1 Economics 101 Assignment #1 Name__________________ 1. Assume that there are only four goods produced. The following represent the prices and quantities sold in the base year (1996) and the current year (2004): Price 96 Quantity 96 Price 04 Quantity 04 Pizza $5 10 $10 20 Cola 10 20 30 30 T - Shirts 5 5 10 15 Bus. Equipment 30 10 40 20 What was the Nominal Gross Domestic Product (GDP) in 1996? Show calculations. What was the Nominal Gross Domestic Product (GDP) in 2004? Show calculations. What was the Real Gross Domestic Product (Real GDP) in 2004? Show calculations. 2. In the calculation above, by what percent did the Real GDP rise between 1996 and 2004? 3. Assume that Real GDP Per Capita is $10,000 in 2000. If it grows at 2% per year, what will the Real GDP per capita be in 2072? If it grows at 3% per year, what will the Real GDP Per Capita be in 2072? Notice how much of a difference a small change in the rate of growth can make. 4. Click on Nominal GDP and Real GDP on my Web Site 1. What is the Gross Domestic Product for the most recent quarter? What does this number tell you? 2. What was the Real GDP in the most recent year? 3. In what years did Real GDP decline from the previous year (this is the definition of a “recession”)? 5. This time, click on The Economic Report of the President 1. What was the American population in the most recent year? Therefore, what was the Real GDP per capita in the most recent year (you need to calculate this)? 6. President Bill Clinton took office in 1993. As noted in the text, he was elected largely to solve the problem of the slow growth of productivity and the resulting slow growth of income. “Surf” the Economic Report of the President online --- the above site --- (or find other sources) and answer the following: Was the problem significantly reduced while Bill Clinton was President (1993 to 2000)? Back up your answer with data on productivity growth from 1993 to 2000, on income growth from 1993 to 2000, on the percent of Americans officially in poverty from 1993 to 2000, and any other data you can find that would help answer the question.
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Economics 101 Assignment #1 Name__________________ 1. Assume that there are only four goods produced. The following represent the prices and quantities sold in the base year (1996) and the current year (2004): Price96 Quantity96 Price04 Quantity04 Pizza $5 10 $10 20 Cola 10 20 30 30 T - Shirts 5 5 10 15 Bus. Equipment 30 10 40 20 What was the Nominal Gross Domestic Product (GDP) in 1996? Show calculations. What was the Nominal Gross Domestic Product (GDP) in 2004? Show calculations. What was the Real Gross Domestic Product (Real GDP) in 2004? Show calculations. 2. In the calculation above, by what percent did the Real GDP rise between 1996 and 2004? 3. Assume that Real GDP Per Capita is $10,000 in 2000. If it grows at 2% per year, what will the Real GDP per capita be in 2072? If it grows at 3% per year, what will the Real GDP Per Capita be in 2072? Notice how much of a difference a small change in the rate of growth can make. 4. Click on Nominal GDP and Real GDP on my Web Site
1. What is the Gross Domestic Product for the most recent quarter? What does this number tell you?
2. What was the Real GDP in the most recent year? 3. In what years did Real GDP decline from the previous year (this is the definition of a “recession”)?
5. This time, click on The Economic Report of the President
1. What was the American population in the most recent year? Therefore, what was the Real GDP per capita in the most recent year (you need to calculate this)?
6. President Bill Clinton took office in 1993. As noted in the text, he was elected largely to solve the problem of the slow growth of productivity and the resulting slow growth of income. “Surf” the Economic Report of the President online --- the above site --- (or find other sources) and answer the following: Was the problem significantly reduced while Bill Clinton was President (1993 to 2000)? Back up your answer with data on productivity growth from 1993 to 2000, on income growth from 1993 to 2000, on the percent of Americans officially in poverty from 1993 to 2000, and any other data you can find that would help answer the question.
