and the Real GDP for the period 1930 to 1941 on the graph below. What shape does the Aggregate Supply curve seem to have? Price Level ________________________________________________________ 0 Real GDP
Economics 101 Data for the Great Depression Year GDP* Unemployment Prices* Interest Rates Wages Consumption Investment 1929 100 3.2% 100 5.85% 77.7 16.7 1930 91 8.9% 97 3.59% 70.2 10.6 1931 86 16.3% 89 2.64% 60.7 5.9 1932 73 24.1% 80 2.73% 48.7 1.1 1933 71 25.2% 76 1.73% 45.9 1.7 1934 78 22.0% 78 1.02% 51.4 3.7 1935 88 20.3% 80 0.75% 55.9 6.7 1936 97 17.0% 81 0.75% 62.2 8.7 1937 105 14.3% 84 0.94% 66.8 12.2 1938 99 19.1% 82 0.81% 64.2 7.1 1939 107 17.2% 81 0.59% 67.2 9.3 * 1929 = 100 Interest Rates are on Short-term Debt
Economics 101 Class 14 Assignment #1 (1) Fill in the following consumption function: Disposable Income Consumption Savings 0 1000 1000 1900 - 900 2000 2800 - 800 3000 3700 4000 - 600 5000 5500 6000 - 400 7000 7300 8000 - 200 9000 9100 10,000 0 11,000 10,900 12,000 11,800 13,000 300 14,000 13,600 15,000 500 16,000 15,400 17,000 16,300 18,000 800 19,000 18,100 20,000 1000 21,000 19,900 22,000 20,800 23,000 21,700 24,000 22,600 25,000 1500 (2) Calculate the marginal propensity to consume. ________________ Calculate the marginal propensity to save. _____________________ (3) If disposable income is 10,000, what is the average propensity to consume? _________________ If disposable income is 20,000, what is the average propensity to consume? _________________ Therefore, as disposable income rises from 10,000 to 20,000, consumption _______ And the average propensity to consume _____________ (answer rises or falls).
Economics 101 Class 14 Assignment #2 1. Using the new numbers below, explain why $2000 cannot be the equilibrium real GDP. Then, explain why $16,000 cannot be the equilibrium real GDP. 2. What is the Equilibrium Real GDP? 3. Assume now that the Potential Real GDP is equal to $10,000. How large is the gap? What kind of gap is it? 4. Now assume that the government decreases its purchases from $1000 to $500. There is no change in any other variable, including taxes. Use the multiplier formula to calculate the new equilibrium real GDP. Now calculate the new gap (Potential Real GDP is still $10,000). What kind of a gap is it? 5. If the government had desired to eliminate all recessionary and all inflationary gaps, what should its purchases be equal to? Again show using the multiplier formula. Real GDP Taxes Disposable Consumption Investment Government Exports Imports Aggregate
Income Demand 1000 1000 0 1000 200 1000 1000 10002000 1000 1000 1900 200 1000 1000 10003000 1000 2000 2800 200 1000 1000 10004000 1000 3000 3700 200 1000 1000 10005000 1000 4000 4600 200 1000 1000 10006000 1000 5000 5500 200 1000 1000 1000
1000 6000 6400 200 1000 1000 1000
8000 1000 7000 7300 200 1000 1000 10009000 1000 8000 8200 200 1000 1000 1000
10,000 1000 9000 9100 200 1000 1000 100011,000 1000 10,000 10,000 200 1000 1000 100012,000 1000 11,000 10,900 200 1000 1000 100013,000 1000 12,000 11,800 200 1000 1000 100014,000 1000 13,000 12,700 200 1000 1000 100015,000 1000 14,000 13,600 200 1000 1000 100016,000 1000 15,000 14,500 200 1000 1000 100017,000 1000 16,000 15,400 200 1000 1000 100018,000 1000 17,000 16,300 200 1000 1000 100019,000 1000 18,000 17,200 200 1000 1000 100020,000 1000 19,000 18,100 200 1000 1000 100021,000 1000 20,000 19,000 200 1000 1000 1000
Economics 101 Class #15 Assignment Examine the following data: 1991 1992 1993 1994 1995 1996 1997 Real Per Capita Disposable $17,809 $18,113 $18,221 $18,431 $18,861 $19,116 $19,497 Income Nominal Interest Rate * 8.77% 8.14% 7.22% 7.96% 7.59% 7.37% 7.27% Nom Interest Rate -Mortgage 9.32% 8.24% 7.20% 7.49% 7.87% 7.80% 7.71% Rise in CPI 4.2% 3.0% 3.0% 2.6% 2.8% 3.0% 2.3% Rise in GDP Deflator 4.0% 2.8% 2.6% 2.4% 2.5% 2.3% 2.0% Index of Consumer Confidence** (1985 = 100) 78 71 60 90 102 119 138 Common Stock Prices (Dow Jones Average) 2,929 3,284 3,522 3,794 4,494 5,743 7,441 Consumer Debt as a Percent 17.8% 16.8% 17.3% 19.0% 20.4% 21.0% 20.9% of Disposable Income * Interest Rate on AAA Corporate Bonds ** Approximation You are asked to make a prediction about the amount of consumer spending that will occur