49.Is the U.S. economy now back to full employment output? 50.Does the Fed control interest rates? 51.Why should the Fed be clear about its monetary policy objectives? 52.What is fiscal policy to stabilize the economy during recession? During inflationary boom? In our AD/SRAS/LRAS model, which curve is affected? How? 53.Why did Congress pass the American Recovery and Reinvestment Act (ARRA)? Using the AD/SRAS/LRAS model of the U.S. economy, show how it is supposed to impact the U.S. economy.
54. The majority of the increase in government expenditures in ARRA went to the health care, social services and education sector, while tax cuts went toward individual income taxes 55. The two largest sources of government revenue are Individual Income taxes and Social insurance taxes 56. Transfer payments were 46.4% of government expenditures in 2012. 57.Is the national debt a problem? 58. Nondiscretionary spending automatically kicks in to stabilize output over the business cycle. Some examples of “automatic stabilizers” are unemployment compensation, Medicaid, Welfare, and Change in tax revenues as net imports change. 59.In general, how do automatic stabilizers affect the government’s budget during recession? Expansion? 60. Assuming the SRAS curve is horizontal, if the government purchases multiplier equals 2 and real GDP is $14 trillion with potential real GDP $14.5 trillion, then government purchases would need to increase by ______________ to restore the economy to potential real GDP. Answer : $250 billion 61.Does government spending reduce private spending? (“Crowding Out”) 62. If the tax multiplier equals -1.6 and the government cuts taxes by $200 billion (i.e., negative $200), this will ___________ (increase or decrease?) equilibrium real GDP by _____________. Answer : increase; $320 billion 63.Are Federal expenditures currently greater or less than tax revenues? What is our national debt right now ($ trillions)? (See real-time national debt clock.)
64. The employment report, will be released 12/4. 211,000 jobs were created and unemployment remained unchanged at 5% Labor force participation has moved up 65. Chairwoman Janet Yellen will be speaking a couple of times the week of 11/30—watch for hints about Fed’s decision regarding interest rates at FOMC meeting 12/15-16. They think once the central banks start to rise, the interest rates will begin to rise so normalization can occur.