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Economics 101 Assignment #2 Follow the path: Click on Unemployment Rate on my Web Site Most Requested Series Labor Force Statistics from the Current Population Survey On the Form: Click on all that are necessary to answer the questions below Click on the most recent year Click Retrieve Data (Click Continue if asked) 1. What is the most recent month? What is the overall unemployment rate in the most recent month? 2. What is the total civilian labor force? What is the total number of people unemployed? 3. How many of the unemployed have been unemployed 27 weeks or longer? What percent is this of the total number of unemployed people? 4. Pick a month in 2001, a month in 1999, and a month in 1997. Calculate the percent of unemployed that have been unemployed 27 weeks or longer as you did in Question 3. What has been happening to this percent in recent years? 5. What is the current unemployment rate for males age 20 and over? for females age 20 and over? 6. What is the current unemployment rate for whites overall? for blacks overall? for Hispanics overall? 7. What is the current unemployment rate for people age 16 to 19? Go Back to Most Requested Series Local Area Unemployment Statistics California A form appears. Click the box for CA Unemployment Rate and the box for San Diego, CA MSA Unemployment Rate Move down the form. Click on the most recent year. Click on the Retrieve Button (Click on CONTINUE if you get a warning message) 8. What is the most recent month available in each case? What was the California unemployment rate for this month? What was the San Diego unemployment rate for this month? 9. Go to Index of Leading Indicators on my Web Site. a. What happened to the Index of Leading Indicators in the most recent month reported? b. How has the Index changed over the past three months? Six months? What does this tell you about the future of the American economy?
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Economics 101 Assignment #3 Follow the path: Consumer Price Index on my Web Site Most Requested Series Consumer Price Index --- All Urban Consumers Fill-out the Form: Click on U.S. All Items, 1982 - 1984 = 100 Move Down and Click on All Years in the Box Click the Retrieve Data Button 1. What is the most recent month? What is the CPI in this month? 2. Considering the January figure alone, a market basket that cost $9.80 in 1913 would cost how much in the most recent month? 3. What was the last year that prices fell from January to January? What was the last time that prices fell for two + consecutive years from January to January? 4. By approximately what percent did prices rise from January, 1970 to January, 1980? (You need to calculate this.) 5. How many years did it take for prices to triple from their January, 1913 value? How many years did it take for prices to triple from their January, 1970 value? 6. In June, 1965, I started working at an accounting firm for $7,200 per year. I was straight out of college and had no significant work experience. Assume that you begin your work career in the most recent month noted. What starting salary do you need to have now to have the same purchasing power as I had in June, 1965? 7. Follow the path: Economic Report of the President on my Web Site Statistical Tables in Spreadsheet Format 2003 Tables B-3 and B-60 What was the GDP Deflator (called the Implicit Price Deflator) for 2002? _________
By what percent did the GDP Deflator rise in 2002? _______________ What was the CPI for 2002? ________________ By what percent did the CPI rise in 2002? ________________ How do you account for the differences in the Index and in the rise in prices between these two measures of inflation?
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Economics 101 Assignment #4 This chapter has considered factors that affect the demand for homes. Consider the demand for homes in California. Go to the following site.
http://www.dof.ca.gov/html/fs_data/stat-abs/tables/toc.htm If you have trouble with this address, go to the department of Finance of the State of California http://www.dof.ca.gov and navigate to the Statistical Abstract and then to the Tables. In each of the following cases, describe what the data say has been happening over time. Then, explain how these changes would affect the demand for homes in California. 1. The population of California (Table B1) 2. The per capita income of California (You can get the income data in Table D4. You then have to divide by the population from question 1 to have the per capita income.) 3. The prices of homes in California (Table I11) The table gives only the prices of existing homes. But the prices of new homes have been changing in the same direction. 4. Rents on Apartments (Table I2) 5. Mortgage Interest Rates. (Interest rates in California are basically the same as in
the rest of the country. For this, you need to go to the following site: http://www.census.gov/statab/freq/98s0827.txt Or you will find mortgage rates in any newspaper. 6. Then, write a brief conclusion. What has been happening to the demand for homes in California (see Table I3)? Based on your answers above, why might this have been happening?
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Economics 101 Assignment #5 Most people who buy a home pay for it by borrowing money from a bank, savings and loan, or other such institution. Such a loan is called a mortgage. At present, the interest on a mortgage is deductible for tax purposes. To illustrate how this works, assume that a person is in a tax rate of 28% and has a mortgage of $200,000 at 6% interest with 25 years left to be paid. The annual interest payment is $12,000 (6% of $200,000). Of this, the taxes are reduced by $3,360 (28% of $12,000). Thus, the actual cost to the borrower is not $12,000, but $8,640 ($12,000 - $3,360). President Bush has proposed that the tax rate be reduced. Let us suppose that the tax rate is reduced to 20%, down from the 28%. First, recalculate how much the actual cost to the borrower would now be. Then, show what will occur in the market to borrow money. Finally, show what will occur in the market for homes (homes and borrowing money are complements). In each case, explain what will happen to the equilibrium price (or interest rate) and to the equilibrium quantity. Interest Rate Supply Demand _____________________________ 0 Quantity of Money to Borrow (Lend) Price of Homes Supply of Homes Demand for Homes ____________________________ 0 Quantity of Homes State whether you would favor or oppose this proposal is you were a (1) homeowner; (2) owner of a bank; (3) prospective homebuyer who does not now own a home; (4) renter who intends to continue renting an apartment; (5) someone who intends to borrow from a bank to buy a new car. WHY?
