assign5B

assign5B - ASSIGNMENT 5B Due before Class on Monday 2/26 DO...

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Unformatted text preview: ASSIGNMENT 5B Due before Class on Monday 2/26 DO THE FOLLOWING BEFORE CLASS ON MONDAY: 1. watch the TWO video clips 2. read the news headlines below 3. read the explanations of hw5 questions that lots of people got wrong 4. review the big QUESTIONS FROM Assignment 5 5. Do HW 5b which will test you on all of the above. 1. a. Watch the video clip on Keynes, and sing along (just a bit) http://www.youtube.com/watch?v=Fwc‐5‐sorFE b. go to this web page dealing with How the Government Dealt With Past Recessions, and click on and listen to the 1960 recession AND the 1980‐82 recession(s) http://www.nytimes.com/interactive/2009/01/26/business/economy/20090126-recessions-graphic.html What was unusual about the policy in the 1960 recession? What caused the 1980-82 recession(s)? What ended them? 2. Read all of the following: Recent job posting (names changed to protect the innocent) Portfolio Analytics & Reporting Analyst Position Summary: xxx represents over $80 billion in assets under management, and over 200 professionals across offices in New York, London, San Francisco, Tokyo, Hong Kong and Bangalore. The AIMS businesses include xxxx Investors in the xxx funds include corporate pensions, public pensions, financial institutions, endowments, foundations, individuals, as well as xxx and its employees. The Investment Teams, along with the Research & Risk Management teams, are responsible for sourcing, evaluating, and investing in external public market, hedge fund and private equity managers. The teams also acquire portfolios of private equity assets in the secondary market, and source, value, and structure direct co-investment opportunities across the various investment strategies. Across each business, the teams focus extensively on portfolio construction, monitoring and risk management. The xxx Group is seeking to add an Analyst to its Portfolio Analytics & Reporting team (xxx xxx). xxx is responsible for quantitative analysis of the underlying portfolios, performance monitoring, client reporting, oversight of business infrastructure, and new product implementation. The team works closely with other areas of the firm including the investment managers, product management, client services, fund accounting/controllers, operations and technology. Qualifications: -Highly motivated and enthusiastic individual -Strong analytical, communication and interpersonal skills -Team player -Detail oriented and meticulous -Strong Excel skills and adaptability to other software products -Highly organized and able to manage multiple tasks in a fast-paced environment 1. What are they looking for – what skills, major, etc. 2. How do you demonstrate you have this? 3. Dow7,555.63+3.03+0.04% Nasdaq1,467.97-2.69-0.18% S&P 500788.42-0.75-0.10% How is the stock market doing? Why? How Will Obama's Housing Plan Work? CBS News - 37 minutes ago President Obama announced a $75 billion plan on Wednesday that he said would help as many as 9 million Americans avoid foreclosure. The Obama administration's plan has three main elements: the effort to help homeowners refinance, particularly when the value of their mortgages nears or exceeds the current value of their homes; a $75 billion initiative to modify loans to make payments more affordable for as many as four million borrowers whose interest rates have skyrocketed or whose incomes have fallen; and broader steps aimed at driving down mortgage rates. Fed Offers Bleak Economic Outlook New York Times - 2 hours ago The Fed chairman, Ben S. Bernanke, spoke at the National Press Club in Washington on Wednesday. By JACK HEALY The Federal Reserve cut its economic outlook for 2009 on Wednesday and warned that the United States economy would face an “unusually gradual ... The Fed expects GDP to contract by up to 1.3% this year. Bernanke pledged to do "everything possible" to restore stability and get the U.S. out of recession. the Fed's latest projections show the FOMC expects unemployment this year could rise as high as 8.8%, higher than its October