Define the natural rate of unemployment. Identify three factors that may cause the natural rate to change over time.

Minimum of Full pages per Assignment. No filler word or sentences. Just quality essays. Thanks in advance.

********Assignment #1********

Assignment #1 Topic: Macroeconomic Indicators: GDP, CPI, Unemployment, Interest Rates——–

There are probably a thousand macro economic indicators, some measure the overall national economy, some are more limited in scope. The three most often quoted and publicized are the Gross Domestic Production Index (GDP), the Consumer Price Inflation Index (CPI) and the Unemployment Index. Please complete the short answer questions regarding these three indicators:

1. Use the table below:

Table 6-1

All Values (Billions)

*Personal consumption expenditures: $1,000

*Gross private domestic investment: $500

*Net exports: $300

*Imports: $180

*Government purchases of goods and services: $280

*Transfer Payments: $90

End of Table 6-1

a. What is the value of GDP?

b. In each of the following cases, indicate if GDP is affected, under what category and what happens to GDP. Be sure to explain why or why it is not included.

– You buy a used textbook from one of your classmates.

– You buy a new umbrella.

– Ella, a French tourist, has a haircut in a salon in San Francisco.

– Oklahoma cleans up after a devastating tornado.

– A pension payment to a retired military person

2. Why do some people gain and other people lose from inflation and deflation?

3. Define the natural rate of unemployment. Identify three factors that may cause the natural rate to change over time.

4. What is structural unemployment? State the various reasons due to which it can arise in an economy.

Assignment 1 expectation:

Use information from the modular background readings as well as any good quality resource you can find. Make sure you cite all resources you use and provide a reference list at the end of your paper.

Length: 3-5 typed and double-spaced pages.

In addition to the overall quality, depth, grammar, and organization of the paper, the following will, in particular, be assessed:

1. Your ability to interpret the three macroeconomic indicators.

2. Some in-text references to modular background readings (APA formatting not required).

—-Background Reading—–

Bouman, John. () Principles of Macroeconomics. “Unit 3: Gross Domestic Product”

Rittenberg L. and T. Tregarthen (2009). Chapter 5: Macroeconomics: The Big Picture (Section 1-3 only) Principles of Macroeconomics. Retrieved from: www.web-books.com/eLibrary/NC/B0/B62/TOC.html

Rittenberg L. and T. Tregarthen (2009). Chapter 6: Measuring Total Output and Income (Section 1-3 only) Principles of Macroeconomics. Retrieved from: https://www.web-books.com/eLibrary/NC/B0/B62/TOC.html

——————————-End of Assignment 1——–

***************************Assignment #2***********************

Assignment Topic: Fiscal Policy: Government Expenditures and Revenues, Budget, National Debt

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Assignment 2

Macroeconomic choices, particularly in the areas of fiscal policy, are not just about economics but about political philosophies, values and goals. This Case asks you to think about some of these dimensions.

1.Do all government purchases have the same effect on aggregate demand? Defend your answer with economic reasoning.

2.Suppose a country increases government purchases by $100 billion. Suppose the multiplier is 1.5 and the economy’s real GDP is $5,000 billion.

a.In which direction will the aggregate demand curve shift and by how much?

b.Why is the change in real GDP is likely to be smaller than the shift in the aggregate demand curve?

3.Read the Case in Point: Crowding Out in Canada in Section 12.3 and answer the following:

a.What is “crowding out,” and how does it reduce private investment?

b.Given that only certain types of government expenditures crowded out private investment, what are the implications for fiscal policy choices?

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——–Assignment 2 Expectations:—————-

Use information from the modular background readings as well as any good quality resource you can find. Make sure you cite all resources you use and provide a reference list at the end of your paper.

Length: 3-5 typed and double-spaced pages.

In addition to the overall quality, depth, grammar, and organization of the paper, the following will, in particular, be assessed:

1.Analytical skills that allow you to draw conclusions, questions 3, 4, and 5 on federal budget projections.

2.Critical thinking skills, question 5, on formulating policy about budgetary matters.

—————–Assignment 2 required reading————————–

Bouman, John. Principles of Macroeconomics. “Unit 6: Fiscal Policy” (section 6 optional)

Rittenberg L. and T. Tregarthen (2009). Chapter 12: Governement and Fiscal Policy (Section 1-3 only) Principles of Macroeconomics. Retrieved from: www.web-books.com/eLibrary/NC/B0/B62/TOC.html

“12.3 Issues in Fiscal Policy”

The discussion in the previous section about the use of fiscal policy to close gaps suggests that economies can be easily stabilized by government actions to shift the aggregate demand curve. However, as we discovered with monetary policy in the previous chapter, government attempts at stabilization are fraught with difficulties.