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Economics 101 Assignment #6 The cases discussed in class have analyzed the effects on foreign exchange markets of an increase in interest rates in the United States and of an increase in inflation in the United States. Do the same analysis for each of the following cases. Show using the demand and supply graph for foreign exchange. 1. Incomes rise in the United States and fall in Japan 2. Both Americans and Japanese believe that American goods are of higher quality than before 3. Both Americans and Japanese believe that the Japanese yen will depreciate in the near future 4. Laws change in Japan making it easier for Americans to buy or build companies in Japan 5. Interest rates fall in the United States while they rise in Japan 6. Go to the site of the Federal Reserve Bank of New York. http://www.ny.frb.org/pihome/statistics/forex12.shtml From this site, what is the most recent exchange rate for each of the following foreign monies? The Canadian Dollar The European Monetary Union Euro The Korean Won The Mexican Peso The British Pound 7. A six pack of Labatts Beer sold in Windsor Ontario Canada for $6.60 Canadian. The same six pack of Labatts Beer sold in Detroit Michigan (directly across the river) for $3.50 American. Using the exchange rate you found in question 1, is the six pack cheaper in Windsor or in Detroit? 8. Analysis Case: In 1998, two factors happened regarding Russia. First, prices in Russia were rising at a very rapid rate (hyperinflation) while prices in the United States were hardly rising at all. Second, for a variety of reasons, those who had made portfolio investments in Russia decided to take their money elsewhere. This means that they demanded that the loans they had made in Russia be paid off. When the loans were repaid, the money was not loaned to people in a different country. On the graph below, show the demand for and the supply of Rubles as of 1997. Then, show the results of these two events in 1998. Make the appropriate shifts in either demand or in supply or in both. State what would happen to the Russian Ruble. Finally, state what would happen to the Russian economy as a result of this change in the exchange rate. .$/Ruble Supply1 P1 E1 Demand1 ______________________________
0 Quantity of Rupiahs
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Economics 101 Assignment #7 Form into groups of two to three people, if you can. Pick out the stock of a particular company (any company). Find the value of the stock of that company in the most recent week. You will find this information either in a newspaper or on the Internet. Then, find the value of that stock one year ago (or as close to that date as you can). Value Now $_____________ Value Then $_____________ You will need to do some research as to what has been happening concerning this company. You know that the price is affected by the demand for and the supply of that stock. Demanded are those who wish to buy the stock. Suppliers are those who own the stock and are considering selling. There are six possible determinants of the demand and four possible determinants of the supply. Based on your research, explain what might be responsible for the change in the price you have discovered. Show your reasoning on the graph below. Price of the Stock Supply P1 Demand 0 Quantity of the Stock
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Economics 101 Assignment #8 In Mexico in 1982, prices were rising very rapidly. On the graph, show aggregate demand, short-run aggregate supply, and the equilibrium Real GDP and GDP Deflator. Show your graph with a large inflationary gap. GDP Deflator
0 Real GDP
a. The government of Mexico responded to the problem with a program. First, it significantly reduced government spending. Second, it raised taxes. And third, it decreased the money supply. Show the result of these three changes on the graph above. Since all three of these changes have the same effect, you may show them as only one change. As a result of these policies, what happened to Real GDP in Mexico? What happened to the GDP Deflator?
b. Another part of the government’s program was to create a large depreciation of the Mexican peso. On the graph below, draw the original situation again. Then, draw the changes caused by the depreciation of the peso. There will be both a change in aggregate demand and also a change in aggregate supply. Draw both. Assume, as actually was the case, that the shift in short-run aggregate supply was the larger shift. As a result of this depreciation of the peso, what happened to Real GDP in Mexico? What happened to the GDP Deflator? GDP Deflator
0 Real GDP
c. Yet a final part of the government’s program was to reduce wages. In the graph on the next page, again draw the original situation. Then, show the results of reducing wages. There will be changes in both aggregate demand and also in short-run aggregate supply. Draw both. Assume, as actually happened, that the shift in aggregate demand was the larger shift in this case. What happened to the Mexican Real GDP from this policy of decreasing wages? What happened to the GDP Deflator?