projection of 7.1% to 7.6%. January's unemployment rate hit 7.6%, according to Labor Department. Under the Fed's forecasts, unemployment rates would fall to between 8% and 8.3% in 2010 and to between 6.7% and 7.5% in 2011, according to the projections, which are higher than the Fed's October estimates. Unemployment on a longer-term basis is expected to hit between 4.8% and 5%. Economy slows down; inventory piles up “We certainly have a higher inventory than we would like,” said John Thalenfeld, president of the Wilkes-Barre manufacturing company that makes display hooks, shelving products and fixtures for retail stores. “That’s cash to us sitting in a warehouse.” Earlier this month, Trion laid off 35 people — 10 percent of its work force — as inventories soared 15 percent above demand, Mr. Thalenfeld said. Retail sales declined in six of the last seven months and merchandisers scrapped plans for store renovations and expansions. That left manufacturers like Trion with idle heaps of products. … Excess inventories pose problems for some manufacturers struggling to balance production and stock volumes in the economic rut. Some are laying off workers as orders slump. 3. Look at the explanations for the hw 5 questions below and make sure you understand them. Exam Name___________________________________ 1) consumption function shows a A A) egative (inverse) relationship between consumption expenditure and n disposable income. B) ositive (direct) relationship between consumption expenditure and price p level. C) egative (inverse) relationship between consumption expenditure and saving. n D) ositive (direct) relationship between consumption expenditure and p disposable income. 2) isposable income is D A) ncome minus taxes plus transfer payments. i B) ncome plus transfer payments minus consumption expenditure. i C) ncome minus saving. i D) otal income divided by the price level. t 3) he slope of the consumption function is T A) ess than 1. l B) egative. n C) reater than 1. g D) . 1 4) hich of the following variables does NOT have a direct effect of changing W consumption expenditure? A) isposable income d B) xpected future profits e C) xpected future income e D) ealth w 5) utonomous consumption A A) s independent of income. i B) ecreases with income. d C) ncreases with income. i D) s independent of income and must be equal to zero. i AUTONOMOUS MEANS IT DOESN’T DEPEND ON ANYTHING ELSE – IT CHANGES ON ITS OWN. IT IS EXGOENOUS – DETERMINED BY FACTORS THAT WE WILL NOT EXAMINE 6) issaving occurs when a household D A) aves more than it spends. s B) pends more than it saves. s C) onsumes more than it receives in disposable income. c D) pends less than it receives in disposable income. s SAVING = Y‐C SO DISSAVING (NEGATIVE SAVING) WHEN C>Y I.E., CONSUMING MORE THAN YOUR INCOME 7) hen disposable income is 0, consumption is $2000. Then W A) aving = $2000. s B) aving = -$2000. s C) aving = $0. s D) he MPC = 0.2. t 8) hat is the marginal propensity to consume? W A) he percentage of income that is not saved. t B) he ratio of the change in consumption expenditure to the change in disposable t income. C) ne minus the fraction of total disposable income that is saved. o D) he percentage of income that is consumed. t 9) he marginal propensity to consume T A) s negative if dissaving is present. i B) s between 0 and 1. i C) xceeds 1. e D) quals 1. e 10) f consumption expenditures for a household increase from $1000 to $1800 when I disposable income rises from $1000 to $2000, the marginal propensity to consume is A) .3. 0 B) .18. 0 C) .2. 0 D) .8. 