in 1998. Will consumer spending rise or fall in 1998? Use the data here, as well as any other information you know (such as what has been happening to the age distribution or income distribution of the population) to make your prediction. Which of the above data would indicate the consumer spending is likely to rise in 1998? Which of the above data would indicate the consumer spending is likely to fall in 1998 Based on your answer to the two questions above, what is likely to happen to consumer spending in 1998. ( 2 Bonus Points) Log on to the Internet. Find out what happened to consumer spending in 1998. How good was your prediction. (Present some real data.)
Economics 101 Class #15 Assignment Form into groups of two or three people. By this time, you should be better at navigating the Internet. In each case, find the site that will give you the answer to the question. Group 1: What is the trend in real per capita disposable income in the current year? Based on this trend, what prediction would you make about consumer spending in the current year? Group 2: What is the trend in nominal interest rates in the current year? Based on this trend, what prediction would you make about consumer spending in the current year? Group 3: What is the trend in prices (measured by the CPI) in the current year? Based on this trend, what prediction would you make about consumer spending in the current year? Group 4: What is the trend in consumer confidence in the current year? Based on this trend, what prediction would you make about consumer spending in the current year? Group 5: What is the trend in common stock prices (the Dow Jones) in the current year? Based on this trend, what prediction would you make about consumer spending in the current year? Group 6: What is the trend in consumer debt in the current year? Based on this trend, what prediction would you make about consumer spending in the current year? After putting all six reports together, we shall try, as a class, to predict what will happen to consumer spending in the current year. Be sure you can explain why this is important.
Economics 101 Class 16 Assignment Year Gross Investment* - Depreciation = Net Investment % of GDP 1970 106.7 81.2 25.5 2.5 1971 111.7 88.9 22.8 2.0 1972 126.1 97.8 24.3 2.0 1973 150 107.1 42.9 3.1 1974 165.6 124.5 41.1 2.7 1975 169 146.3 22.7 1.4 1976 187.2 161.3 24.9 1.4 1977 223.2 181 42.2 2.1 1978 272 206.8 65.2 2.8 1979 323 239.9 83.1 3.2 1980 350.3 276 74.3 2.7 1981 405.4 318 87.4 2.8 1982 409.9 346.2 63.7 2.0 1983 399.4 365.2 34.2 0.1 1984 468.3 378.4 89.9 2.3 1985 502 399.5 102.5 2.5 1986 494.8 424.4 70.4 1.6 1987 495.4 447 48.4 1.0 1988 530.6 478 52.6 1.0 1989 566.2 515.1 51.1 0.9 1990 575.9 534.3 41.6 0.7 1991 547.3 556.4 - 9.1 --- 1992 557.9 585.4 -27.5 --- 1993 604.1 594.5 9.6 0.1 1994 660.6 638.6 22 0.3 1995 723 653 70 1.0 1996 781.4 682.7 98.7 1.3 1997 845.4 717 128.4 1.6 * Non-Residential Fixed Private Investment Spending Only. Investment spending on Housing is NOT included in this data. 1. For Everyone: Fill in the table for 1998 to 2002. Much of the data is in Chapter 15. Many people, of all political persuasions, have noted a problem with net investment spending in the United States since the early 1970s. From the data provided above, is there indeed a problem? If so, how would you characterize it? (Remember that the following were recession years: 1969 - 1971; 1974 - 1976; 1979 - 1982; 1990 - 1991.) Why would this problem be important? 2. For Group #1: From the data above, has there been any change in the percent of Gross Private Investment Spending that is accounted for by Depreciation? That is, have there been any change in the percent of total spending by businesses on buildings and equipment that is required just to replace the part that has worn-out or become obsolete? If so, what do you believe has occurred to explain this change? 3. For Group #2: One of the hypotheses explaining the problem with net investment spending is that the prices of capital goods has been rising faster than other prices. Get on the Internet and go to the Economic Report of the President (Table B-7) or see Chapter 15. From this data, is there any truth to this hypothesis? Explain.