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Economics 101 Assignment #8 -- Page 2 GDP Deflator
0 Real GDP d. Write a very brief conclusion: from these policies, what can you conclude would happen to the Mexican economy?
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Economics 101 Assignment #9 1. Assume that, there is only one product produced, which we will call a "widget". If there were full-employment, production would equal 1,000 widgets to sell at $100 per widget. Therefore production in the United States is valued at $100,000. Domestic income also must equal $100,000. This income involves 10 workers being paid $10,000 per year. (Ignore profits for now.) Each worker produces 100 widgets. Of their $100,000 of income, the workers pay $10,000 in taxes, save $5,000, spend $85,000 on consumer goods, of which $80,000 were produced in the United States and $5,000 were imported. (You need to read all of Chapter 10 to bring in imports and exports.) Businesses wish to spend $10,000 on private business investment spending, that is, on capital goods produced in the United States. Foreigners are spending $6,000 on American exports. If the government spent the same amount that it raised in taxes ($10,000), what would happen to production in this economy (inflation, recession, or neither?)? Why? In order to avoid any problem of unemployment or inflation, how much should the government spend? Why? If it did so, the government would have a (budget deficit or surplus?) equal to $_________________. If your answer is a deficit, where would the government get the money to pay for this deficit? If your answer is a surplus, what would be done with the surplus?
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Economics 101 Name__________________________ Assignment #10 In the graph below, draw the aggregate demand curve, the short-run aggregate supply curve, and the Long-run Aggregate Supply (Potential Real GDP) so that there is an Inflationary Gap. GDP Deflator _________________________________________ 0 Real GDP According to those who believe that an economy is self-correcting, what will happen to eliminate the inflationary gap? Name the changes that will occur and show their effect on the graph. 1. 2. 3. In this example, actual real GDP is greater than potential real GDP and the actual rate of unemployment is below the natural rate of unemployment. How can this occur?
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Economics 101 Name_____________________ Assignment #11 The graph below shows the aggregate demand curve and the long-run aggregate supply curve as the classical economists would draw them. Now assume that there is an increase in the money supply for some reason. Show the results on the graph. Then, explain what will occur and why. Aggregate Price Level Aggregate Supply P1 Aggregate Demand1 = M x V 0 Qpot Real GDP Explanation:
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Economics 101 Assignment #12 CASE ON THE GREAT DEPRESSION You may do this case in groups (up to 3 people per group). Write your answer on the back. Use the data from the chapter to answer the questions. 1. A Depression is a period of time during which Real GDP is falling. From 1929 to 1941, during what years was there a Depression (or recession)? How much (or by what percent) did Real GDP fall? 2. During periods of Depression, the Classical Economists predicted that both wages prices would fall. Was this prediction valid for the Depression Decade of 1929 to 1941? Explain with data. 3. During periods of Depression, the Classical Economists predicted that interest rates would fall. As a result of the fall in interest rates, they predicted that business investment spending would rise. This was to end the Depression. Did real interest rates fall between 1929 and 1941? Remember that the real interest rate is the nominal interest rate minus the rate of inflation (or in this case, plus the rate of deflation). You need to calculate the rate of deflation. Did business investment spending rise in this period? Explain with data. 4. As we shall see, Keynes argued that the aggregate supply is horizontal. This would mean that any change in aggregate demand would cause only a change in real GDP (with no change in prices). As discussed in Class #12, the Classical economists believed that the long-run aggregate supply is vertical. Plot the data for the aggregate price level and the Real GDP for the period 1930 to 1941 on the graph below. What shape does the Aggregate Supply curve seem to have? Price Level ________________________________________________________ 0 Real GDP
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Economics 101 Assignment #13 (1) Fill in the following consumption function: Disposable Income Consumption Savings 0 1000 1000 1900 - 900 2000 2800 - 800 3000 3700 4000 - 600 5000 5500 6000 - 400 7000 7300 8000 - 200 9000 9100 10,000 0 11,000 10,900 12,000 11,800 13,000 300 14,000 13,600 15,000 500 16,000 15,400 17,000 16,300 18,000 800 19,000 18,100 20,000 1000 21,000 19,900 22,000 20,800 23,000 21,700 24,000 22,600 25,000 1500 (2) Calculate the marginal propensity to consume. ________________ Calculate the marginal propensity to save. _____________________ (3) If disposable income is 10,000, what is the average propensity to consume? _________________ If disposable income is 20,000, what is the average propensity to consume? _________________ Therefore, as disposable income rises from 10,000 to 20,000, consumption _______ And the average propensity to consume _____________ (answer “rises” or “falls”). 2. The consumption function is repeated on the following page. Business Investment Spending of 200 is added in. First, calculate the Equilibrium Real GDP. Second, explain why $1000 cannot be the Equilibrium Real GDP. Third, explain why $25,000 also cannot be the Equilibrium Real GDP.