0 11) or a household, the marginal propensity to save plus the marginal propensity to F consume A) quals 0. e B) quals 1. e C) quals a number that is larger the larger the householdʹs disposable income. e D) quals a number that is smaller the larger the householdʹs disposable income. e 12) f wealth increases, the consumption function I A) hifts downward. s B) hifts upward. s C) as a steeper slope. h D) s unaffected. i 13) he sum of planned consumption expenditure, planned investment, planned T government expenditures, and planned net exports is ________. A) he expenditure approach to real GDP t B) ggregate planned expenditure a C) ggregate expenditure a D) eal GDP r 14) ny expenditure component that depends on the level of real GDP is called A A) quilibrium expenditure. e B) utonomous expenditure. a C) purious expenditure. s D) nduced expenditure. i DEFINITION – INDUCED; EXAMPLES – CONSUMPTION AND IMPORTS WHICH BOTH INCREASE AS INCOME DOES 15) s a nationʹs GDP increases, that nationʹs A A) utonomous consumption increases. a B) xports increase. e C) utonomous consumption decreases. a D) mports increase. i IMPORTS AND (NON‐AUTONOMOUS) CONSUMPTION INCREASE. AUTONOMOUS CONSUMPTION IS THE PART THAT DOES NOT RESPOND TO CHANGES IN GDP 16) f aggregate planned expenditures are less than real GDP then I A) irmsʹ inventories will decrease and real GDP will decrease as production f falls. B) irms must increase their planned expenditures until aggregate planned f expenditures increase to the level of real GDP. C) he economy remains in disequilibrium until aggregate planned t expenditures increase to the level of real GDP. D) irmsʹ inventories will increase and real GDP will decrease as production f falls. IF AD<Y THEN INVENTORIES INCREASE (UNINTENDED INVENTORY INVESTMENT) AS BUSINESSES S’BUY/EAT’ THE UNSOLD GOODS AND THEN CUT BACK OUT OUTPUT 17) hen investment is less than planned investment, aggregate planned expenditure W is ________ than actual aggregate expenditure and inventories are ________ than planned. A) reater; less g B) ess; less l C) ess; greater l D) reater; greater g ACTUAL INVESTMENT = PLANNED INVESTMENT + UNINTENDED INVENTORY CHANGE SO IF ACTUAL<PLANNED, UNINTENDED INVENTORY MUST BE NEGATIVE (I.E., BUSINESS IS SELLING STUFF OFF THEIR SHELVES BECAUSE DEMAND IS HIGHER THAN THEY ANTICIPATED). SO AGG EXPENDITURE/DEMAND HIGHER THAN ANTICIPATED AND INVENTORIES LESS (AS THEY REDUCE THEM TO MEET DEMAND) 18) quilibrium expenditure is defined as the level of aggregate expenditure where E A) ctual aggregate expenditure equals real GDP. a B) pending equals output. s C) ggregate planned expenditure equals real GDP. a D) otal inventories equal zero. t AGGREEGATE PLANNED EXPENDITURE (SAME AS AGGREGATE DEMAND) EQUALS ACTUAL OUTPUT (REAL GDP). 19) hen the economy is in equilibrium, W A) hanges in autonomous spending will have no impact on real GDP. c B) lanned investment equals actual investment. p C) lanned savings will equal zero. p D) here can be no unemployment. t 20) he difference between planned and unplanned spending is ________. T A) lways negative a B) lways positive a C) nventories i D) nplanned changes in inventories u 21) he multiplier effect exists because a change in autonomous expenditure T A) rompts further exports. p B) ill undergo its complete effect in one round. w C) eads to changes in income, which generate further spending. l D) eaves the economy in the form of imports. l 22) ecause of the multiplier, a one-time change in expenditure will B A) ecrease saving and investment activity and future income. d B) ave little secondary effect on income. h C) enerate more additional income than the initial change in expenditure. g D) xpand income by an infinite amount. e 23) he multiplier is larger if the T A) arginal propensity to save is larger. m B) arginal propensity to import is larger. m C) ncome tax rate is higher. i D) arginal propensity to consume is larger. m 24) he multiplier is greater than 1 because T A) ost households are unable to save. m B) ne personʹs spending becomes anotherʹs income. o C) ousehold spending exceeds income. h D) orporate spending exceeds corporate income. c 25) f investment increases by $300 and, in response, equilibrium aggregate expenditure I increases by $600, the multiplier is A) .5. 0 B) .2. 0 C) . 5 D) . 2 26) f there are no income taxes or imports, the multiplier equals I A) /(1 - marginal propensity to import). 1 B) /(1 - marginal propensity to invest). 1 C) /(1 - marginal propensity to consume). 1 D) /(1 - marginal propensity to save). 