4. For Group #3: A second hypothesis explaining the problem with net investment spending is that real interest rates have been rising. Real interest rates are nominal interest rates minus inflation rates. Get on the Internet and go to the Economic Report of the President (Table B - 73 for nominal interest rates -- use the 3-month U.S. Treasury Bill rate. Table B-63 for the CPI). Or see Chapter 15. From this data, is there any truth to this hypothesis? Explain. 5. For Group #4: A third hypothesis explaining the problem with net investment spending is that corporate profits have been too low and that corporate profits taxes have been taking away too much of the profits. Get on the Internet and go to the Economic Report of the President (Table B-93 and B - 94). Or see Chapter 15. From this data, is there any truth to this hypothesis? Explain. 6. For Group #5: A fourth hypothesis explaining the problem with net investment spending is that expected future sales have been low. Expected future sales are measured by capacity utilization. Get on the Internet and go to the Economic Report of the President (Table B - 54). Or see Chapter 15. From this data, is there any truth to this hypothesis? Explain. 7. For Group #6: A fifth hypothesis explaining the problem with net investment spending is that expected costs of labor and raw materials have been rising. Unit Labor Costs are measured in the Economic Report of the President. Get on the Internet and go to the Economic Report of the President (Table B - 50). Or see Chapter 15. From this data, is there any truth to this hypothesis? Explain. 8. For Everyone: From the answers to the questions #1 to #7, what conclusions can be reached about the problem with net investment spending the United States has experienced?
Economics 101 Class #18 Assignment Go to the following site: http://www.whitehouse.gov Your Government. then Office of Management and Budget. then Budget Information then A Citizens Guide to the Federal Budget then Where the Money Comes From and Where It Goes 1. What will be the estimated total government spending in the current year? 2. In the current year, what percent is expected to be spent on defense? On Social Security? On Medicare? On other Health Care? On Income Security? 3. In the current year, what percent of the federal budget will be discretionary? What does this mean? 4. Over the next few years, what is projected to happen to each of the following (in total and as a percent of the total budget): (1) defense; (2) social security; (3) Medicare 5. Over the next few years, what is projected to happen to total government spending? 6. Besides defense, what categories of spending are considered discretionary? And besides Social Security, which categories if spending are considered mandatory? 7. This year, does the budget forecast a surplus or a deficit? 8. For the foreseeable future, does the budget forecast budget deficits or surpluses? 9. Go back to the following site: http://www.whitehouse.gov On the home page, there are references to speeches of President Bush. From the information on this site, write a one-half page (125 word) essay explaining the budget priorities of President Bush. Then, go to the site for the Congressional Budget Office http://www.cbo.gov Write a one-half page description of their analysis of President Bushs budget proposal. 10. The table below shows total federal government spending and the GDP Deflator. You are to use the GDP Deflator to calculate Real Total Federal Government Spending. President Clinton promised to slow the growth rate of Real Total Federal Government Spending. By what percent did this grow during his term (1993-2001)? Did it grow slower than it had been doing before? Year Federal Government
