Midterm Intermediate Macroeconomics Essay

1. How atomic number 18 presidential election outcomes connect to the performance of the prudence? Presidential elections and the economic system gene outrank a genuinely close relationship and they go together hand and hand. Usually when the deliverance is good and opinion of the organisation is positive, the incumbent or the party of the last-place president wins the election. People tend the lean towards wherefore change a good thing. A couple of theories exist in the relationship of the economy and presidents. The first one is that voters giveing vote for whichever president they feel sh bes the homogeneous economic vales that they countenance. Usually the poor vote liberal or for bigger g everywherenance because they think they allow return more economic ministration them and their families.The second theory is that the president currently in power result attempt to pass policies that exit allow their party to stay in power. So, presidents on their first ter m will make monetary and monetary policies close to the election year to work the economy to sway voters. cardinal examples of how the economy cigargontte sway the presidential election against an incumbent are Hoover and George H.W. Bush. Both presidents had economic downturns during their first term in theatrical role and were non reelected. Other factors play key roles in presidential elections, but none are bigger than economics.2. Discuss the difference amid Microeconomics and Macroeconomics.Microeconomics is the take aim of decision making undertaken by individuals (households) and by business firms. Micro looks at the decisions of individuals actions, akin deciding to work overtime or not. Anformer(a) example is a small business decision on how much to spend of advertising cost. Micro focuses on the supply and require in an economy, and how businesses female genitalia maximize profits. Macroeconomics is the study of the behavior of the economy as a whole. Macro de als with acresal items like the unemployment valuate, organisation budget deficit, and coin supplied by the FED. Macro deals with aggregates, such as the total output as in the economy.For example, Macro would explore how net exports could affect a nations capital. 3. Use the concepts of gross and net enthronisation funds to distinguish between an economy that has a rising stock of capital and one that has a falling stock of capital. In 1933 net private domestic enthronization was electronegative $6 billion. This agent that in that particular year the economy promoted no capital goods at all. Do you agree? wherefore or why not? Explain Though net investment can be positive, negative, or zero, it is quite impossible for gross investment to be less than zero. plebeian Investment = Net Investment + depreciationWe can rearrange this to rangeNet Investment = Gross Investment DepreciationThe capital stock of an economy rises when net investment is positive, that is when gro ss investment exceeds depreciation. The capital stock falls when net investment is negative, that is when gross investment is less than depreciation. In 1933 net private domestic investment was minus $6 billion. This does not mean the country produced no capital goods what it means is that the production of capital goods was less than what was lost due to wear and tear, olibanum the net impact was an overall loss in capital stock. Gross private investment in most cases cannot be negative, since you can try not to invest in new factories, but how do you dissolve to make a negative investment on an economy coarse scale. The scarce possible case I can think of, and some(prenominal) will disagree with this, is when China under Mao went for what is now called the swell Leap Forward. Farmers started melting their ploughs and other equipment to provide steel to the political sympathies, thus destroying the breathing capital, without investing in the new one. Thus you are using you r social movement to destroy what is on that point negative gross investment.4. What are the study factors that have affected U.S. household consumption since the recession in 2001? M any(prenominal) major events have happened in the country and in the world since the year of 2001. The equipment casualty of oil has skyrocketed causing more Americans to spend money fueling their cars preferably than buying goods and services. We have also encountered another recession in 2007 because of speculative trading/investment tactics on Wall Street that caused the caparison market to crash. This put unemployment at an all-time high since the depression era, and washed-up faith in Americas economic system. Firms were reluctant to investment in the American public because they were afraid we would lose our jobs. Also, we have fought in twain wars. One of the wars has been the longest in American history. This dries up resources and ups political science pass. The government has less m oney to investment its citizens and firms have fewer resources to produce products for consumers to buy.5. Briefly beg off how the following would stagger the IS function to the right. a.A change to lump-sum receipts (Specify whether ontogeny or decrease is needed to respite IS nose to the right.) lessen a lump sum assess will invoke the IS foreshorten to the right. Decreasing the lump sum revenue enhancement will growing consumer income, which will cause aggregate require to go up. b.A change to government disbursal (Specify whether increase or decrease is needed to transport IS cut off to the right.) increase government spending will tack the IS convolute to the right. Increasing government spending will cause aggregate film to go up, and shift the IS curve to the right. 