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Real GDP (=Income) Consumption Business Investment Spending 0 1000 200 1000 1900 200 2000 2800 200 3000 3700 200 4000 4600 200 5000 5500 200 6000 6400 200 7000 7300 200 8000 8200 200 9000 9100 200 10,000 10,000 200 11,000 10,900 200 12,000 11,800 200 13,000 12,700 200 14,000 13,600 200 15,000 14,500 200 16,000 15,400 200 17,000 16,300 200 18,000 17,200 200 19,000 18,100 200 20,000 19,000 200 21,000 19,900 200 22,000 20,800 200 23,000 21,700 200 24,000 22,600 200 3. Now assume that the government spends $1000 and also taxes $1000. There are no transfers. What is the new Equilibrium Real GDP? Real GDP Taxes Disposable Income Consumption Investment Government Aggregate Demand
5. Assume now that the Potential Real GDP is equal to $10,000. How large is the gap? What kind of gap is it? 6. Go back to the table above. Now assume that the government decreases its purchases from $1000 to $500. There is no change in any other variable, including taxes. Use the multiplier formula to calculate the new Equilibrium Real GDP. Now calculate the new gap (Potential Real GDP is still $10,000). What kind of a gap is it? 7. If the government had desired to eliminate all recessionary and all inflationary gaps, what should its purchases be equal to? Again show using the multiplier formula.
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Economics 101 Assignment #14 1. Go to the following site. http://www.stls.frb.org/fred/data/rates.html or Interest Rates Link on my web site. Click on “federal funds rate”, “6 month Certificate of Deposit”, “6 month Treasury Bill rate”, and “30 year Conventional Mortgage Rate”. Based on these four sets of data, what has been happening to interest rates over the most recent months? Are all of these measures changing in the same direction at the same time? Given what has been happening to interest rates, what do you predict will happen to consumer spending in the coming months? Why? 2. Go to the following site: http://www.conferenceboard.org or Consumer Confidence link on my web site. Click on Latest CCI Release. Briefly describe the current state of consumer confidence in America. Based on this, what prediction can you make as to the direction of consumer spending in the near future? Why? 3. Go to the Economic Report of the President. http://w3.access.gpo.gov/eop or to Economic Report of the President on my web site. Click on Economic Report of the President current year statistical tables. The click on Consumer Credit Outstanding in the Money Stock, Credit, and Finance section. (Do not include debt for home ownership.) Record the data for the most recent 3 years – by month where possible. Then go back to the menu. Click on Total and Per Capita Disposable Income in the National Income or Expenditure Section. Record the data for the same time period. Then, divide to arrive at the ratio of consumer debt to disposable income. What has been happening to it over this time? Based on this, what prediction can you make about consumer spending in the near future? Why? 4. Go to the Economic Report of the President. http://w3.access.gpo.gov/eop or to Economic Report of the President on my web site. Click on Economic Report of the President current year statistical tables. The click on Common Stock Prices in the Corporate Profits and Finance section. Use the NYSE index. Assume you took $10,000 and bought the stock included in this index in 1990. How much would they have been worth in September of 2000? What effect would this increase have had on consumer spending? Why? How much would they be worth in the most recent month (for this, you need to go to any newspaper and find the most recent NYSE Index)? What effect would this have on consumer spending? Why? 5. Go to the following site: http://www.bea.doc.gov/bea/pubs.htm Go to the most recent month. Click on Selected NIPA Table. Then, click on Quantity and Price Indexes. What has been happening to the Implicit Price Deflator over the period shown? What effect should this have on consumer spending? Explain why. 6. Based on your answers to questions 1 to 5, what prediction would you make concerning consumer spending in the near future. Explain why you make this prediction. 7. Americans save a low portion of their incomes and spend a high portion of their incomes. The portion saved is low in comparison to that of past years and is low compared to other countries. From the points made in Chapter 14, what reasons can you give for the low portion of income saved (and the high portion of income spent) by American consumers? Name at least three reasons.