Outlays GDP Deflator Real Government Outlays
1980 590.9 57.04 1981 678.2 62.35 1982 745.8 66.25 1982 808.4 68.88 1984 851.9 71.44 1985 946.4 73.69 1986 990.5 75.31 1987 1004.1 77.58 1988
1989 1143.7 83.27 1990 1253.2 86.51 1991 1324.4 89.66 1992 1381.7 91.84 1993 1409.5 94.05 1994 1461.9 96.01 1995 1515.8 98.11 1996 1560.6 100 1997 1601.3 101.95 1998 1652.6 103.22 1999 1703.1 104.77 2000
Economics 101 Class 19 Assignment #1 1. Income Taxes Paid Average Tax Rate Marginal Tax Rate 0 0 $10,000 $ 500 $20,000 2,000 $30,000 4,500 $40,000 8,000 $50,000 12,500 Fill-in the table above. Is the tax above progressive, regressive, or proportional? Why? 2. Given the definitions of progressive, regressive and proportional taxes, do you believe each of the following taxes to be progressive, regressive, or proportional. In each case, state WHY. 1. Federal Income Tax _____________________ 2. State Income Tax _____________________ 3. Sales Tax _____________________ 4. Social Security Tax _____________________ 5. Tax on Gasoline _____________________ 6. Property Tax _____________________ (Remember that renters also pay property taxes --- included in their rent.) 7. Cigarette Tax _____________________ 8. Overall Tax System _____________________ (All taxes together)
Economics 101 Class 19 Assignment #2 Form into groups of two to three people. You will be given one of the following: 1. Go to the following site: http://www.nrst.org/basics/index.html
The information on this site argues that a national retail sales tax should replace the current income tax. What are the arguments made on this site to justify having a national retail sales tax? Then, based on what you have learned, provide some criticisms of having a national retail sales tax. (You may use other sites or printed material on the national retail sales tax, if you wish.)
2. Go to the following site: http://www.policy.review.com/summer95/tharmey.html
Here former majority leader of the Congress Dick Armey argues against the national sales tax and in favor of a flat tax. What arguments does he make against a national retail sales tax? What is a flat tax? What arguments does Congressman Armey make in favor of a flat tax? Finally, based on what you have learned, provide some criticisms of having a flat tax. (You may use other sites or printed material on the flat tax, if you wish.)
3. Go to the following site: http://www.northwestwatch.org. Here you will find a citizen action group that advocates a shift from the income tax to what are called Green Taxes. Skim over the site. Then, first explain what are meant by Green Taxes. Second, name some of the arguments given on this site on behalf on shifting to Green Taxes.
Economics 101 Class #20 Assignment #1 1. Assume that equilibrium Real GDP will be $100,000. Potential Real GDP will be $140,000. The marginal propensity to consume is 4/5. Government purchases should _____________ (increase or decrease?) by $__________ OR Taxes should _____________(increase or decrease?) by $____________________ OR Transfers should ___________(increase or decrease?) by $___________________ 2. Assume that Equilibrium Real GDP and Potential Real GDP are both equal to $10,000. The marginal propensity to consume is 9/10. Then, taxes are lowered by $1,000. To pay for this, government purchases are also lowered by $1,000. The new Equilibrium real GDP is $______________________. There is a/an ____________ gap equal to $__________________. 3. What are your answers to question #2 if, when taxes were lowered by $1,000, transfers had also been lowered by $1,000 (instead of government purchases)?