6. Explain briefly how a change to the following MS, MD, or P (ceteris paribus) would shift the LM function to the right. Include in your word of honor whether the variable would have to increa se or decrease to cause the rightward LM shift. Discuss which of these the FED exercises control over.a. MS.b. MD (money demand).c. P (price index).The LM curve deals with interest and income and is sloping upward. When the demand of money and supply of money equal each other the market is at symmetricalness. The LM curve shifts when any the supply or demand of money changes. The FED has control over money supplied. a. MS. Increasing money supplied would cause the LM curve to shift to the right. Money supplied would drop interest puts and shift the IS curve to right. b. MD. An increase in money demand would cause the LM curve to shift to the right. Consumers are wanting to spend more which raises GDP c. P. Price is the only one out of the three that a decrease is needed to shift the IS curve to the right. When prices go down wages go down and consumers have less to spend.7. By how much will GDP change if firms increase their investment by $8 billion and the MPC is .80? If the MP C is .67? MPC .80 = 40 billion. The MPC produces a multiplier factor of 5. (1/(1-.8))=5. 58=40 billion MPC .67 = 24 billion. The MPC produces a multiplier of 3.03030. (1/(1-.67))=3.0303. 3.03038= 24.2424 billion 8. Suppose that private sector spending is exceedingly sensitive to a change in interest rate. Compare the potency of monetary and fiscal policy in terms of rising and cloggy palpable GDP. A reduction in the national interest rate will increase the GDP because investments will be in a higher demand. If the FED raises interest rates and and then investments will go down and lower GDP. If the Fed keeps interest rates low like they have the last couple of years in an attempt to stimulate the economy, GDP should go up.9. Assume that a hypothetical economy with an MPC of .8 is experiencing austere recession. By how much would government spending have to increase to shift the aggregate demand curve rightward by $25 billion? How queen-sized a tax cut would be needed to ach ieve this equal increase in aggregate demand? Why the difference? get hold one possible combination of government spending increases and tax decreases that would turn over this same goal. The MPC is the same as Question 7 so we fuck that it will give us a spending multiplier of 5.The tax cut multiplier is .8/(1-.8)=4. If we want to shift the aggregate demand curve by 25 billion, you would divide the 25 billion wanted by the multiplier of 5. 25/5= 5 billion. Same formula goes to the tax cut but with a multiplier of 4. 25/4= 6.25. every way you are trying to put money into consumers pockets so they will hopefully spend more. The difference is because of the MPC. Only .8 of the tax cut will be spend by consumers. They will save the other .2. A possible combo is an increase of 1 billion in government spending and a 5 billion dollar tax cut.10. What are governments fiscal policy options for ending severe demand-pull swelling? Use the aggregate demand-aggregate supply model to show t he impact of these policies on the price level. Which of these fiscal policy options do you think might be favored by a person who wants to save up the size of government? A person who thinks the public sector is too large. There are several things the government can do. They can reduce government spending or increase taxes both ways will put money back into the governments pocket. Either way the key is putting money back into the governments pocket. The price level will fall when it is flexible downward. The overall goal of government policy is to provide stability and not have price levels raise slowly not rapidly.Also, the do not want to reduce price levels. Democrats want to preserve the size of government. They favor more taxes and more government spending. GOP favors fewer taxes, reduce government spending, and reducing government power over the citizens. 11. Explain why relatively flat as opposite relatively steep cut into demand curves are more consistent with the empiri cal observation that there are relatively minor changes in the real wage rate over the course of the business cycle. If the demand curve is flat then a reduction or an increment in labor demand does not alter the price (the wage is too much). On the other hand, if the demand curve is steep, then an equivalent change in demand has much bigger change in the wage rates.Empirical results insinuate that wages are sticky, and the steep labor demand curve cannot explain this observation. 12. Is sustainable long-run equilibrium always reached when the AD and SAS curves intersect? Why or why not? No. The economy would be in a short-run equilibrium when the AD and SAS curves intersect, and not necessarily in long-run equilibrium. It would be in a sustainable long-run equilibrium if the economy finds itself operating on both the labor demand curve and the labor supply curve. This occurs when the labor demand and labor supply curves intersect, so there is no pressure to change. At this point t he certain real wage equals the equilibrium real wage and Y = YN. At any other combination of W, P, and Y, the SAS curve will shift as expectations are adjusted.13. If the equilibrium real wage remains constant, what happens to the nominal wage when the actual inflation rate exceeds the pass judgment inflation rate? Real plight Rate = titulary betroth Rate Inflation. Taking expectations we can say that expected Real Wage Rate = Expected Nominal Wage Rate Expected Inflation This can be rewritten as expected Real Wage Rate + Expected Inflation = Expected Nominal Wage Rate. If the equilibrium real wage rate remains constant, firearm inflation exceeds expected inflation then the nominal wage rate has to rise. 14. In the steady state, the government benefits from inflation. Explain. The government benefits from inflation in two ways. First, it obtains an extra source of revenue, called seignorage or the inflation tax. The government can then lower ordinary taxes or increase spend ing more than it could otherwise. Second, the government may gain if inflation raises the nominal interest rate by less than inflation itself.