Lags

Discretionary fiscal policy is subject to the same lags that we discussed for monetary policy. It takes some time for policy makers to realize that a recessionary or an inflationary gap exists—the recognition lag. Recognition lags stem largely from the difficulty of collecting economic data in a timely and accurate fashion. The current recession was not identified until October 2008, when the Business Cycle Dating Committee of the National Bureau of Economic Research announced that it had begun in December 2007. Then, more time elapses before a fiscal policy, such as a change in government purchases or a change in taxes, is agreed to and put into effect—the implementation lag. Finally, still more time goes by before the policy has its full effect on aggregate demand—the impact lag.

Changes in fiscal policy are likely to involve a particularly long implementation lag. A tax cut was proposed to presidential candidate John F. Kennedy in 1960 as a means of ending the recession that year. He recommended it to Congress in 1962. It was not passed until 1964, three years after the recession had ended. Some economists have concluded that the long implementation lag for discretionary fiscal policy makes this stabilization tool ineffective. Fortunately, automatic stabilizers respond automatically to changes in the economy. They thus avoid not only the implementation lag but also the recognition lag.

The implementation lag results partly from the nature of bureaucracy itself. The CBO estimate that only a portion of the spending for the stimulus plan passed in 2009 will be spent in the next two years is an example of the implementation lag. Government spending requires bureaucratic approval of that spending. For example, a portion of the stimulus plan must go through the Department of Energy. One division of the department focuses on approving loan guarantees for energy-saving industrial projects. It was created early in 2007 as part of another effort to stimulate economic activity. A Minnesota company, Sage Electrochromics, has developed a process for producing windows that can be darkened or lightened on demand to reduce energy use in buildings. Sage applied two years ago for a guarantee on a loan of $66 million to build a plant that would employ 250 workers. Its application has not been approved. In fact, the loan approval division, which will be crucial for projects in the stimulus plan, has never approved any application made to it in its two years in existence!

Energy Secretary Steven Chu, a Nobel Prize-winning physicist, recognizes the urgency of the problem. In an interview with the Wall Street Journal, Dr. Chu said that his agency would have to do better. “Otherwise, it’s just going to be a bust,” he said.[41]

—–Crowding Out——

Because an expansionary fiscal policy either increases government spending or reduces revenues, it increases the government budget deficit or reduces the surplus. A contractionary policy is likely to reduce a deficit or increase a surplus. In either case, fiscal policy thus affects the bond market. Our analysis of monetary policy showed that developments in the bond market can affect investment and net exports. We shall find in this section that the same is true for fiscal policy.

Figure 12.11, “An Expansionary Fiscal Policy and Crowding Out” shows the impact of an expansionary fiscal policy: an increase in government purchases. The increase in government purchases increases the deficit or reduces the surplus. In either case, the Treasury will sell more bonds than it would have otherwise, shifting the supply curve for bonds to the right in Panel (a). That reduces the price of bonds, raising the interest rate. The increase in the interest rate reduces the quantity of private investment demanded. The higher interest rate increases the demand for and reduces the supply of dollars in the foreign exchange market, raising the exchange rate in Panel (b). A higher exchange rate reduces net exports. Panel (c) shows the effects of all these changes on the aggregate demand curve. Before the change in government purchases, the economy is in equilibrium at a real GDP of Y1, determined by the intersection of AD1 and the short-run aggregate supply curve. The increase in government expenditures would shift the curve outward to AD2 if there were no adverse impact on investment and net exports. But the reduction in investment and net exports partially offsets this increase. Taking the reduction in investment and net exports into account means that the aggregate demand curve shifts only to AD3. The tendency for an expansionary fiscal policy to reduce other components of aggregate demand is called crowding out. In the short run, this policy leads to an increase in real GDP to Y2 and a higher price level, P2.

Figure 12.11. An Expansionary Fiscal Policy and Crowding Out

In Panel (a), increased government purchases are financed through the sale of bonds, lowering their price to Pb2. In Panel (b), the higher interest rate causes the exchange rate to rise, reducing net exports. Increased government purchases would shift the aggregate demand curve to AD2 in Panel (c) if there were no crowding out. Crowding out of investment and net exports, however, causes the aggregate demand curve to shift only to AD3. Then a higher price level means that GDP rises only to Y2.

Crowding out reduces the effectiveness of any expansionary fiscal policy, whether it be an increase in government purchases, an increase in transfer payments, or a reduction in income taxes. Each of these policies increases the deficit and thus increases government borrowing. The supply of bonds increases, interest rates rise, investment falls, the exchange rate rises, and net exports fall.