Economics 101 Class 20: Assignment #2 Fiscal Year Official Budget Deficit (billions) Unemployment Rate 1992 $290 7.4% 1993 $255 6.8% 1994 $203 6.1% 1995 $164 5.7%
1996 $107 5.4%
1997 $ 22 4.7%
1998 -$ 69 (Surplus) 4.4%
1999 -$ 79 (Surplus) 4.1% Assuming a natural rate of unemployment of 4.0%, what is the structural (full-employment) budget deficit for: 1992 _______________ 1996_______________________ 1993 _______________ 1997 _______________________ 1994 _______________ 1998 _______________________
1995 _______________ 1999 _______________________ Was fiscal policy expansionary or contractionary from 1992 to 1999? Why? President Clinton claimed that his proposals (passed in 1993) to reduce government spending and raise taxes is the reason for the decline in the official budget deficit from 1993 to 1999. On the other hand, Republicans claim that the decline in the official budget deficit is totally the result of an improving economy. Who is right? Economics 101 Class 20 Assignment #3
Year Deficit (Billions) Unemployment Rate Structural Budget Deficit 1960 - 0.3 6.6% 1961 3.3 6.0% 1962 7.1 5.5% 1963 4.8 5.5% 1964 5.9 5.0% 1965 1.4 4.0% 1966 3.7 3.8% 1967 8.6 3.8% 1968 25.2 3.4% 1969 3.2 3.5% 1970 2.8 6.1% 1971 23.0 6.0% 1972 23.4 5.2% 1973 14.9 4.9% 1974 6.1 7.2% 1975 53.2 8.2% 1976 73.7 7.8% 1977 53.7 6.4% 1978 59.2 6.0% 1979 40.7 6.0% 1980 73.8 7.2% 1981 79.0 8.5% 1982 128.0 10.8% 1983 207.8 8.3% 1984 185.4 7.3% 1985 212.3 7.0% 1986 221.2 6.6% 1987 149.8 5.7% 1988 155.2 5.3% 1989 152.5 5.4%
- = surplus rate taken in December 1. Based on the official budget deficit, in what years was fiscal policy expansionary and in what years
was it contractionary? 2. Based on the structural budget deficit, in what years was fiscal policy expansionary and in what
years was it contractionary? Although this is not likely to be correct, calculate the structural budget deficit by assuming that the natural rate of unemployment was 4% throughout the entire period and that each rise in the unemployment rate increases the budget deficit by $30 billion.
3. Examine the data. In the years that fiscal policy was expansionary, did unemployment fall in the
following years? And in the years that fiscal policy was contractionary, did unemployment rise in the following years?
4. In FY2001, the federal government ran a surplus of $127 billion. In FY2002, the federal government ran a deficit of $106 billion. This is a shift of $233 billion in one year. In 2001, the unemployment rate was 4.8% and in 2002 the unemployment rate was 5.6% (assume). How much of the shift from a budget surplus to a budget deficit was caused by the recession and the rise in unemployment? How much of the shift was caused by discretionary fiscal policy? What were these discretionary fiscal policies?
Economics 101 Class #21 Assignment #1 I. Are the following statements true or false? 1. When the federal government has a budget deficit, the national debt rises. 2. The National Debt is higher today than ever before. 3. The National Debt as a Percent of GDP is higher today than ever before. 4. In the near future, the national debt will be repaid. 5. The national debt passes a large burden on to our children and grandchildren. 6. The national debt will force the U.S. to declare bankruptcy. Go to the following site: (Or click on National debt from my Web Site) http://www.access.gpo.gov/usbudget/index.html FY 2003 Federal Budget List of Spreadsheets Select FY 2003 Historical Tables Budget Tables Table 7.1 - Federal Debt at End of Year xls 1. What was the federal (national) debt in the most recent year? What was the federal (national) debt in 1980? What was the federal (national) debt in 1946? 2. What percent of the total federal (national) debt has occurred since 1980? (You need to calculate this yourself.) 3. Fill in the following table for debt as a percent of GDP (right side of the on-screen table): Year Total Held by the Federal Government 1946 1970 1980 Most Recent Year
Economics 101 Class 22 Assignment #1 In each case below, show the foreign exchange market between dollars and Japanese Yen in equilibrium. Then, assume that there is a recession in the United States but not in Japan. 1. Show the effects in the foreign exchange market assuming that there are freely floating exchange rates. Explain why you made the changes that you did. $/Y ____________________________Y What would be the effects on the American economy of this change? 2. Show the effects in the foreign exchange market assuming that the world is on the classical gold standard. Explain why you made these changes. $/Y ___________________________________Y What would be the effects on the American economy of this adjustment? 3. Show the effects in the foreign exchange market assuming that the world is on the Bretton Woods system. Explain why you made the changes that you made. $/Y ____________________________Y What would be the effects on the American economy of this adjustment?
