Name: Duane Bennett Section: ____________

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 on page 3 you may and then scan them as a
separate document. When you have completed this assignment post it to your e-portfolio along with your chosen article and 20 terms
article write up. (20pts) Make sure to put an explanation of the assignments and a reflection statement on your ePortfolio web site.
For examples of reflection prompts please see SLCCs website: https://www.slcc.edu/gened/eportfolio/docs/ReflectionHandout2.pdf.
(10 pts) Link your ePortfolio URL to your MyPage under the student tab so that instructors can view your work. (5pts)

1. What are the 3 main macroeconomic goals economists would like to see for an economy: (3pts)

1. Full Employment

2. Price Stability

3. Economic Growth

2. What is the formula for GDP (write out the full name)? Circle or highlight the largest component and fill in the chart. Under each
put the components and something unique. (19pts)

GDP = Consumption + Investments + Government Expenditures + (Exports Imports)

Components: Components: Components: (changing this is Components:

Circle the largest sub-category
part of fiscal policy)

1. Durables 1. Business Fixed Investment 1. Purchases of goods: 1. Exports

(infrastructure)

2. Non-durables 2. Construction Investment 2. Purchases of services: 2. Imports

(hiring of military personnel)

3. Services: accounts for 60% 3. Inventory Investment Goods

of Consumption!

Excludes: Excludes: This section dictates a lot of

1. Transfers of ownership of 1. Transfer payments (Welfare, foreign policy and taxation

paper assets or real assets. unemployment benefits) issues(tariffs).

(Counts only the construction 2. Interest payments on

of new homes, not the transfer government debt

of ownership)

3. What is the problem associated with being at AD2 that makes policy makers concerned? (1pt)
 Inflation is the problem that occurs at Point C. If Aggregate
Demand continues to shift out there will be little to control prices
in the economy.

Q1 Q Full Q2 REAL OUTPUT (quantity per year)

Employment

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. (22pts)
Who does fiscal policy?: Congress with final approval from the President

1. Increasing Taxes

Increasing taxes increases the cost to consumers and suppliers. This drives down Aggregate Demand.

Suppliers will supply less and consumers will want to buy less.

2. Budget Cuts

A reduction in government spending will reduce (shift in) the Aggregate Demand. Government spending

reduction is affected by the multiplier as well increasing its impact on AD.

Who does monetary policy?: The Federal Reserve

1. Reserve Requirement

By increasing the reserve requirement, The Fed can directly alter lending capacities of the banking system.

Creates a change in the excess reserves.

Changes the money multiplier which impacts supply

2. Discount Rate

Increase the interest rate the Federal Reserve charges commercial banks to borrow reserves.

1. Federal Funds Rate Market

a. Interest rate that banks charge EACH OTHER for very short-term loans

2. Securities Sales

a. Banks use some of excess reserves to buy interest bearing government bonds

i. To cover reserves banks may sell these securities

3. Discount Window Lending

a. Lending of reserves by Federal Reserve to commercial bank

 i. More expensive when interest rates are higher

3. Open Market Operations

Buying and Selling of treasury securities (bonds)

1. Open Market Sales

a. Sell bonds to public
i. Takes money (decreases money supply)
ii. Increases interest rates

5. Begin in equilibrium in each of the following graphs; draw the effects from question 3 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 both graphs.
Explain what is happening in each graph and overall in the economy as the due to the anti-inflationary policy. (20 pts)

Money Supply (MS) and Money Demand (MD) Graph

Nominal Interest Rate Aggregate Demand and

Aggregate Supply
MS MS1

PL
AS

AD1

i AD
i1 MD
GDP GDP1 Real GDP
Quantity

In the Money Supply and Demand graph above what is being shown is the impact low interest rates have upon the demand
for money. As interest rates decrease there is a greater demand for money. The Fed then has to increase the money supply. This
results in inflation of prices to compensate for the greater amount of money in the market. The Aggregate Demand (above) shifts out
as a result of the increase in prices (PL). The GDP increases as well.

Nominal Interest Rate Aggregate Demand and

Aggregate Supply
MS2 MS
PL

AS

AD

i2 AD2
i MD
GDP2 GDP Real GDP
Quantity
 To reduce the inflation that occurred before the Federal Reserve sells bonds to the open market. This takes money out of the
market. This is shown as MS shifts to MS2. The Fed also can increase the reserve rate and discount rate. These will all cause the
nominal interest rate to increase. As the nominal interest rate increases aggregate demand will shift from AD to AD2. This will lower
the GDP as it shifts back in.

