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Macroeconomics 2301

questions for Exam 2

You must send me your answers to all of the questions.

I will grade 6 of your answers.

1. GDP is a key concept in Macroeconomics. Please review the material covered in the topic called Measuring Domestic Output

and National Income.

a. What is the definition of GDP?

b. Tell me the level of real GDP and real GDP per capita for the past 5 years and tell me how you think we are doing

today and why.

c. Go to topic called Economic Growth and look at slide 3 and tell me if the falling trend line is a good or bad thing for the

nation and why. Please be thorough!

d. List and explain in detail, the 3 different approaches to calculating GDP.

i. List and explain the approaches and how you would use each to calculate GDP.

e. List and explain 4 types of transactions that would not be included in GDP and why they should be omitted.

i. Look in the notes and find 4 types of transactions that are excluded from the computation of GDP and write them down

along with the explanation of each and why they are not

included.

f. Nominal versus real GDP. i. Explain the difference between nominal and real

GDP.

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ii. Explain in detail, how to calculate real GDP, including the factors used in the calculation.

1. Look in the notes to find this – very straight forward.

iii. Explain in detail the CPI since it is used to make the conversion. The following url should help –

https://www.bls.gov/cpi/

iv. Explain what you can do with real GDP that you cannot do with nominal GDP and explain why that

is important.

g. GDP and GDP per-capita. i. Explain the difference between GDP and Per Capita

GDP;

ii. Explain how to calculate Per Capita GDP, and how Per Capita GDP can be used.

2. Economic growth. Two key sources of economic growth have been increases in resources and increases in productivity. Please

review the topic called Introduction to Economic Growth and

Instability.

a. Please list 3 factors that might contribute to falling U.S. GDP growth rates and explain how each factor might cause

falling GDP growth rates.

b. Please provide 3 recommendations for achieving an acceptable level of economic growth that reduces wealth

and income inequality and minimizes the production of

greenhouse gasses.

3. The Business Cycle and Built in stabilizers.

a. What can the business cycle tell you about the status of our economy today and what we might experience over the next

12 months. (please provide detail)?

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b. Given what you have learned about the U.S. Business cycle over the past 60 years, please explain 3 ways you can use

that information to enhance your personal odds of

achieving future personal success. Please do not talk about

your financial portfolio or playing around with the stock

market.

c. Explain in some detail the 4 phases of the business cycle,

including the characteristics of each. Please don’t include

Depression as one of them. Be thorough! You should have

at least 4 characteristics for each phase! Include in your

discussion how each phase of the business cycle might

impact your life and what you should do to minimize the

negative impacts on your future.

d. Built-in Stability

1. Explain the difference between discretionary and non-discretionary fiscal policy. Include in

your explanation the differences in the roles of

the three branches of government in each case.

2. Explain the key relationships that supports the built-in stabilizer which were provided in the

slides and lecture.

3. Explain thoroughly how the built-in stabilizer works to reduce inflation. Need to see the step

by step of what happens.

4. Explain thoroughly how the built-in stabilizer works to reduce recession. Need to see the step

by step of what happens.

5. Explain why the presence of the built-in-stabilizer is important to managing the macro

economy.

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4. Unemployment and Recession Please review the topic called Introduction to Economic Growth and Instability

a. Explain in detail, how the unemployment rate is calculated.

b. Explain in detail, how we define the employed, the unemployed, and who is in the labor force?

i. The link BLS website should help – http://www.bls.gov/news.release/empsit.t15.htm

c. List and explain the various unemployment rates used by the BLS, and indicate which one of the 6 is the official

unemployment rate. i. This link to the BLS website should help –

http://www.bls.gov/news.release/empsit.t15.htm

d. There has been a historic disparity between unemployment rates for Black, Hispanic, and White workers.

i. Please provide detailed explanations of 5 reasons the Black and Hispanic unemployment rates are

always significantly higher than the unemployment

rate for Whites.

ii. Explain in detail, 1 thing that should be done to correct each of the things that cause the problem.

Be sure you explain how each recommendation

would actually lead to solution of the problem.

Please be very thorough with this.

e. The 3 types of unemployment. i. List and explain the 3 types of unemployment that

we discussed. Include the characteristics of each

and the role of skills for each.

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f. List and explain thoroughly, 3 examples of significant economic costs of unemployment and what we might do to

reduce those costs.

g. Unemployment and how to use Fiscal Policy to address Recession. Please review the topics called Fiscal Policy and

The Aggregate Demand and Aggregate Supply Model

Background for this question:

The US economy is currently experiencing recession

according to the Federal Government. You can use only

Fiscal Policy and the AD – AS model.

i. List and explain the 3 Fiscal Policy tools covered in the slides that apply to fixing recession, and indicate

the one tool that you want to use to attack the

recession problem?

Please note that transfer payments would come

under the heading of government spending! So

don’t use it as one of your 3 tools of fiscal policy.

ii. Explain why you selected the tool and not the others. Refer to your decision criteria.

