1. How are presidential election outcomes related to the public presentation of the economic system? Presidential elections and the economic system have a really close relationship and they go together manus and manus. Normally when the economic system is good and sentiment of the authorities is positive. the officeholder or the party of the last president wins the election. Peoples tend the thin towards why change a good thing. A twosome of theories exist in the relationship of the economic system and presidents. The first 1 is that electors will vote for whichever president they feel portions the same economic valleies that they have. Normally the hapless ballot broad or for bigger authorities because they think they will supply more economic alleviation them and their households.

The 2nd theory is that the president presently in power will try to go through policies that will let their party to remain in power. So. presidents on their first term will do pecuniary and financial policies near to the election twelvemonth to excite the economic system to rock electors. Two illustrations of how the economic system can rock the presidential election against an incumbent are Hoover and George H. W. Bush. Both presidents had economic downswings during their first term in office and were non reelected. Other factors play cardinal functions in presidential elections. but none are bigger than economic sciences.

2. Discourse the difference between Microeconomicss and Macroeconomicss.

Microeconomicss is the survey of determination doing undertaken by persons ( families ) and by concern houses. Micro looks at the determinations of individual’s actions. like make up one’s minding to work overtime or non. Another illustration is a little concern determination on how much to pass of advertisement cost. Micro focuses on the supply and demand in an economic system. and how concerns can maximise net incomes. Macroeconomics is the survey of the behaviour of the economic system as a whole. Macro trades with national points like the unemployment rate. authorities budget shortage. and money supplied by the FED. Macro trades with sums. such as the entire end product as in the economic system.

For illustration. Macro would research how net exports could impact a nation’s capital. 3. Use the constructs of gross and net investing to separate between an economic system that has a lifting stock of capital and 1 that has a falling stock of capital. “In 1933 net private domestic investing was minus $ 6 billion. This means that in that peculiar twelvemonth the economic system produced no capital goods at all. ” Do you hold? Why or why non? Explain: “Though net investing can be positive. negative. or nothing. it is rather impossible for gross investing to be less than nothing. ” Gross Investment = Net Investment + Depreciation

We can rearrange this to state:
Net Investment = Gross Investment – Depreciation

The capital stock of an economic system rises when net investing is positive. that is when gross investing exceeds depreciation. The capital stock falls when net investing is negative. that is when gross investing is less than depreciation. In 1933 net private domestic investing was minus $ 6 billion. This does non intend the state produced no capital goods: what it means is that the production of capital goods was less than what was lost due to have on and rupture. therefore the net impact was an overall loss in capital stock. Gross private investing in most instances can non be negative. since you can make up one’s mind non to put in new mills. but how do you make up one’s mind to do a negative investing on an economic system broad graduated table. The lone possible instance I can believe of. and many will differ with this. is when China under Mao went for what is now called the “Great Leap Forward. ” Farmers started runing their Big Dippers and other equipment to supply steel to the authorities. therefore destructing the bing capital. without puting in the new one. Thus you are utilizing your attempt to destruct what is at that place: negative gross investing.

4. What are the major factors that have affected U. S. family ingestion since the recession in 2001? Many major events have happened in the state and in the universe since the twelvemonth of 2001. The monetary value of oil has skyrocketed doing more Americans to pass money fueling their autos instead than purchasing goods and services. We have besides encountered another recession in 2007 because of hazardous trading/investment tactics on Wall Street that caused the lodging market to crash. This put unemployment at an all-time high since the depression epoch. and destroyed religion in America’s economic system. Firms were loath to investing in the American populace because they were afraid we would lose our occupations. Besides. we have fought in two wars. One of the wars has been the longest in American history. This dries up resources and ups authorities disbursement. The authorities has less money to investing its citizens and houses have fewer resources to bring forth merchandises for consumers to purchase.

5. Briefly explicate how the following would switch the IS map to the right. a. A alteration to lump-sum revenue enhancement ( Specify whether addition or lessening is needed to switch IS curve to the right. ) Decreasing a ball amount revenue enhancement will switch the IS curve to the right. Decreasing the ball amount revenue enhancement will increase consumer income. which will do aggregative demand to travel up. B. A alteration to authorities disbursement ( Specify whether addition or lessening is needed to switch IS curve to the right. ) Increasing authorities disbursement will switch the IS curve to the right. Increasing authorities disbursement will do aggregative demand to travel up. and switch the IS curve to the right. 6. Explain briefly how a alteration to the following MS. MD. or P ( ceteris paribus ) would switch the LM map to the right. Include in your treatment whether the variable would hold to increase or diminish to do the rightward LM displacement. Discuss which of these the FED exercises control over.

a. MS.
b. MD ( money demand ) .
c. P ( monetary value index ) .