1 27) hich of the following is considered a purpose of the federal budget? W I. To help the economy achieve full employment. II. To finance the activities of the federal government. III. To promote sustained economic growth. A) and III I B) and II I C) I and III I D) , II and III I 28) hich branches of the government play a role in the enacting the federal budget? W I. the President. II. the House of Representatives. III. the Senate. A) , II and III I B) I and III I C) I D) and II I 29) he purpose of fiscal policy is to T A) chieve full employment. a B) aintain price level stability. m C) romote economic growth. p D) ll of the above answers are correct. A 30) he purpose of the Employment Act of 1946 was to T A) et up the Federal Reserve System. s B) et targets for the unemployment rate to be achieved by the president. s C) stablish an unemployment compensation system. e D) stablish goals for the federal government that would promote maximum e employment, purchasing power, and production. 31) he largest source of government revenues is ________. T A) orporate income taxes c B) ocial security taxes s C) ersonal income taxes p D) ndirect taxes i 32) ll of the following are government outlays EXCEPT A A) urchases of goods and services. p B) urchases of corporate bonds. p C) nterest on the governmentʹs debt. i D) ransfer payments. t 33) he governmentʹs budget deficit or surplus equals the T A) hange in outlays divided by change in revenue. c B) hange in revenue minus change in outlays. c C) verage outlay divided by average revenue. a D) otal tax revenue minus total government outlays. t 34) henever the federal government spends more than it receives in tax revenue, then W by definition it A) ncreases economic growth. i B) uns a budget surplus. r C) uns a budget deficit. r D) perates a balanced budget. o 35) hich of the following statements regarding the U.S governmentʹs budget surpluses W and deficits is correct? A) udget deficits tend to shrink during periods of recession. B B) f tax revenues exceed outlays, the government has a budget deficit. I C) uring the 1980s large deficits arose from a combination of tax cuts and D expenditure increases. D) ince 1970, federal tax revenues have generally exceeded outlays. S 36) he sum of past budget deficits in excess of the sum of past budget surpluses refers T to A) he cyclically unbalanced budget. t B) he federal government net worth. t C) he trade deficit. t D) he national debt. t 37) uppose a country has been running a persistent government budget deficit. If S the deficit is reduced, but remains positive, A) overnment debt will increase. g B) overnment debt will decrease. g C) nterest payments on the debt immediately will decrease. i D) he country will experience a budget surplus. t DEFICIT IS CURRENT TAXES MINUS CURRENT SPENDING (T‐G). DEBT IS ACCULULATED ‘PILE’ (STOCK) OF DEFICITS IF YOU EARN $100 AND SPEND $120 A WEEK, YOUR DEFICIT IS ‐$20. IF YOU BORROW THAT FROM THE BANK, YOUR DEBT TO THEM IS $20. IF NEXT WEEK, YOU SPEND $110 WITH INCOME OF $100, YOUR DEFICIT HAS FALLEN TO ‐10, BUT YOUR DEBT HAS RISEN TO $30. ANY TIME YOU RUN A DEFICIT, YOUR DEBT INCREASES 38) rior to the Great Depression, the purpose of the federal budget was to ________. P A) inance the activities of the government f B) ecrease unemployment d C) tabilize the economy s D) aintain low interest rates m 39) he largest item of government outlays is ________. T A) ebt interest d B) ebt reduction d C) xpenditures on goods and e D) ransfer payments t services 40) he Council of Economic Advisers have the following roles except ________. T A) roposing the federal governmentʹs budget to Congress p B) eeping the President informed about the current state of the economy k C) onitoring the U.S. economy m D) aking forecasts of where the economy is heading m 41) n example of a discretionary fiscal policy is when A A) ood stamp payments rise when the economy is in a recession. f B) ax receipts fall as incomes fall. t C) nemployment compensation payments rise with unemployment rates. u D) ongress passes a law that raises personal marginal tax rates. C 42) he effects of a change in government expenditures is multiplied throughout an T economy A) nly when there is a decrease in expenditure. o B) nly when there is an increase in expenditure. o C) ecause government expenditure generates changes in