Economics 121 Quiz Answers: Macroeconomics
Homework
Macroeconomic Aggregates
-
Calculate GDP in real dollars. Use IPD rather than CPI
for this.
-
Calculate the average annual percent change in real GDP
for each administration. You can use the following procedure: calculate
the percent change for the administration and divide by 4 (divide by 3
for Clinton).
-
Draw a graph plotting change in real GDP (on the y axis)
against average NPI/GDP (on the x axis).
-
Calculate the average annual rate of inflation for each
administration.
-
Draw a graph plotting the average annual rate of inflation
(on the y axis) against unemployment (on the x axis).
|
|
|
1.
|
2.
|
4.
|
| Date
|
Admin
|
Real GDP
|
GDP Growth
|
Inflation
|
| 1961
|
|
2247.2
|
|
|
| 1965
|
Kennedy/Johnson
|
2804.8
|
6.2%
|
1.3%
|
| 1969
|
Johnson
|
3379.9
|
5.1%
|
3.6%
|
| 1973
|
Nixon
|
3875.9
|
3.7%
|
5.0%
|
| 1977
|
Nixon/Ford
|
4175.8
|
1.9%
|
9.4%
|
| 1981
|
Carter
|
4740.2
|
3.4%
|
12.1%
|
| 1985
|
Reagan
|
5258.1
|
2.7%
|
5.2%
|
| 1989
|
Reagan
|
6007.8
|
3.6%
|
3.6%
|
| 1993
|
Bush
|
6328.7
|
1.3%
|
4.4%
|
| 1996
|
Clinton
|
6813.6
|
2.6%
|
2.8%
|
Figure 1 - Part 3.
Figure 2 - Part 5.
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Quiz 8
1. (2 points) During which administration was GDP growth
the greatest? How much was it?
Kennedy/Johnson: 6.2% per year.
2. (2 points) During which administration was inflation the
greatest? How much was it?
Carter: 12.1% year.
3. (4 points) Why should the ratio of net investment to GDP
be more important in determining the level of future growth than either
the real or nominal level of net investment?
The effect of some amount of net investment will depend
on how big the economy is. For example, $100 billion of net investment
is not much in a $7,000 billion economy but it would be a lot in a $700
billion economy.
4. (6 points) Draw a graph of aggregate demand (AD) and aggregate
supply (AS). Shift the curves in a way consistent with the changes in the
price level (% CPI) and real output (% real GDP) during the Kennedy/Johnson
administration (1961-1965). Explain your graph briefly.
During the Kennedy/Johnson administration, GDP grew rapidly
while inflation was rather low. The graph shows a large increase in GDP
and a small increase in the price level. This is possibly due to a large
shift in AS along with a shift in AD.
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Quiz 9
Suppose that the aggregate consumption function in a simple
model of national income determination is given by the equation:
Suppose that we also know that equilibrium national income
is 2500.
1. Put names, numerical values, and arrowheads on the lines
in the circular flow diagram at the right.
2. Show the equilibrium graphically on the grid provided.
(Show the "Keynesian cross.")
3. If planned investment increases by 100, will savings rise
or fall? Show the effect on the graph. Savings will rise by 100 also.
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Quiz 10
In the table are actual data for macroeconomic aggregates
for the United States in billions of real (1992) dollars.
| Year
|
Income/
Output
(Y/AD)
|
Consump-
tion
(C)
|
Invest-
ment
(I)
|
Govern-
ment
(G)
|
Net
Taxes
(T)
|
Govt.
Deficit
|
Disposable
Income
(Yd)
|
Savings
(S)
|
| 1994
|
6713
|
4473
|
980
|
1260
|
1186
|
84
|
5527
|
1054
|
| 1995
|
6848
|
4578
|
1010
|
1260
|
1201
|
59
|
5647
|
1069
|
a) (4 points) Fill in the missing values in the table.
1994:
Find I from the equation AD = C + I + G: I = 980
Find T from Deficit = G - T: T = 1186
Find Yd from Yd = Y - T: Yd = 5527
Find S from Y = C + S + T or Yd = C + S or I + G = S + T:
S = 1054
1995:
Find Yd from Yd = Y - T: Yd = 5647
b) (4 points) Based on the information in the table, provide an estimate
of the marginal propensity to consume.
Find the slope (b = mpc) of the consumption function C = a + b(Y - T).
Method 1) Calculate C and (Y-T). Then mpc = C/(Y-T):
C = 4578-4473=105
(Y-T)=(6848-1201)-(6713-1186)=120
mpc = C/(Y-T) = 105/120 = 0.875
Method 2: Fill in values for C, Y and T for 1994 and 1995 and solve
for a and b
1994: 4473 = a + b(6713-1186)
1995: 4578 = a + b(6848-1201)
Subtract one equation from the other:
4578-4473 = [a + b(6848-1201)] - [a + b(6713-1186)]
105 = [a + b(5647)] - [a + b(5527)]
105 = 5647 b - 5527 b = (5647-5527)b
105 = 120 b
b = 105/120 = 0.875 = mpc
c) (4 points) Had taxes not risen (hint), what do you predict national
income would have been in 1995?
If taxes (T) had not changed, the only change would have been in investment
(I) as government purchases stayed the same. To calculate the effect of
a change in investment on national income, use the formula
Y = (multiplier)I
where
multiplier = 1/(1-b) = 1/(1-0.875) = 8
The change in investment is I=30 so national income would have risen
by 240 (240 = 8 x 30) to 6713+240 = 6953.
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Quiz 11
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Comments to Anthony Becker at becker@stolaf.edu.
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