Economics 101 Class 22 Assignment #1 According to the Phillips Curve, there is an inverse relationship between inflation rates and unemployment rates. Go back to the Bureau of Labor Statistics site that you used before: http://stats.bls.gov. Or you may use the data given in Chapter 20. On the graph below, plot the inflation rate and the unemployment rate for each year from 1961 to 1999.
1. Was there an inverse relationship between inflation rates and unemployment rates between 1961 and 1969?
2. Did the Phillips curve shift to the right in the 1970s? (This would mean that the combinations were worse than in the 1960s --- more inflation together with more unemployment)
3. Did the Phillips curve shift to the left in the 1980s and 1990s? (This would mean that the combinations were better than in the 1970s --- less inflation together with less unemployment)
4. How does the combination of the inflation rate and the unemployment rate in 2000 compare to those found in the early 1960s?
Inflation Rate Unemployment Rate
Economics 101 Class 22 Assignment #2 In early 2000, the price of oil was about $20 per barrel. By summer of 2000, it had risen to over $34 per barrel. Then, the price fell. By early 2002, the price of oil was close to $20 per barrel once again. However, by spring of 2002, the price had risen back to about $28 per barrel. 1. Based on this information, what would expect would happen to the American economy in 2001 and early 2002? Explain why. 2. Go to the Internet to get recent information. Look up the situation of the American economy in 2001 and 2002. Which of your predictions actually came true? Which of your predictions did not come true? For those that did not come true, try to explain why.
Economics 101 Class 23 Assignment #1 Go to the following site: http://www.stls.frb.org/fred/data/monetary.html 1. What are the components of M-1? What is the total amount of each? 2. What is the total value of M-1 for the most recent period? _________________ 3. What are the additional components of M-2? What is the total value of each? 4. What is the total value of M-2 in the most recent period? ___________________ 5. Go to the following site: http://www.frbsf.org/system/fedsystem/monpol/tofc.html
What are the goals of the Federal Reserve? Are they in conflict? 6. Go to the following site: http://www.bog.frb.fed.us/FOMC/MEMBERS.HTM
Who are the current members of the Federal Open Market Committee (FOMC)? 7. Go to the site: http://www.bankofamerica.com/annual.report/html/cons_balance.cfm What are the main assets of Bank of America? What percent of the assets is comprised of loans? What are the main liabilities of Bank of America? What percent of the assets of Bank of America was provided by owners? (Calculate the stockholders equity as a percent of the total assets)
Economics 101 Class 24 Assignment #1 1. Assume that $10,000 in new currency is deposited in a checking account in Bank A. Assume the reserve requirement is 10% (0.1). Make the change in the Bank A's balance sheet: Assets Liabilities Reserves ______ Checkable Deposits______________ Loans ______ The change in total reserves = __________________ The change in required reserves = __________________ The change in excess reserves = __________________ The change in M - 1 = __________________ 2. Do the same as in question #1, but analyze the situation if a $8,000 loan is made by the bank to Mary to buy a new car: Assets Liabilities Reserves __________ Checkable Deposits ______________ Loans __________ The change in total reserves = __________________ The change in required reserves = __________________ The change in excess reserves = __________________ The change in M - 1 = __________________ 3. Mary buys the car from Joan. Joan deposits Mary's check for $8,000 in her account in Bank B. Show the changes on the balance sheet for both Bank A and Bank B Bank A Bank B Assets Liabilities Assets Liabilities Reserves_____ Checkable Deposits_____ Reserves______ Checkable Deposits______ Loans _____ Loans ______ 4. Assuming no currency is held, how much money (M-1) will ultimately be created as a result of the original creation of $10,000 in new currency? $_________________________
Economics 101 Class 24 Assignment #2 1. Assume that Bank A has $10,000 in checkable deposits, $2000 in reserves, and $8,000 in loans when the reserve requirement is 20%. If the reserve requirement (ratio) is lowered to 10%, Bank A's excess reserves increase by $_____________________ the money supply will ultimately ___________(increase or decrease?) by $______________________. The money multiplier increases from _________ to ______________. 2. Assume that the discount rate is lowered from 6% to 4%. As a result, Bank A (see question #1) borrows $1,000 from the Fed. The monetary base ____________(increases or decreases?) by $_________________ Bank A's excess reserves ________(increase or decrease?) by $_________________ With a reserve ratio of 20%, the money supply will ______________(increase or decrease?) by $______________________. 3. Now, assume that the Fed buys $1,000 worth of Treasury Bills from Bank A. The monetary base ______________(increases or decreases?) by $________________ Bank A's excess reserves ____________(increase or decrease?) by $_______________ With a reserve ratio of 20%, the money supply will ______________(increase or decrease?) by $__________________. 4. If the Fed wishes to increase (ease) the money supply, it should ___________________ the reserve requirement (raise or lower?) ___________________ the discount rate (raise or lower?) ___________________ Treasury securities (buy or sell?)
