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Macroeconomics: Fiscal Stimulus
Fiscal Policy under the Obama Administration: The pattern of spending and revenues by the federal government in the next 10 years (and even the next 50 years) looks problematic. On the other hand, the zero lower bound on nominal interest rates suggests that conventional monetary policy has reached its limits. The fact that interest rates remain high for many borrowers in the country suggests there is scope for a fiscal stimulus (and indeed, this was one justification for the American Recovery and Reinvestment Act of 2009).
Suppose President Obama asks for your advice. In particular, he'd like you to propose one fiscal policy change that you think would be beneficial to the economy. Explain the policy change that you would recommend and how this change would be financed.
In providing assistance to the states like Washington has in the past attached strings which have dictated state legislation.
Calculate the cross-price elasticity for the following goods. Are they complements or substitutes?
What is the profit maximizing output level for the typical firm? (Hint: Calculate MC for each change in output, then find the equilibrium price, and calculate MR for each change in output)
The average weekly earnings of bus drivers in a city are $950 with a standard deviation of $45. Assume that we select a random sample of 81 bus drivers.
The airline has an average of 40 passengers paying an average of $200 for this flight. Do you think the airline should be flying between the two cities? Evaluate from a short-run and long-run perspective.
Consider economy that is above full-employment equilibrium (natural rate of output) because of an increase in AD. Prices of productive resources have'nt changed. With the help of graph
Because net exports are counter-cyclical, analyze how the following change during an economic expansion: Consider the case in the context of a flexible exchange rate and a fixed exchange rate.
Suppose that you believe that the average rate of inflation over the next 20 years will be 3.5 percent. Would you by the nominal or the inflation-indexed bond?
Currently, the extent of our economic difficulties has caused the economic policymakers to choose fiscal and monetary policies that are both expansionary.
Account for the effect of the two proposed fiscal policy actions in the short run and long run. This includes a description of the consequences of relevant macroeconomic variables.
Assume that software purchases by businesses are treated as expenses, as they were before November 1999. Calculate GDP using three different approaches: expenditure approach, income approach, and product approach.
What is the difference between contractionary and expansionary monetary policy?
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