2) Assume that a hypothetical economy with an MPC of .8is experiencing severe recession. By how much would governmentspending have to increase to shift the aggregate demandcurve rightward by $25 billion? How large a tax cut would beneeded to achieve this same increase in aggregate demand?Why the difference? Determine one possible combination of government spending increases and tax decreases that would accomplishthis same goal.Using the multiplier the real amount of increase of government spending can be found:
1/ MPS
= 1/.8
thus, the government needs to increase its spending by 5 billion dollars.
The MPS 0.8, only 80% of the tax will be spent
.8 x Tax Cut = 5 Billion
The tax should be cut by 6.25 billion dollars
There is a difference because there is MPS, people save their money which is not counted into the GDP.
3) What are government’s fiscal policy options for endingsevere demand-pull inflation? Use the aggregate demand-aggregatesupply model to show the impact of these policies onthe price level. Which of these fiscal policy options do you thinka “conservative” economist might favor? A “liberal” economist?
Fiscal policies that end demand pull inflation are reducing government spending and increasing taxes. Conservatives usually want to keep inflation very low, but liberals may want some inflation so the GDP has a chance to move out, which can make the economy grow.
2007年5月6日星期日
2. Explain the experience of the US between 1996 and 2000 when the economy was at greater than full employment with high GDP growth while maintaining low levels of inflation. What allowed this so-called "New Economy" to occur, and what brought it to an end in 2001?
During that time the US experienced a great economic growth, thus GDP growth and over employment was acceptable because the economy grew even faster than the over employment did. Therefore, inflation remained low. However, in 2001 there was probably a supply shock, or cost push inflation, which made inflation a huge problem. The GDP was not growing that fast anymore to keep inflation down.
During that time the US experienced a great economic growth, thus GDP growth and over employment was acceptable because the economy grew even faster than the over employment did. Therefore, inflation remained low. However, in 2001 there was probably a supply shock, or cost push inflation, which made inflation a huge problem. The GDP was not growing that fast anymore to keep inflation down.
2007年5月5日星期六
Homework 1
1. Weigh the two arguments regarding unemployment in Europe. Is unemployment high because of high because of high natural rates of unemployment or because of deficient aggregated demand?
The real answer to this question probably lies in between natural high rates of unemployment and deficient aggregated demand. Most of Western Europe is known for its social welfare and benefits, which provide high welfare to those that are unemployed. Therefore, a magnificent amount of people that are unemployed are not desperately looking for jobs. This means when Europe reaches "full employment" by the economic definition, there are still quite a significant amount of people unemployed. In addition, the interest rates in Europe may be too high, thus discouraging investment. This would lead to deficient aggregated demand because it leads to a lower GDP, and the expenditure approach to measuring GDP includes consumer spending/demand. Therefore, the high unemployment rate in Europe should be due to a mixture of natural high rates of unemployment and deficient aggregated demand.
The real answer to this question probably lies in between natural high rates of unemployment and deficient aggregated demand. Most of Western Europe is known for its social welfare and benefits, which provide high welfare to those that are unemployed. Therefore, a magnificent amount of people that are unemployed are not desperately looking for jobs. This means when Europe reaches "full employment" by the economic definition, there are still quite a significant amount of people unemployed. In addition, the interest rates in Europe may be too high, thus discouraging investment. This would lead to deficient aggregated demand because it leads to a lower GDP, and the expenditure approach to measuring GDP includes consumer spending/demand. Therefore, the high unemployment rate in Europe should be due to a mixture of natural high rates of unemployment and deficient aggregated demand.
2007年4月26日星期四
http://www.asiamarketresearch.com/news/000243.htm
Abstract:
This article discusses the large difference between disposible income (DI) and actually expenditure in Thailand. Especially in Bangkok, the actual DI of the population is much smaller compared to the neighboring countries such as Singapore or Malaysia. However, the population still manages to consume a great amount.
Analysis:
Disposible Income is the actual income of an individual reported to the government, it is the amount of income an individual receives after paying taxes. Individuals can either spend or save DI. This vast difference between DI and expenditure in Thailand could be due to a couple of reasons. Firstly, wealth and household debt are two non-DI determinants. In other words, Thai people could have a low income (that they pay tax for), but they might own a great amount of wealth (such as houses, especially when house prices rise). This posession of wealth would naturally cause the people to consume much more.