Economics 101 Class #26 Assignment#1 1. For each of the following, state whether nominal interest rates will rise, fall, or remain unchanged: 1. there is an economic expansion _______________ 2. there is an economic recession _______________ 3. budget deficits rise _______________ 4. The Fed increases the money supply _______________ 5. People expect disinflation _______________ In each case, show using the Graph: Interest Rates Supply of Money i1 Demand for Money 0 Quantity of Money
Economics 101 Class #27 Assignment 1. Begin with the Monetarist assumption that velocity is stable and predictable! If the government increases its spending without an increase in taxes and with no change in the money supply, government borrowing increases. Interest rates will ________________ (rise or fall?). Consumption will ______________ and Investment Spending ___________________ (rise or fall?) The value of the dollar will _________________ (appreciate or depreciate?) causing Net Exports to _______________ (rise or fall?) Overall, Aggregate Demand will ________________(rise, fall, or remain unchanged?) 2. Now consider the Keynesian assumption that Velocity is NOT stable. When the government increases its spending with no increase in taxes, interest rates ____________ (rise or fall?). Therefore, the demand for money will _____________ (rise or fall?). This is the same as Velocity ______________(rising or falling?) As a result, aggregate demand will _________________(rise, fall, or remain unchanged?) 3. In both answers above, interest rates _________ (rise or fall?). If the Federal Reserve decides that its policy is to keep interest rates (especially the federal funds rate) basically constant, the Federal Reserve must ______________(increase or decrease?) the money supply. As a result of this, aggregate demand will ______________ (rise, fall, or remain unchanged?) 4. Assume that every time the Federal Reserve increases the supply of money by $20 billion, interest rates will fall by 2 percentage points (for example, from 8% to 6%). Also assume that every time interest rates fall by 2 percentage points, business investment spending rises by $10 billion. Equilibrium Real GDP is equal to $400 billion. Potential Real GDP is equal to $500 billion. The marginal propensity to consume (MPC) is equal to 9/10 (0.9). The interest rate is 8%. Business investment spending is $20 billion. And the supply of money is $120 billion. In order to eliminate the recessionary gap, by how much and in what direction should the Federal Reserve change the supply of money?
Economics 101 Class #28 Assignment This class had discussed the monetarist explanation of what occurs following an increase in the money supply. Now assume that inflation has been very high. The Fed decreases the money supply, causing aggregate demand to __________________. Inventories in stores ________________. Orders from manufacturers_________________. Production by manufacturers___________. The number of people employed____________. Wages should _______________ and prices should ________________. (Answer "rise" or "fall") Describe what will occur in the short-run if expectations are adaptive. Explain why. In your answer, be sure to define "short-run" and "adaptive expectations". Describe what will occur in the long-run. Explain why. On the graphs below, draw aggregate demand and aggregate supply (on the left) and the Phillips Curve (on the right). Then, show the changes you have described above --- first for the short-run and then for the long run. Also, draw the long-run aggregate supply curve and the long-run Phillips Curve. Price Level Inflation Rate _______________________ _________________________________ 0 Real GDP 0 Unemployment Rate
Economics 101 Class #28 Assignment #2 Form into groups of three or four people. Your group will be assigned one of the following questions. 1. Go to the following site: http://www.bog.frb.fed.us/releases/H15/Current/
What is the most recent interest rate for each of the following: Federal Funds Rate _____________ 3 month Treasury Bill Rate ___________ Prime Rate _____________ 5 year Treasury Note Rate ___________ Discount Rate _____________ 30 year Treasury Bond Rate___________
2. Go to the following site: http://www.stls.frb.org/images/publications/mt/page13.gif
What happened to velocity (the velocity of M-2) in the 1980s and 1990s? In your group, consider some possible reasons for this change, based on what you have learned about velocity.