1. Consider the pros and cons of each of the 3 tools and tell me why you picked the one you picked and why you did

not pick the other option(s).

iii. Explain how your tool would solve the recession problem and what effects your solution would have

on at least five key economic variables. BE SPECIFIC! I WANT TO SEE THE DETAIL. USE THE WHAT HAPPENS

NEXT APPROACH! 1. Explain how your choice of tools would work to solve the

problem of recession. Start with the implementation of

your tool and then list step by step what happens next, until

you arrive at the appropriate impact on GDP. Be sure you

provide the detailed step by step flow.

2. Using that approach allows the list the key economic variables and how each would be affected, to pop right out.

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5. Inflation Please review the topic called Introduction to Economic Growth and Instability

a. What is inflation and how can you use the CPI data to calculate it?

b. List and explain the two types of inflation.

c. Give two examples of who might be hurt by inflation and why.

d. Give two examples of who might be helped by inflation and why.

e. Inflation and how to use Fiscal Policy to address the problem of Inflation. Please review the topic called Fiscal

Policy and The Aggregate Demand and Aggregate Supply

Model.

Background for this question:

Assume the US economy is currently experiencing high

rates of inflation according to the Federal Reserve. Use only

Fiscal Policy and the AD – AS model.

i. List and explain the 3 Fiscal Policy tools covered in the slides and indicate which tool you will use to

attack the inflation problem? 1. List the 3 possible choices and then just tell me which of

the tools you would select. Just write it down.

ii. Explain why you selected this particular tool and not the others. Refer to your decision criteria.

1. Consider the pros and cons of each of the 3 tools and tell me why you picked the one you picked and why you did

not pick the other option(s).

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iii. Explain how your solution would work to solve the problem of inflation and what effects your solution

would have on at least five key economic Variables?

BE SPECIFIC! I NEED TO SEE THE DETAIL.

USE THE WHAT HAPPENS NEXT APPROACH! 1. Explain how your choice of tools would work to solve the

problem of recession. Start with the implementation of

your tool and then list step by step what happens next, until

you arrive at the appropriate impact on GDP. Be sure you

provide the detailed step by step flow.

2. Using that approach allows the list the key economic variables and how each would be affected, to pop right out.

6. Aggregate Demand Please review the topics called The Aggregate demand and aggregate supply model and the Aggregate

Expenditures model.

a. List and thoroughly explain the three reasons the Aggregate Demand curve is downward sloping.

i. In your explanation, please start with an increase in prices and work through to a decrease in AD.

b. List and explain in detail, the components of Aggregate Demand and explain each of their determinants.

i. You studied the 4 components. List and explain them and under each list and explain the determinants of each.

7. The basic macroeconomic relationships introduced a number of key concepts. Please review the topic called Basic

Macroeconomic Relationships.

a. Please explain in detail the relationships between income, consumption, savings, and GDP.

i. Define each ii. Explain the relationship between these items.

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b. Please explain in detail the relationships between interest rates, expected rates of return, investment, and GDP. Be

specific and be thorough. i. All of the necessary info is provided in the slides and audio

lectures

c. Please explain the concept of the multiplier, including: 1. What information is required to calculate the

spending multiplier a. Refer to the slides, the info is there. Look closely –

don’t miss this!

2. List and explain the 3 different multipliers that we discussed.

a. Again, refer to the slides, it’s all there.

3. Explain in detail how the multiplier works to impact GDP. Be specific!

a. Use the chart from the slide set as the basis of your explanation. Start with the injection of money into

the economy and then how that affects household

income and then spending via the mpc. Go on to

discuss the rounds of spending, etc. and how the

ultimate impact on gdp is amplified by the

multiplier effect.

8. The Aggregate Supply curve shows the level of real output that the business sector will produce at various possible price levels.

Please review the topic called The aggregate demand and

aggregate supply model.

a. Explain the Long Run Aggregate Supply curve and the assumptions that support its shape at full employment.

i. List the assumptions, discuss the shape of the LR AS curve and why it takes that shape.

b. Explain the Short Run Aggregate Supply curve and the assumptions that support its shape.

i. List the assumptions, discuss the shape of the SR AS curve and why it takes that shape. Discuss the difference in the shape of

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the curve at levels below full employment GDP and what you see

at levels above full employment GDP.

9. We discussed four problems that complicate the application of fiscal policy. Please review the topic called Fiscal Policy.

a. List and thoroughly explain these 4 problems, including how each would likely impact the overall effectiveness of

fiscal policy. Be specific! Be thorough! i. You should list the 4 problems associated with Fiscal Policy that

were listed in the slides and explain the factors associated with

each. And as you address each problem, discuss how each would

impact the effectiveness of fiscal policy.

10. Scenario: Climate scientists are in agreement that inhabitants of earth must

immediately make changes to our economic systems in order for

us to have any hope of minimizing the global impacts of climate

change. They have determined that we must reduce greenhouse

gas emissions to a level that will limit global heating to no more

than 1.51C above pre-industrial levels.

Please tell me about the policy changes you would recommend for

America. Please talk about the things that

• the Federal, State, and local governments must do

• the things corporations must do

• and the things individuals must do to achieve this goal.

Please provide as much explanation as possible. It would be

useful to include discussion of the good things that can result

from your policy suggestions and the bad things that can result

from your policy suggestions.