1. Suppose the economy is suffering from high rates of unemployment. What kind of fiscal policy should be adopted and what are the options for implementing that policy? Briefly explain and use an Aggregate Demand (AD) and Aggregate Supply (AS) graph to illustrate the policy.

2. First, describe what a budget deficit is in terms of the relationship between G and T. In the debate over government budget deficits the argument in favor of deficits is the one called “crowding in.” In your own words and a graph explain “crowding in” and be sure to explain all the arguments in favor of crowding in.

3. Recently 2 members of the Wisconsin state legislature wrote about the need for a constitutional amendment to balance the U.S. federal budget. They argued,

“A few days ago, the federal deficit hit $1 trillion. That’s right, the United States spent $1,000,000,000,000 more than we could afford in this fiscal year alone. Wisconsin families know that is not sustainable. We don’t rack up credit cards to the max, add tens of thousands in car loans, a hefty mortgage we can’t afford, and then expect our grandchildren to pay it all back.  

Embedded in these 4 sentences are three (3) arguments used to support a balanced budget amendment. Identify the 3 arguments made in the sentences above.

4. What are the direct counter-arguments to the three (3) arguments identified in Ques. 5 above by those who oppose a balanced budget amendment.

5. Money has distinct characteristics and functions. What functions of money does a Boggs bill and a Boggs transaction fulfill?

6. What’s the difference between fiscal and monetary policy? Explain (a) the different impacts – direct or indirect – of fiscal and monetary policy and (b) the different interests represented by the institutions that make fiscal and monetary policy.

Essay Question (18 pts)

7. With the unemployment rate at 3.5%, most economists believe that the U.S. economy is at or very near full employment. But there is a dispute over monetary policy. According to a recent news report, “President Trump again blamed the Federal Reserve for holding back the economy, saying the U.S. has "unlimited potential." "The Fed doesn't have a clue," Trump tweeted Tuesday as U.S. policymakers began the first of a two day meeting.” What is the dispute between the President and the Federal Reserve Bank? Use economic concepts from monetary policy and graphs to illustrate the dispute between the President and the Federal Reserve Bank. In other words, according to economic theory presented in class, what monetary policy should the Federal Reserve Bank be using? The President wants the opposite monetary policy. Use a graph to illustrate the differences and explain the effect of each on the macroeconomy.

Project 4

Prepare a chart of your major expenses and check the impact of inflation by using inflation calculator and make a comparative analysis for the year 2010 and 2019? You can use the link : https://www.bankofcanada.ca/rates/related/inflation-calculator/   (Eg: A car that costs $ 5000 in 2010 will cost $5804.26 in 2019 )

• Explain the concept behind the calculator’s calculation.
• What are the major item baskets for determining Canada’s CPI? What is the weightage of each item in the item basket?

What are the trends in the national minimum wage for the UK?

Please answer in an easy to understand way.

Monopolistic competition results in allocative

Inefficiency and productive efficiency.

Inefficiency and productive inefficiency.

Efficiency and productive efficiency.

Efficiency and productive inefficiency.

explain why the change is or is not likely to be a Pareto improvement:Replacing the system of agricultural price supports with a system of income supplements for poor farmers.

1. According to the Ricardian equivalence theorem, an increase in government spending (G) would:

Increase aggregate demand as consumer spending would not change

Decrease aggregate demand as consumer spending would decrease more than the increase in G

Not change aggregate demand as consumer spending would decrease by the opposite amount as the increase in G

Not change aggregate demand as household savings would decrease

2.  From a functional finance perspective, when the economy is in an inflationary gap the government should:

do nothing

run a deficit

run a surplus

run a balanced budget

2. Based on the Slutsky Equation and relevant theorems, discuss in your own words about the reactions of quantity demanded to price and income changes (Law of Demand - Theorem 1.13).

13. When the output gap is _______ (an inflationary gap), the unemployment rate is below the natural rate. When the output gap is _______ (a recessionary gap), the unemployment rate is above the natural rate.

A) positive; positive

B) negative; negative

C) positive; negative

D) negative; positive

14. Along a Phillips curve:

A) consumption depends on prices.

B) the inflation rate varies inversely with the unemployment rate.

C) the inflation rate varies directly with the unemployment rate.

D) prices and tax rates are directly related.

15. An increase in the expected rate of inflation would:

A) shift the short-run Phillips curve downward.

B) shift the short-run Phillips curve upward.

C) move the economy along the short-run Phillips curve to higher rates of inflation.

D) move the economy along the short-run Phillips curve to higher rates on unemployment.

16. The long-run Phillips curve is:

A) the same as the short-run Phillips curve.

B) negatively sloped, showing an inverse relationship between unemployment and inflation.

C) vertical at the non accelerating-inflation rate of unemployment (NAIRU).

D) unrelated to the NAIRU.

17. When the economic situation is such that monetary policy can no longer be used because the nominal rate of interest cannot fall below zero, it is called:

A) the liquidity preference.

B) the money neutrality.

C) the liquidity trap.

D) the money illusion.

18. The NAIRU is:

A) the inflation rate at which the unemployment rate does not change over time.

B) a trade-off between unemployment and inflation.

C) the unemployment rate at which inflation does not change over time.

D) a rate at which it is possible to achieve lower unemployment by accepting higher inflation.

19. If the economy is currently in a recessionary gap, real GDP will be________potential output.

A) below

B) the same as

C) above

D) in equilibrium with

20. If the SRAS curve intersects the aggregate demand curve to the right of LRAS, the result will be:

A) a recessionary gap.

B) an inflationary gap.

C) cyclical unemployment.

D) Long-run equilibrium.

Build a case for and against non-reciprocity principles in developing countries. Be sure to provide a comprehensive rationale for each position and examples.

