Name:__________________Samuel Fisher______________ (80 points total)

Section: ______045__

E-Portfolio Signature Assignment

Salt Lake Community College Macroeconomics - Econ 2020 Professor: Heather A Schumacker Please type your answers to the following questions. If you need to hand draw the graphs and then scan them in you may. When you have completed this assignment post it to your e-portfolio. Make sure to put your reflection statement on your web site. (4pts)
1. What is the formula for PAE (write out the full name)? Circle the largest component and fill in the chart. Under each put the components and something unique. (19pts)

PAE = ____Consumer expenditure__ + __Net exports______ Components: Personal Consumption Circle the largest category 1. Durable goods

+ ___Investment Expenditure____

+ __Government Expenditure__

Components: Investment

Components: Government Purchases

Components:

1. Business fixed investment

1. Purchases by federal state and local governments on final goods and services.

1.imports

2. Non Durable Goods

2. Construction Investment

2. ex. Hiring of civil servants and military personnel, construction of roads, and public buildings

2. exports

3. Services this is the largest at about 60%

3. Inventory investment goods

Excludes: 1. Transfers of ownership (stock, bonds), or real assets (houses, jewelry, art)

Excludes: 1. transfer payments social security, healthcare, etc. 2. interest paid on the government debt

2.

Given the following information, what is the short-run equilibrium output (show your work) ___2610_____ What is the autonomous expenditure ______890____ what is the induced expenditure ____.5y_____ where would it cross the Y axis___890_________ what is the slope of PAE _________.5____ what is the multiplier ____________2_____ if there is a 10 unit increase in PAE what will happen to the short run equilibrium (increase or decrease)_____increase______ and by how much ____20_________ and will it lead to a recessionary gap or an expansionary gap_______expansionary gap ______ Ca = 890 MPC = 0.5 IP = 220 G = 300 X-M = 20 T = 250 (9pts)

y= 890 +.5(y-250)+220+300+20 y = 1430 + .5y - 125 y = .5y +1305 .5y = 1305 y = 2610

3.

What is the problem associated with being at AD2 that makes policy makers concerned? (1pt) At AD2, there is an expansionary gap; actual output has exceeded potential output. The economy is unsustainable at this level so policy makers will introduce policies that will bring the economy back into bounds, closer to AD, reducing inflation.____

4.

Who does fiscal and monetary policy? What are 2 fiscal policies and 3 monetary policies to correct a situation where the economy is naturally at AD* but finds itself at AD2, as seen in the graph on the previous page. Briefly explain how each of these policies would work to correct the situation. (12pts) Who does fiscal policy: _____congress and the President__________ 1. Increase Corporate Taxes Increasing corporae taxes will slow business investment bcause of rising costs, prices will go down and growth will approach potential output ______________________ __________________________________________________________________________________________ __________________________________________________________________________________________ 2. ____________increase regulation of consumption___________ _____________increasing regulation of consumption increases business and compliance costs and risk of being out of regulation, slows growth and decreases investment, and moves the line back to potential output_____________________________________________________________________________ __________________________________________________________________________________________ Who does monetary policy: _____the Federal Reserve________ 1. ______raise the interest rates____

_______________raising the interest rates increases cost of leverage and investment, decreases investment, decreases growh, and actual output approaches potential output.________________________________________________________________________ 2. ____raise the reserve requirements________________ ________raising the reserve requirements contracts the money supply, raises the demand and the price of money, the interest rates, slows growth as it approaches potential output____________________________________________ __________________________________________________________________________________________ 3. ______sell bonds open market operations____________ ________________________selling bonds decreases the money supply as the fed takes money out of the economy which raises interest rates and slows growth until it reaches potential gdp__________________________________________________________________ __________________________________________________________________________________________

5.

Use the excel sheets provided to complete this problem. Scenario 1: If the initial deposit into a bank is $5,000 and the reserve requirement is 10% use formulas to fill in the chart all the way to completion (where there will be 0 new deposits). Fix the cell references for the reserve requirement when entering your formulas on the first line such that you can drag your information down the rows. For scenario 2, change the reserve requirement to 40%. (10 pts)

See excel spreadsheet

6.

Create a third page of the excel spreadsheet and label it GDP. Enter in the data given below for 2010 U.S. expenditure numbers and then create a pie chart with percentages. (Under insert then click pie. When the graph comes up click Chart Tools, Design, Quick Layout and select a pie chart with percentages. Create your own personal color selections for each piece of the pie and put a background color on the percentages.) Make sure to title your chart: GDP 2012 U.S. (5pts) Consumption Expenditures 10362.3 Investment Expenditures 1763.8 See spreadsheet Government Expenditures 2974.7 Net Exports -499.4

7.

Begin in equilibrium in each of the following graphs; draw the effects from question 2 above as they would apply in each graph below. Next draw the effects of an anti-inflationary policy taken by the fed to correct the result from question 2 - use all three graphs (Money Supply and Money Demand, AD/AS, and PAE). Explain what is happening in each graph and overall in the economy as the due to the anti-inflationary policy. (20 pts) Money Supply and Money Demand Graph Nominal Interest Rate Money Supply Curve (MS)
Aggregate Demand and Aggregate Supply

AS Interest rate
PL

AD 2 AD
Real GDP

Money Demand (MD)

As monetary policy kicks in, as explained above, supply of money shrinks, deman rises, cost of deman (interest) rises until it reaches equilibrium (cross)

As fiscal policy kicks in, price level falls and Y shrinks goingdown to y*

PAE PAE

PAE = Y

Slope line 1 = .5 slope line 2 = .5

Line 1 Line 2 45 Y* Y

PAE will shrink back to potential output by a multiplier of 2 as policy is implementd to reduce the PAE. Final resting point where line 2 intersects the first vertical line = Y*