3. Then, categorize monetary policy in the 1980s and 1990s. When was monetary policy expansionary and when was it contractionary? You can do this first by following the trend in the money supply. The Fed focuses on M-2. You can also do this by focusing on the trend in interest rates. You can get this information at the following site: http://www.stls.frb.org/images/publications/mt/page18.gif Pages 9 and Page 12 will give you a picture of the trend in interest rates. Page 9 and Page 13 will give you a picture of the trend in the money supply. 4.Go to the following site: http://woodrow.mpls.frb.fed.us/info/policy/mpo/mp997.html
a. Does Chairman Greenspan think the economy is doing well or poorly? What are the indicators he quotes to support his conclusion?
b. What predictions does Chairman Greenspan make about changes in real GDP in the near future? About changes in inflation rates in the near future?
c. What does Chairman Greenspan say about Fed policy regarding the money supply? Is it growing too quickly, too slowly, or about right? Is the Fed considering any action with regard to the money supply?
d. What does Chairman Greenspan say with regard to interest rates? Are they too high, too low, or about correct? Is the Fed considering any changes in interest rates?
e. The Fed is obligated to maintain both price stability and full employment. From your reading of the testimony of Chairman Greenspan, do you see any evidence that the Fed is more concerned with one of these two objectives than the other? Cite quotes to support your answer.
Economics 101 Class #31: Assignment 1. Assume that government spending is reduced, reducing the budget deficit. In a closed economy (no trade), aggregate demand would shift ____________ (right or left?). As a result, Real GDP in the US would _________(rise or fall?) and the GDP Deflator would _______________(rise or fall?). In an open economy (with trade), interest rates in the United States ______ (rise or fall?). The US dollar then ____________ (appreciates or depreciates?). As a result of this, aggregate demand shifts to the _________ (right or left?) and aggregate supply shifts to the ___________________(right or left?). From the international effect, we would expect that US prices ____________(rise or fall?). Assuming that the shift in aggregate demand is greater than the shift in aggregate supply, the international effect would cause real GDP in the US to ____________(rise or fall?) In an open economy (with international trade), the effect of reducing government spending on real GDP in the US is ___________(greater or less?) than in a closed economy. 2. Assume that the Fed decreases the money supply. In a closed economy, aggregate demand would shift ___________(right or left?). As a result, real GDP would ______________ (rise or fall?) and the GDP Deflator would ______________( rise or fall?). Decreasing the money supply causes interest rates to _________(rise or fall?). This causes the US dollar to ____________(appreciate or depreciate?). The change in the value of the dollar causes aggregate demand to shift ____________(right or left?) and causes aggregate supply to shift _____________(right or left?). In an open economy, the effect on real GDP in the US is _____________(greater or less?) than in a closed economy.
Economics 101 Class #31 Assignment #2 Form into groups of two or three people. Go on to the Internet. 1. What is the total value of American exports in the most recent year? What was the
total value in 1980? By what percent have American exports grown since 1980 (you need to calculate this)?
2. What is the total value of American imports in the most recent year? What was the
total value in 1980? By what percent have American imports grown since 1980 (you need to calculate this)?
3. What are the most important American export products (in value)? 4. What are the most important American import products (in value)? 5. Who are Americas most important trade partners (in value)? Trade data can be found in the Economic Report of the President: http://w3.access.gpo.gov/eop/ (Search for Tables B-103, B-104, and B-105). You may also try the Bureau of Economic Analysis at http://www.bea.doc.gov/