Note, however, that it is private investment that is crowded out. The expansionary fiscal policy could take the form of an increase in the investment component of government purchases. As we have learned, some government purchases are for goods, such as office supplies, and services. But the government can also purchase investment items, such as roads and schools. In that case, government investment may be crowding out private investment.

The reverse of crowding out occurs with a contractionary fiscal policy—a cut in government purchases or transfer payments, or an increase in taxes. Such policies reduce the deficit (or increase the surplus) and thus reduce government borrowing, shifting the supply curve for bonds to the left. Interest rates drop, inducing a greater quantity of investment. Lower interest rates also reduce the demand for and increase the supply of dollars, lowering the exchange rate and boosting net exports. This phenomenon is known as “crowding in.”

Crowding out and crowding in clearly weaken the impact of fiscal policy. An expansionary fiscal policy has less punch; a contractionary policy puts less of a damper on economic activity. Some economists argue that these forces are so powerful that a change in fiscal policy will have no effect on aggregate demand. Because empirical studies have been inconclusive, the extent of crowding out (and its reverse) remains a very controversial area of study.

Also, the fact that government deficits today may reduce the capital stock that would otherwise be available to future generations does not imply that such deficits are wrong. If, for example, the deficits are used to finance public sector investment, then the reduction in private capital provided to the future is offset by the increased provision of public sector capital. Future generations may have fewer office buildings but more schools.

Choice of Policy

Suppose Congress and the president agree that something needs to be done to close a recessionary gap. We have learned that fiscal policies that increase government purchases, reduce taxes, or increase transfer payments—or do a combination of these—all have the potential, theoretically, to raise real GDP. The government must decide which kind of fiscal policy to employ. Because the decision makers who determine fiscal policy are all elected politicians, the choice among the policy options available is an intensely political matter, often reflecting the ideology of the politicians.

For example, those who believe that government is too big would argue for tax cuts to close recessionary gaps and for spending cuts to close inflationary gaps. Those who believe that the private sector has failed to provide adequately a host of services that would benefit society, such as better education or public transportation systems, tend to advocate increases in government purchases to close recessionary gaps and tax increases to close inflationary gaps.

Another area of contention comes from those who believe that fiscal policy should be constructed primarily so as to promote long-term growth. Supply-side economics is the school of thought that promotes the use of fiscal policy to stimulate long-run aggregate supply. Supply-side economists advocate reducing tax rates in order to encourage people to work more or more individuals to work and providing investment tax credits to stimulate capital formation.

While there is considerable debate over how strong the supply-side effects are in relation to the demand-side effects, such considerations may affect the choice of policies. Supply-siders tend to favor tax cuts over increases in government purchases or increases in transfer payments. President Reagan advocated tax cuts in 1981 on the basis of their supply-side effects. Coupled with increased defense spending in the early 1980s, fiscal policy under Mr. Reagan clearly stimulated aggregate demand by increasing both consumption and investment. Falling inflation and accelerated growth are signs that supply-side factors may also have been at work during that period. President George W. Bush’s chief economic adviser, N. Gregory Mankiw, argued that the Bush tax cuts would encourage economic growth, a supply-side argument. Mr. Bush’s next chief economic adviser, Ben Bernanke, who became the next chairman of the Federal Reserve Board in 2006, made a similar argument and urged that the Bush tax cuts be made permanent.

Finally, even when there is agreement to stimulate the economy, say through increasing government expenditures on highways, the how question remains. How should the expenditures be allocated? Specifically, which states should the highways run through? Each member of Congress has a political stake in the outcome. These types of considerations make the implementation lag particularly long for fiscal policy.

Key Takeaways

•Discretionary fiscal policy involves the same kind of lags as monetary policy. However, the implementation lag in fiscal policy is likely to be more pronounced, while the impact lag is likely to be less pronounced.

•Expansionary fiscal policy may result in the crowding out of private investment and net exports, reducing the impact of the policy. Similarly, contractionary policy may “crowd in” additional investment and net exports, reducing the contractionary impact of the policy.

•Supply-side economics stresses the use of fiscal policy to stimulate economic growth. Advocates of supply-side economics generally favor tax cuts to stimulate economic growth.

——End of 12.3——-

End Of Assignment 2

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************Assignment 3******************

Assignment 3 Topic: Monetary Policy: Money, Credit, the Federal Reserve, and Interest Rates

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Assignment 3

Money supply and interest rates are important to individuals and businesses making decisions to finance purchases. The following articles assess conditions for financing purchases and important aspects of monetary policy. Read both and respond to the four questions in a 3- to 5-page report.