consumption b expenditure. D) ecause taxes are left unchanged. b 43) he autonomous tax multiplier is T A) qual to the government expenditure multiplier. e B) maller than the government expenditure multiplier. s C) egative. n D) arger than the government expenditure multiplier. l 44) n example of a fiscal policy designed to increase real GDP is A A) decrease in government expenditure. a B) n increase in taxes. a C) cut in taxes. a D) one of the above answers is correct. N 45) f the government wants to engage in fiscal policy to increase real GDP, it could I A) ncrease government expenditure in order to increase aggregate demand. i B) ncrease government expenditure in order to increase short-run aggregate i supply. C) ecrease government expenditure in order to increase short-run aggregate d supply. D) ecrease government expenditure in order to decrease aggregate demand. d 46) sing the AD-AS model, an increase in government expenditure U A) as a full multiplier effect on real GDP, leaving the price level unchanged in h the long run. B) as no impact on real GDP, but will increase potential GDP. h C) ncreases both real GDP and the price level. i D) as no impact on real GDP. h SKETCH THIS – INCREASE IN G SHIFTS AGG D TO RIGHT, RAISING REAL OUTPUT (GDP) AND PRICES 47) n the above figure, if the economy is initially at point D and government I expenditure increases, the economy will move to point A) ove to point C. m B) tay at point D. s C) ove to point B. m D) ove to point A. m 48) n automatic stabilizer A A) nvolves a change in personal tax rates. i B) nvolves a change in government purchases. i C) s triggered by the state of the economy. i D) equires action by the Congress. r 49) ncome taxes and transfer payments I A) ncrease the rate of long-run income growth. i B) ct like economic shock absorbers and stabilize fluctuations in income. a C) ncrease the effects of investment and imports. i D) revent the economy from moving toward equilibrium. p 50) ecause of automatic stabilizers, when GDP fluctuates the B A) overnmentʹs deficit fluctuates inversely with GDP so that it is larger when g GDP decreases. B) overnmentʹs budget remains in balance. g C) overnmentʹs deficit fluctuates directly with GDP so that it is larger when g GDP increases. D) he economy will automatically go to full employment. t IF REAL GDP FALLS (RECESSION), AUTOMATIC STABILIZERS LIKE UNEMP INSURANCE, RAISE G AND LOWER T (AS INCOME FALLS, TAX REVENUES FALL) THUS THE DEFICIT (G‐T IN ABSOLUTE VALUE) MOVES OPPOSITE REAL GDP. WHEN REAL GDP FALLS, DEFICIT AUTOMATICALLY RISES 51) nduced taxes I A) ary with real GDP. v B) re fixed over time. a C) re autonomous. a D) re independent of real GDP. a 52) he structural deficit or surplus is the T A) ifference between actual government outlays and actual government receipts. d B) overnment budget deficit or surplus that would occur if the economy were at g potential GDP. C) ctual government budget deficit or surplus minus expenditures for capital a improvements. D) hange in national debt that will result from current budgetary policies. c 53) cyclical surplus is a A A) ominal, as opposed to real, budget surplus. n B) udget surplus only because real GDP is equal to potential GDP. b C) udget surplus only because real GDP is greater than potential GDP. b D) udget surplus only because real GDP is less than potential GDP. b SURPLUS CAUSED BY AUTOMATIC STABILIZERS ‘CUTTING IN’ WHEN ECONOMY IS OVERHEATED, I.E., REAL GDP ABOVE FULL CAPACITY. THUS, WITH OVERHEATED ECONOMY, T UP, G DOWN (LESS ON UNEMP INSURANCE) AND BUDGET SURPLUS RESULTS. 54) f the governmentʹs budget is in surplus even when the economy is at full I employment, the surplus is said to be A) yclical. c B) iscretionary. d C) ersisting. p D) tructural. s STR UC TU RAL , BY DEF INI TIO N. A STRUCTURAL DEFICIT/SURPLUS IS WHEN THE ECONOMY IS OR WOULD BE IN DEFICIT (SURPLUS) IF WE WERE AT FULL EMPLOYMENT. ...
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This note was uploaded on 02/29/2012 for the course 320 322 taught by Professor Macro-williams,micro-yoshi during the Fall '10 term at Rutgers.

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