Secondly, when households consume on debt, in the short run, they will use much more of their DI as expenditure, and thus save less. Therefore, in the short run, inividuals can use their credit card to consume much more than their actual DI. This will make consumption increase as well.
All of these factors would contribute to a higher GDP since one of the elements of calculating GDP (The expenditure approach) has increased.
Finally, in Thailand, especially Bangkok, there is a great amount of injection of GDP due to tourism. Foreigners spend a great amount of money (inject GDP) into the macroeconomy of Thailand. Certainly some of the injected money will be lost due to leakages, but in general, it will contribute to a higher GDP for Thailand since the expenditure of foreigners will become the income of Thais, and this income will become someone else's income... etc.
Abstract:
This article discusses the large difference between disposible income (DI) and actually expenditure in Thailand. Especially in Bangkok, the actual DI of the population is much smaller compared to the neighboring countries such as Singapore or Malaysia. However, the population still manages to consume a great amount.
Analysis:
Disposible Income is the actual income of an individual reported to the government, it is the amount of income an individual receives after paying taxes. Individuals can either spend or save DI. This vast difference between DI and expenditure in Thailand could be due to a couple of reasons. Firstly, wealth and household debt are two non-DI determinants. In other words, Thai people could have a low income (that they pay tax for), but they might own a great amount of wealth (such as houses, especially when house prices rise). This posession of wealth would naturally cause the people to consume much more.
Secondly, when households consume on debt, in the short run, they will use much more of their DI as expenditure, and thus save less. Therefore, in the short run, inividuals can use their credit card to consume much more than their actual DI. This will make consumption increase as well.
All of these factors would contribute to a higher GDP since one of the elements of calculating GDP (The expenditure approach) has increased.
Finally, in Thailand, especially Bangkok, there is a great amount of injection of GDP due to tourism. Foreigners spend a great amount of money (inject GDP) into the macroeconomy of Thailand. Certainly some of the injected money will be lost due to leakages, but in general, it will contribute to a higher GDP for Thailand since the expenditure of foreigners will become the income of Thais, and this income will become someone else's income... etc.
2007年3月19日星期一
http://www.financialexpress.com/fe_full_story.php?content_id=158335
Abstract:
The rate of inflation in India is 6.48%, this is due to a rise in prices in the food market. There is more aggregated demand in the CLASS IS OVER ILL DO IT AT HOME
Abstract:
The rate of inflation in India is 6.48%, this is due to a rise in prices in the food market. There is more aggregated demand in the CLASS IS OVER ILL DO IT AT HOME
2007年3月13日星期二
My Econ Article and Analysis
http://www.allheadlinenews.com/articles/7006599170
Extract:
Prince Charles of England thinks that the gigantic fast food company, McDonalds, should be banned. Prince Charles visited Imperial College London Diabetes center and emphasized on the fact that a well-balanced meal is essential to preventing diabetes and strengthening health. As a result, McDonalds has not only caused obesity and bad health for their costumers, but the damage extends to a third party, the healthy population, because health problems increase insurance rates, taxes, and decreases labor quality. This is known as a negative externality, as it damages a third party that did not participate in the fast food market.
Analysis:
The health problems that McDonalds are causing reflect mainly on the lower income population, since McDonalds has a relatively low price. Therefore, these harmed people become unhealthy, causing them to demand more health fee which is paid by the insurance companies. Many of those low income people are receiving free insurance and their need for more health fee drives up the insurance rates in general, making the healthy population pay more insurance money. Therefore, this is one of the negative externality costs.
Secondly, since most of the low income population receives government funded health care, once their health worsens, the government needs more money to cover those costs. In addition, when more people become ill, the government needs to spend more money on building extra hospitals. All of these taxes come from those higher income people that were not involved in the fast food market. Thus, this extra tax is another negative externality cost.
Finally, once the health conditions of the fast food consumers drops, the quality of the labor forces decreases as well. Since the quality of one of the resources decreases, the Possible Productivity Curve shifts in for many companies. In other words, the cost of production for companies other than McDonalds has increased, and since they are not in the same market, that extra cost of production is also a negative externality cost.
