Reference no: EM13182190

1. Choose 2 of the following and determine whether it should be included in U.S. GDP calculations and state the dollar amount where applicable. Provide an explanation to support your decision, stating the assumptions upon which your answer is based. 

A. Mr. Jones sends his daughter $500 for a semester of studies at NIU.

B. Merrill Lynch receives brokerage fee of $100 for selling 100 shares of your stock with a capital gain of $1200.

C. The $1500 earned from your crafts at the craft show over the weekend?

D. The VCR you purchase on sale at Sears for $120 that was originally priced at $150?

E. The ($120 value) toys you purchase at a friend's garage sale for only $20?

F. The $25,000 value of the Ford Crown Victoria's built in Ford's Canadian plant?

G. The $400 Social Security payment grandma receives each month.

2. Choose A or B

A. . Economists use the rate of growth in real per capita GDP as a relative measure of economic well-being. What are some concerns about the accuracy of this measurement and its use as a proxy for economic growth and well-being? State and explain two concerns or issues. 

B. Choose an alternative measure of economic well-being other than real GDP. Contrast it to real GDP as a measure of economic production and economic well-being. State and define the alternative measure and include your source.

3. If real GDP increased 10% over the past 5 years we can correctly conclude for certain that our well-being or standard of living has increased. Agree or disagree and support your choice.

4. Economists believe the unemployment data underestimates the true unemployment rate in the U.S. Please state and explain two reasons for this. 4 points

5. Economists believe that the CPI overstates the true inflation rate in the U.S. economy. Provide and explain two reasons for this and then explain one policy implication of this overstatement of the inflation rate. (5 points)6. Choose option A or B

Options 6A: ONE and please explain why the provided quote relates to the theories of the stated economist and the school of economic thought related to that economist (Classical, Keynesian, Supply side etc.)

a. "Long run is a misleading guide to current affairs. In the long run we are all dead" John Maynard Keynes

b. Say's Law: supply creates its own demand. Jean-Baptiste Say

c. "Government spending is taxation. When you look at this, I've never heard of a poor person spending himself into prosperity; let along I've never heard of a poor person taxing himself into prosperity. Arthur Laffer

Option 6B: . Would you consider yourself a Classical or a Keynesian economist? Support by focusing on two aspects that distinguish the two major macroeconomic views (models) of the economy. 

7) . Choose A or B: 

A. Define and explain "full employment"; that is full employment rate of unemployment. Why might this vary by country or overtime for a particular country?

B. List the 2 types of unemployment (other than seasonal) and give a real world example of each explaining your decision.

8. The economy has fallen into a recession. Your job is to find out if it is due to a recently passed tax increase or an increase in worldwide oil and food prices.

a. What information would you need to answer this question?

b. How would it provide the answer to the causes of the recession? (Hint: Think of the possible impact of each on AD and AS and related effect on prices and real GDP and employment.)

c. Use an AD/AS graph to support your conclusion.

9) Choose A or B. 

Option A: You are a member of the President's Economic Advisory Council. Data show the economy is falling into a recession (recessionary gap). Respond to the following from the SR perspective of Keynesian Fiscal Policy theory.

1) What specific data would indicate to you the economy is in a recession; provide one example.

2) Provide an AD or AS shock to the economy that might have caused the recession; clearly explain by indicating the AD component(s) affected: C, I, G, X or how SRAS is affected.

3) Clearly state two possible appropriate discretionary expansionary FISCAL policy

actions to remedy the problem.

Possible Solution 1:

Possible Solution 2:

4) State the planned impact of your actions on AD:

5) If your solutions listed above are successful, ceteris paribus and the economy is on the upward sloped portion of the SRAS curve:

What will happen to price levels in the economy?

What will happen to output levels in the economy?

6) What are the likely impacts of your actions in #3 above on the federal government budget (Choose tend toward deficit or surplus)?

7) List and explain two different possible problems, issues or offsets relating to the policy you selected. 

8) During this recession, assuming no discretionary fiscal policy was undertaken, what is the impact of automatic stabilizers in the U.S economy? Answer by stating one automatic stabilizer explaining how it works.

Option B. You are a member of the President's Economic Advisory Council. Data show the economy is expanding too rapidly, overheated, or with inflationary trends (demand-pull inflation).

1) What specific data would indicate to you the economy is in an expansionary gap; provide one example.

9) Provide an AD or AS shock to the economy that might have caused this inflation; clearly explain by indicating the AD component(s) affected: C, I, G, X or how SRAS is affected.

3) Clearly state two possible appropriate discretionary expansionary FISCAL policy

actions to remedy the problem. (2)

Possible Solution 1:

Possible Solution 2:

4) State the planned impact of your actions on AD:

5) If your solutions listed above are successful, ceteris paribus and the economy is on the upward sloped portion of the SRAS curve:

What will happen to price levels in the economy?

What will happen to output levels in the economy?

6) What are the likely impacts of your actions in #3 above on the federal government budget (Choose tend toward deficit or surplus)? (1)

7) List and explain two different possible problems, issues or offsets relating to the policy you selected. 

8) During this expansionary/inflationary period, assuming no discretionary fiscal policy undertaken, what is the impact of automatic stabilizers in the U.S economy? Answer by stating one automatic stabilizer and its impact, explaining how it works.

10. 10 points total Research as you wish the American Recovery and Reinvestment Act of 2009(www.recovery.gov) or the Tax Relief and Job Creation Act of 2010 that were passed as expansionary fiscal policy to deal with the U. S. Great Recession of 2008. In 2011, the original expenditure estimate of $787 billion was increased to $840 billion to be in line with the President's 2012 budget and with changes made by the Congressional Budget Office since the enactment of the Recovery Act. To achieve the goal of transparency, the Act requires recipients of Recovery funds to report every January, April, July, and October on how they are using the money. All the data is posted on Recovery.gov so the public can track the Recovery funds.

Focus on ONE specific policy of the fiscal stimulus and answer the following with cited source and data

1.briefly state the policy and what it is meant to do (who wins)

2. give the dollar amount of the fiscal stimulus that was proposed or has been executed.

3. Assume the MPC to be 80% (.8) and based on your information in 1 and 2 above calculate the impact of the change in Government Spending, G, or the change in taxes, T, to determine the maximum possible change in real GDP in the economy. CLEARLY SHOW YOUR WORK. Points will be deducted for not showing your work.

5. Conclude with your opinion (normative statement) as to whether this policy was appropriate and effective stimulative fiscal policy. Support your reply by addressing potential or actual complications to success and its impact on the debt.