The LM curve trades with involvement and income and is inclining upward. When the demand of money and supply of money equal each other the market is at equilibrium. The LM curve displacements when either the supply or demand of money alterations. The FED has control over money supplied. a. MS. Increasing money supplied would do the LM curve to switch to the right. Money supplied would drop involvement rates and switch the IS curve to compensate. b. MD. An addition in money demand would do the LM curve to switch to the right. Consumers are desiring to pass more which raises GDP c. P. Price is the merely one out of the three that a lessening is needed to switch the IS curve to the right. When monetary values go down rewards go down and consumers have less to pass.

7. By how much will GDP alter if houses increase their investing by $ 8 billion and the MPC is. 80? If the MPC is. 67? MPC. 80 = 40 billion. The MPC produces a multiplier of 5. ( 1/ ( 1- . 8 ) ) =5. 5?8=40 billion MPC. 67 = 24 billion. The MPC produces a multiplier of 3. 03030. ( 1/ ( 1- . 67 ) ) =3. 0303. 3. 0303?8= 24. 2424 billion 8. Suppose that private sector disbursement is extremely sensitive to a alteration in involvement rate. Compare the effectivity of pecuniary and financial policy in footings of lifting and take downing existent GDP. A decrease in the national involvement rate will increase the GDP because investings will be in a higher demand. If the FED raises involvement rates so investings will travel down and lower GDP. If the Fed keeps involvement rates low like they have the last twosome of old ages in an effort to excite the economic system. GDP should travel up.

9. Assume that a conjectural economic system with an MPC of. 8 is sing terrible recession. By how much would authorities disbursement have to increase to switch the aggregative demand curve rightward by $ 25 billion? How big a revenue enhancement cut would be needed to accomplish this same addition in aggregative demand? Why the difference? Determine one possible combination of authorities disbursement additions and revenue enhancement lessenings that would carry through this same end. The MPC is the same as Question 7 so we know that it will give us a disbursement multiplier of 5.

The revenue enhancement cut multiplier is. 8/ ( 1- . 8 ) =4. If we want to switch the aggregative demand curve by 25 billion. you would split the 25 billion wanted by the multiplier of 5. 25/5= 5 billion. Same expression goes to the revenue enhancement cut but with a multiplier of 4. 25/4= 6. 25. Either manner you are seeking to set money into consumers’ pockets so they will hopefully pass more. The difference is because of the MPC. Merely. 8 of the revenue enhancement cut will be spend by consumers. They will salvage the other. 2. A possible jazz band is an addition of 1 billion in authorities disbursement and a 5 billion dollar revenue enhancement cut.

10. What are government’s financial policy options for stoping terrible demand-pull rising prices? Use the aggregative demand-aggregate supply theoretical account to demo the impact of these policies on the monetary value degree. Which of these financial policy options do you believe might be favored by a individual who wants to continue the size of authorities? A individual who thinks the populace sector is excessively big. There are several things the authorities can make. They can cut down authorities disbursement or increase revenue enhancements ; both ways will set money back into the government’s pocket. Either manner the key is seting money back into the government’s pocket. The monetary value degree will fall when it is flexible downward. The overall end of authorities policy is to supply stableness and non hold monetary value degrees raise easy non quickly.

Besides. the bash non desire to cut down monetary value degrees. Democrats want to continue the size of authorities. They favor more revenue enhancements and more authorities disbursement. GOP favours fewer revenue enhancements. cut downing authorities disbursement. and cut downing authorities power over the citizens. 11. Explain why comparatively level as opposite comparatively steep labour demand curves are more consistent with the empirical observation that there are comparatively minor alterations in the existent pay rate over the class of the concern rhythm. If the demand curve is level so a decrease or an increase in labour demand does non change the monetary value ( the pay is excessively much ) . On the other manus. if the demand curve is steep. so an tantamount alteration in demand has much bigger alteration in the pay rates.

Empirical consequences suggest that rewards are gluey. and the steep labour demand curve can non explicate this observation. 12. Is sustainable long-term equilibrium ever reached when the AD and SAS curves intersect? Why or why non? No. The economic system would be in a short-term equilibrium when the AD and SAS curves intersect. and non needfully in long-term equilibrium. It would be in a sustainable long-term equilibrium if the economic system finds itself runing on both the labour demand curve and the labour supply curve. This occurs when the labour demand and labour supply curves intersect. so there is no force per unit area to alter. At this point the existent existent pay equals the equilibrium existent pay and Y = YN. At any other combination of W. P. and Y. the SAS curve will switch as outlooks are adjusted.

13. If the equilibrium existent pay remains changeless. what happens to the nominal pay when the existent rising prices rate exceeds the expected rising prices rate? Real Wage Rate = Nominal Wage Rate – Inflation. Taking outlooks we can state 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 existent pay rate remains changeless. while rising prices exceeds expected rising prices so the nominal pay rate has to lift. 14. “In the steady province. the authorities benefits from rising prices. ” Explain. The authorities benefits from rising prices in two ways. First. it obtains an excess beginning of gross. called seignorage or the rising prices revenue enhancement. The authorities can so take down ordinary revenue enhancements or increase disbursement more than it could otherwise. Second. the authorities may derive if rising prices raises the nominal involvement rate by less than rising prices itself.