1.The Federal Reserve policy makers use several different tools to influence the money supply and interest rates. Identify and briefly describe these tools. Include in your answer the difference between expansionary and contractionary monetary policies.

2.Define and explain the three lags discussed in monetary policy. For each type identify a problem caused by the lag.

3.If the economy is operating below its potential output, what kind of gap exists? What kinds of fiscal or monetary policies might you use to close this gap? Can you think of any objection to the use of such policies? (Use information from Module 3 as well.)

——————Assignment 3 Expectations:

Use information from the modular background readings as well as any good quality resource you can find. Make sure you cite all resources you use and provide a reference list at the end of your paper.

Length: 3-5 typed and double-spaced pages.

In addition to the overall quality, depth, grammar, and organization of the paper, the following will, in particular, be assessed:

1.The level understanding of the link between Federal Reserve actions and its affect on interest rates and monetary policy

2.Your ability to understand the link between current and prospective economic conditions and making decisions about major long-term financial commitments.

End of assignment 3 Expectations—————

Assignment 3 Required reading

Bouman, John. Principles of Macroeconomics. “Unit 6: Fiscal Policy” (section 6 optional)

Rittenberg L. and T. Tregarthen (2009). Chapter 12: Governement and Fiscal Policy (Section 1-3 only) Principles of Macroeconomics. Retrieved from: www.web-books.com/eLibrary/NC/B0/B62/TOC.html

**********************Assignment 4********************

Assignment 4 Topic: BUSINESS CYCLES: PHASES, INDICATORS, MEASURES, ECONOMIC EVOLUTION, OUTLOOKS

ASSIGNMENT 4

The Two Branches of Macro-Economic Theory

Thinking like a Macroeconomist:

John Maynard Keynes and Milton Friedman

Macroeconomics is perhaps the most divisive area of economics when applied to political decision making, and macroeconomists divide themselves into different schools of thought. Two of the biggest camps are the Keynesians and the Monetarists. Keynesians and post-Keynesians follow the theories of John Maynard Keynes, the most-celebrated economist of the 20th century who proposed that government stabilize the economy with the use of fiscal policy. Monetarists, on the other hand, follow the teachings of Friedrich Hayek. For this assignment do some research on the ideas of Keynes and Hayek. Focus on the “big picture” of what their main ideas are and how they have influenced policy makers. Then write a 4- to 5-page paper addressing the following questions:

1. Discuss the policies that Keynes and Hayek advocated regarding how the federal government should manage the economy.

a. What are the major differences between each school of thought.

b. Based on your answer to question #1a, which of the two economists would you agree with more? Explain.

2. Read Case in Point 3: Steering on a Difficult Course in section 17.3 of the online text.

a. Why did people believe the difficulties Asian economies were experiencing in 1997–1998 might bring a recessionary gap to the United States?

b. In dealing with the recession of 2008 why is it important for the Fed and Congress to coordinate monetary and fiscal policy measures?

3. Compare the rationale of the Reagan administration for the 1981 tax reductions with the rationale behind the Kennedy–Johnson tax cut of 1964, the Bush tax cut of 2001, and the Bush tax cut of 2003.

Assignment 4 Expectations

Length: 4-5 typed and double-spaced pages.

In addition to the overall quality, depth, grammar, and organization of the paper, the following will, in particular, be assessed:

1. Use information from the modular background readings as well as any good quality resource you can find. Make sure you cite all resources you use and provide a reference list at the end of your paper.

2. Your ability to apply the concepts and knowledge learned in this course to formulate your own ideas about resolving economic difficulties.

Assignment 4 Required reading

Rittenberg L. and T. Tregarthen (2009). Chapter 17: A Brief History of Macroeconomic Thought and Policy Principles of Macroeconomics. Retrieved from: https://www.web-books.com/eLibrary/NC/B0/B62/083MB62.html

Two economic giants have shaped economic thought, Keynes and Hayek. Below are two articles about each.

• https://www.nytimes.com/2011/10/23/business/keynes-hayek-views-origins-of-an-economics-debate-review.html?_r=1&ref=books

• https://www.bloomberg.com/news/print/2011-09-13/hayek-keynes-and-preventing-economic-crises-commentary-by-sylvia-nasar.html

Below is an entertaining and informative you tube video that has actors playing Keynes and Hayek and explaining their economic thoughts to rap music.

• https://www.youtube.com/watch?v=d0nERTFo-Sk

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