Prince Charles suggests solving this problem by banning all of the McDonalds restaurants in the world. However, that is almost impossible, it requires too much cost and it might lead to a black market for McDonald’s fast food. Therefore, a better solution would be taxing McDonalds for their product, making the cost of production higher for McDonalds, and thus shifting the Marginal Productivity Curve in to Marginal Socially Beneficial Curve, since cost of production is a determinant of supply.
This tax revenue can then be spent on educating the population with the problems of fast foods and the importance of a well balanced diet. The physical education department in schools and communities can be subsidized using the government tax revenue. Healthy restaurants can also be subsidized to reduce obesity and diabetes. Finally, the tax revenue can also be spent on advertising healthy food on TV and radio, educating the masses through advertisement.
Extract:
Prince Charles of England thinks that the gigantic fast food company, McDonalds, should be banned. Prince Charles visited Imperial College London Diabetes center and emphasized on the fact that a well-balanced meal is essential to preventing diabetes and strengthening health. As a result, McDonalds has not only caused obesity and bad health for their costumers, but the damage extends to a third party, the healthy population, because health problems increase insurance rates, taxes, and decreases labor quality. This is known as a negative externality, as it damages a third party that did not participate in the fast food market.
Analysis:
The health problems that McDonalds are causing reflect mainly on the lower income population, since McDonalds has a relatively low price. Therefore, these harmed people become unhealthy, causing them to demand more health fee which is paid by the insurance companies. Many of those low income people are receiving free insurance and their need for more health fee drives up the insurance rates in general, making the healthy population pay more insurance money. Therefore, this is one of the negative externality costs.
Secondly, since most of the low income population receives government funded health care, once their health worsens, the government needs more money to cover those costs. In addition, when more people become ill, the government needs to spend more money on building extra hospitals. All of these taxes come from those higher income people that were not involved in the fast food market. Thus, this extra tax is another negative externality cost.
Finally, once the health conditions of the fast food consumers drops, the quality of the labor forces decreases as well. Since the quality of one of the resources decreases, the Possible Productivity Curve shifts in for many companies. In other words, the cost of production for companies other than McDonalds has increased, and since they are not in the same market, that extra cost of production is also a negative externality cost.
Prince Charles suggests solving this problem by banning all of the McDonalds restaurants in the world. However, that is almost impossible, it requires too much cost and it might lead to a black market for McDonald’s fast food. Therefore, a better solution would be taxing McDonalds for their product, making the cost of production higher for McDonalds, and thus shifting the Marginal Productivity Curve in to Marginal Socially Beneficial Curve, since cost of production is a determinant of supply.
This tax revenue can then be spent on educating the population with the problems of fast foods and the importance of a well balanced diet. The physical education department in schools and communities can be subsidized using the government tax revenue. Healthy restaurants can also be subsidized to reduce obesity and diabetes. Finally, the tax revenue can also be spent on advertising healthy food on TV and radio, educating the masses through advertisement.
2007年3月12日星期一
New Article
http://www.allheadlinenews.com/articles/7006599170
I hope this is a more reliable source.
Extract:
"Prince Charles of England says MacDonalds Food Should be Banned". Even though the prince in england technically does not have any politial power, his opinions are still extremely influencial on government policies. The fast food industry has very high supply and demand, but the high demand has caused a negative externality, which is obesity. This is because socially beneficial demand curve is lower than the private beneficial demand curve. As a result, the government should proceed a couple of policies to control the demand curve, making it socially optimal.
MR. WELKER: I have a question, does obesity even count as a negative externality? because it influences one of the dealers in the market which is technically not a third person.... I am really confused, I will find you tomorrow to discuss this.
I hope this is a more reliable source.
Extract:
"Prince Charles of England says MacDonalds Food Should be Banned". Even though the prince in england technically does not have any politial power, his opinions are still extremely influencial on government policies. The fast food industry has very high supply and demand, but the high demand has caused a negative externality, which is obesity. This is because socially beneficial demand curve is lower than the private beneficial demand curve. As a result, the government should proceed a couple of policies to control the demand curve, making it socially optimal.
MR. WELKER: I have a question, does obesity even count as a negative externality? because it influences one of the dealers in the market which is technically not a third person.... I am really confused, I will find you tomorrow to discuss this.
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