1.1 For each of the following events, ceteris paribus, explain whether the production possibility frontier shifts inward, shifts outward or remains unchanged. Use a single diagram to motivate your answer.

1.1.1 The discovery of coal.

1.1.2 Training for workers that increases the amount of a good that can be produced per worker.

1.1.3 A shift in preference for one good compared to the other good.

1.1.4 Invention of a new process of production that reduces the resources necessary to produce a good.

1.2 “Market structure refers to the nature and degree of competition in the market for goods and services. There are a number of determinants of market structures for a particular good.” In terms of the statement above, discuss the following determinants for the four main types of market structures.

1.2.1 Nature of product

1.2.2 Entry and exit conditions

1.2.3 Economies of scale

Unemployment is a state that almost everyone experiences at some point in his or her career. For this assignment, you will write a two- to three-page essay on economic issues associated with unemployment.

Instructions

1. Research and write a short essay in which you describe how labor unions, the theory of efficiency wages, and the minimum-wage law affect the labor market. Your essay should answer the following questions:

• In what industries do labor unions play a significant role? How do labor unions affect unemployment?
• Describe how minimum wage works in the US. How does the minimum-wage law affect the unemployment rate? What is the connection between labor unions and minimum wage?
• What is the theory of efficiency wages and what impact does it have on unemployment?

Smokey's Garage, Inc., provides routine auto diagnostics for customers in the Atlanta, Georgia, metropolitan area. Tests are supervised by skilled mechanics using equipment produced by two leading competitors in the auto test equipment industry. Staff at the company estimate that 4 tests per hour could be performed if they added another Sunny Tune System (STS) machine and 6 tests per hour could be performed on a new machine, the Car Care Tower (CCT). The STS can be leased at a cost of $5,000 per month, and the CCT can be leased at a rate of $9,000 per month. Labor to operate either of the machines would cost $3,000 per month. All other costs are fixed. On average, each machine is operated 25 eight-hour days per month. Smokey’s receives $15 for each test performed.

A. Compute and interpret the net marginal revenue products for the two types of equipment?

B. Should the company lease more STS machines? What about more CCT machines? Explain your answer.

Using OLS estimation methodology, the study of Morelli and Smith (2015) uses a cross sectional data of 2490 cars for the year 2013 to estimate the factors affecting the price of automobiles in the state of California. The estimation results of regressing the price variable on a set of explanatory variables are shown in Model (1), where the numbers in parentheses are the robust standard errors of the coefficients.

????? = 5647.02 + 5.77 ????ℎ? + 23.64 ??? + 3573.09 ???????      (1)

              (1042.20)      (1.50)              (13.74)            (1230)

???_?^2= 0.65, ? = 2490

Where price is in U.S. dollars, weight is in pounds, mpg is the number of miles per gallon, and foreign is a dummy variable that takes 1 if the ith car is foreign and 0 if domestic.

1. Interpret the above results and discuss whether the signs and statistical significance of the coefficients are as expected.
2. What is the predicted price for a Buick Regal car that weights 3,450 lbs. and with 22 mpg? And what is the predicted price for a Toyota Corolla that weights 2,310 lbs.and with 18 mpg?
3. If in the year 2013 the actual price of Buick Regal was $25,500 and that of Toyota Corolla was $23,640, use the results of point (b) to determine whether your model over or under predicting the price of each car?
4. In one specification, the authors have included the length of the ith car, length, as an additional regressor to Model (1), where length is measured in inches. The resulting regression results are shown in Model (2) as follows,

              ????? = 5524.02 + 6.54 ????ℎ? + 22.73 ??? + 3568.11 ??????? − 93.48 ?????ℎ       (2)

   (1033.10) (4.85)               (13.68)             (1232)                      (32.87)

???_?^2 = 0.92, ? = 2490

If the F-statistic of the coefficients of the four included variables in Model (2) is equal to 54.32, does the inclusion of the variable length in Model (2) creates an econometric problem? Explain in details.

5. In one last specification of the model, the authors have included the size of the trunk of the ith car, trunk, as an additional regressor to Model (1), where trunk is measured in cubic feet. The resulting regression results are shown in Model (3) as follows,

               ????? = 5631.24 + 4.95 ????ℎ? + 25.99 ??? + 3650.22 ??????? + 88.31 ????? (3)

                         (1144.67)    (1.62)              (13.54)             (1285.29)                 (44.38)

???_?^2 = 0.75, ? = 2490

Suppose that the correlations between the variable trunk and the variables price, weight, mpg, and foreign are equal to 0.25, 0.49, -0.38, and -0.36, respectively. Based on these correlations, refer to Model (1) and discuss the direction of the bias of each coefficient of the three included variables. What is your opinion about including the variable trunk as an additional regressor in Model (3)? Does the inclusion of the variable trunk violate any of the OLS assumptions? Explain in details.

Suppose that there are four people who enjoy a public good. One person has a willingness to pay for the public good of 20 - Q, while the other three each have a willingness to pay of 10 -Q/3.

a) Derive the aggregate willingness to pay?

b) Suppose that the marginal cost of providing the public good is 10. What is the efficient level of the public good, and how much will be supplied if there is no policy in place?

c) What is the deadweight-loss loss relative to the efficient solution - if there is no policy in place?

1. A million dollar lottery winner decides to quit working. How can you explain this behavior using economics?

2. How does outsourcing affect wages and unemployment in the short run and the long run?

3. If workers became more productive (produced more output in the same amount of time), what would happen to the demand for labor, the wages of labor, and the number of workers employed?

4. Why is it difficult to determine the amount of wage discrimination in the workplace?

5. Which anti-poverty program (welfare, in-kind transfer, or EITC) creates the strongest incentive for recipients to work? Why?