Calculate the dollar change in government spending

Assignment Help Macroeconomics

Reference no: EM133203232

Assignment:

QUESTION 1. A stock or a flow?

(a) investment
(b) capital
(c) government spending
(d) tax revenue
(e) labor force participation rate

QUESTION 2. Which COMPONENT(S) (if any) of U.S. GDP (consumption C, investment I, government spending G, and/or net exports NX) THIS YEAR would be affected and how (INCREASE or DECREASE) if:

(a) You purchase some Apple, Inc. call options and your broker charges you a small option trading fee.

(b) You pay your tuition.

(d) Ford Motor Company produces some cars in Louisville, KY, but does not manage to sell them this year.

(e) The government builds a new public school in Homestead, Florida.

(f) The Weeknd releases a new single (assume nobody has bought it yet).

(g) Spirit Airlines buys a new Airbus airplane produced in Europe.

(h) A pharmaceutical company spends a considerable amount on R&D in the U.S.

(i) The government increases the monetary transfers to the poor.

(j) Air China buys a Boeing airplane that was produced in the U.S. last year

QUESTION 3. A closed economy is producing just oranges and tangerines. The respective prices and quantities are listed below

Year Orange price, $/lb Quantity of oranges, lb Tangerine price, $/lb Quantity of tangerines, lb

2020 1.10 600 1.60 200

2021 1.50 200 1.50 600

Assume that the listed quantities are also the ones bought by the "typical" consumer in the economy.

(a) Find the nominal GDP in 2021.

(b) Find the real GDP in 2021 if the base year is 2020.

(d) Find the CPI in 2021 if the base year is 2020, assuming that the fixed basket used in estimating the CPI reflects the quantities bought in 2020.

(e) Compare the 2021 GDP deflator with the 2021 CPI. Which one is greater? Why do you think this is the case (in this particular example)?

QUESTION 4. A country's population (civilians, age 16 or older) is 250 million. The labor force is 150 million people. 8 million people are unemployed.

(a) Find the unemployment rate and the labor force participation rate.

(b) Imagine that a recession hit the economy and 7 million workers were laid o". Out of them, 4 million were not able to find jobs for some time, got desperate, and decided to wait for better economic conditions, 1 million did not $nd any full-time work and settled for a part-time schedule, and the remaining 2 million are still looking for a job, but are not successful yet. Find the o!cial unemployment rate (U3) and the labor force participation rate.

QUESTION 5. A closed economy has the following production function:

where Y denotes output, K denotes capital, and L denotes labor.

(a) If both capital and labor increase by 30%, what would be the percentage change in output?

(b) Assume that CAPITAL increases but labor stays constant

(i) Will the marginal product of CAPITAL increase, decrease, or stay the same?

(ii) Will the marginal product of LABOR increase, decrease, or stay the same?

(i) Will the marginal product of LABOR increase, decrease, or stay the same?

(ii) Will the marginal product of CAPITAL increase, decrease, or stay the same?

(d) Assume that markets are competitive and national income is $21 trillion.

(i) Find total capital income (the total income of the owners of capital).

(ii) Find total labor income (the total income of all the workers).

QUESTION 6. Consider a closed economy where all markets clear. Assume that the marginal propensity to consume is 0.9. The economy's output increases by $10 billion (due to technological progress), the tax revenue increases by $4 billion, and the government budget DEFICIT increases by $1 billion.

(a) Calculate the dollar change in government spending.

(b) Calculate the dollar change in public saving.

(d) Calculate the dollar change in consumption.

(e) Calculate the dollar change in private saving.

(f) Calculate the dollar change in national saving.

(g) Does the equilibrium real interest rate increase, decrease, or stay the same?

QUESTION 7. Consider the loanable funds market in a closed economy. Consumption is an increasing function of disposable income and a decreasing function of the real interest rate (for example, when the real interest rate is high, it is more costly to borrow in order to finance the purchase of some durable consumption goods). How would the equilibrium REAL INTEREST RATE and the equilibrium level of INVESTMENT be affected (INCREASE OR DECREASE) if:

(a) The government increases the tax benefits associated with individual retirement accounts (assume that tax revenue remains constant).

(b) The government increases the amount of available investment tax credits (assume that tax revenue stays the same).

(c) A technological discovery of room-temperature quantum chips largely benefits the companies that buy new (quantum) computers.

(d) The government increases taxes, which results in a rise in tax revenue (all else, in particular output, assumed equal).

(e) Government spending and tax revenue increase by the same amount (all else, in particular output, assumed equal).

QUESTION 8. Let denote the initial money supply. A friend of yours does not trust banks and keeps all his money in cash. He buys an old car for $10,000. The seller deposits the money in her checking account in Citibank. The bank keeps 10% of the deposit in reserve and lends the rest to Jack. Jack keeps $2,000 in cash and spends the remainder on GameStop stock. The seller of the stock, Jane, transfers the whole amount to her checking account in Wells Fargo. Wells Fargo keeps 50% of the amount in reserve and lends to rest to Joshua. Joshua keeps $500 in cash and spends the rest on treasury securities. The seller of the securities happens to be the Fed. The resulting money supply is.

Calculate the change in the money supply.

Reference no: EM133203232

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