6. Given the situation our economy has been in the past several years why have fiscal and monetary policy had a difficult time
getting us back to the optimal level of GDP. (5pts)

There has been period of stagflation the past several years which has made it difficult for fiscal and monetary policy to get the
economy back to an optimal level of GDP. Stagflation is a period of time characterized by high unemployment and high inflation.
Companies are hesitant to hire employees and prices are too high for consumers to afford most needs.

7. FRED: Follow the instructions for this assignment on PDF handout.

Before you start, make sure to log in to your free account so that you can save your graphs!

FRED unemployment graph:

Watch the video Introduction to FRED and complete your own unemployment graph. Instead of using St. Louis use Salt

Lake City. Have the graph span the last 10 years. Write about what inferences you can make from this graph. Save and paste

the graph here: (5pts for the graph and 5 pts for write-up)

The blue line in the graph above is the unemployment rate for the Salt Lake City Metropolitan Area. From the graph it can

be inferred that the majority of jobs that experience unemployment are tied to seasonal labor. The frequency of the peaks and troughs

correspond to the seasons. The majority of hiring for each year is done just after the New Year, in January. The overall shape of the

graph for both the U.S. unemployment rate (in red) and the Salt Lake City area rates are similar. The significant difference is that the

overall employment rate for the Salt Lake City area runs nearly parallel at about 2 and half percent lower than the national rate. This

implies that the Salt Lake City area has more jobs to accommodate the population locally.
 8. List the 3 types of Unemployment, define each, and put a star next to those that are included in the natural rate of

unemployment. (8pts)

1. Frictional Unemployment

It is the Short Term unemployment characteristic of attempting to match workers with jobs.

2. Structural Unemployment

Is unemployment that occurs due to geographical distribution (outsourcing, etc.) and when skills become

obsolete in particular industries (CNC lathes being used instead of manually controlled lathes for machining)

3. Cyclical Unemployment

This is unemployment that happens during economic recessions, and is the most costly.

9. What is the difference between nominal and real, why is each important? (4pts)

Nominal values are not adjusted for inflation. They have significance for explaining things in relation to the

current situation and current time. Real values are adjusted for inflation. Real values are useful for explaining

things across long time frames and for comparison purposes.

10. FRED Create a GDP graph following the instructions on the handout:

Based on the graph, what is the Real Personal Consumption Expenditures for the second quarter of 2008?

$10,077.9 B

Based on the graph, what is the Real Government Consumption Expenditures and Gross Investment amount for the second

quarter of 2008?

$2974.981 B

Based on the graph, what is the Real Gross Private Domestic Investment amount for the second quarter of 2008?

$2472.6 B

Based on the graph, what is the real net exports of goods and services amount for the second quarter of 2008? (4pts)

$ -550.4 B
11. Write about what inferences you can make from this graph. Save and paste the area graph here: (5pts for the graph and 5 pts for

write-up)

The graph above is a visual representation of the portions that contribute to Real Gross Domestic Product (RGDP). The blue area is

Personal Consumption Expenditures (C). This is the largest portion of our countries RGDP. The red area is the Government

Consumption Expenditures and Gross Investment portion (G). It is almost equal to the amount of Real Gross Private Domestic

Investment (I) in green, it looks like they overlap because of this. The thin purple area of the graph is the Real Net Exports of Goods

and Services (X-M). The U.S. over this period of time was a net importer, which is why the purple area represents an area below zero

on the graph. The total of C+G+I+(X-M) equals the Real GDP.

12. Change the graph type to a pie graph:

Put the curser over the pie graph: What is the value of the current Real Personal Consumption Expenditures 11,669.8

in billions of chained 2009 dollars and what % of GDP is it 66.9

What is the value of the current Real Government Consumption Expenditures and Gross Investment 2907.6 in

billions of chained 2009 dollars and what % of GDP is it 16.7

What is the value of the current Real Gross Private Domestic Investment Expenditures 2868.2 in billions of

chained 2009 dollars and what % of GDP is it 16.4 (6pts)

Paste the pie graph here: (3 pts)

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 for new deposits). Use formulas
and cell references whenever possible. 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. Fixing a cell reference is done by putting dollar signs in front of the cell
row and column references ex. $B$3 this will mean that no matter where you copy that cell to it will always refer to cell B3. For
scenario 2, change the reserve requirement to 40%. (20)