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Economics 101 Assignment #15
Private Investment Spending Net Investment Spending Year on Structures and Equipment Depreciation on Structures and Equipment % of GDP
1. Examine the table on the previous page. Briefly describe the overall performance of the American economy in terms of Net Investment Spending (especially as a percent of GDP). In which years was the performance good and in which years was it poor? 2. Examine the table below. How much of the “investment boom” of the 1990s can be attributed to Information Processing Equipment and Software?
Private Investment Spending Information Processing Equipment Year on Structures and Equipment and Software
2000 1390.6 548.6 Examine the data below and answer the following questions: 3. How well does the trend in after-tax profits explain the trend in business investment spending shown on Page 173? 4. How well does the change in stock market prices explain the trend in business investment spending shown on Page 173?
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Year Corporate Profits Profits Tax Dividends Retained Earnings Stock Prices*
*NYSE Index 1965 = 50 5. Examine the data on from the first table. If the expected duration of capital goods has become shorter, one would expect that depreciation would represent a higher percent of gross private business investment spending. Has this been happening? Was depreciation a higher percent of gross private business investment spending in the years when the investment performance was especially poor? 6. The table on the next page gives the data for Capacity Utilization in Manufacturing. Examine the years for which the investment performance was poor. Was Capacity Utilization falling and particularly low in those years.
Nov-00 80.6 7. On the next page, there is a table of data concerning raw materials’ prices and unit labor costs. Raw materials’ prices and unit labor costs should be rising slowly (if at all) during the years of good investment performance and should be rising greatly in the years of poor investment performance. Does the data support this hypothesis? Explain.
8. Question 1 asked you to characterize the overall investment performance of the United States --- stating in which years that performance was good and in which years it was bad. Other questions have asked you to relate these periods to other data. Now, it is time to summarize. Write a short paragraph on the following question: when the investment performance of the American economy was poor, what factors can explain this poor performance? And when the investment performance of the American economy was good, what factors can explain this good performance?
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Economics 101 Assignment #16 1. Using the tax table in the text, in 1980, in what tax bracket would you be in if your adjusted gross income were $20,000? $40,000? $100,000? What tax bracket would you be in as of 2002? 2. Use the principle concerning the sales tax to explain why each of the following taxes is regressive: 1. the gasoline tax 2. the cigarette tax 3. Assume a person has a taxable income of $10,000. How much tax would the person have had to pay in 1980? Now recalculate the tax that would have to be paid by the person in 1985 if his or her income had risen as much as the inflation rate rose (30.6% inflation from 1980 to 1985). How much would this person have saved from the 1981 change in the tax law? Now, recalculate the tax that would have to be paid in 1992 by the same person if his or her income had risen as much as the inflation rate rose (30.4% inflation from 1985 to 1992 and 70.3% inflation from 1980 to 1992). How much would this person’s taxes have changed because of the 1986 change in the tax law? Finally, recalculate the tax that would have to be paid by the same person in 2000 if his or her income had risen as much as the inflation rate rose (24.1% inflation from 1992 to 2000 and 111,3% inflation from 1980 to 2000). How much would this person’s taxes have changed as of 2000 compared to 1980?
4. Assume that you had a capital gain of $10,000. Also assume that you are in the highest possible tax bracket (even before the capital gain is counted as part of your income). In 1980, how much would you have paid in capital gains tax? (Remember that 60% of the gain was tax-free in 1980.) In 1986, how much would you have paid in capital gains tax? (Now, all of the gain is taxable.) In 1992, how much would you have paid in capital gains tax? In 2000, how much would you have paid in capital gains tax? 5. Go over this chapter. Evaluate each of the following taxes as “good” or “bad” according to the three criteria. Equity Ease of Administration Incentive Effects Personal Income Tax Corporate Profits Tax Social Security (FICA) Tax Sales Tax Property Tax Optional Question: Go to the following site: http://www.nrst.org/basics/index.html
The information on this site argues that a national retail sales tax should replace the current income tax. What are the arguments made on this site to justify having a national retail sales tax? Then, based on what you have learned, provide some criticisms of having a national retail sales tax. (You may use other sites or printed material on the national retail sales tax, if you wish.) OR
Go to the following site: http://www.northwestwatch.org. Here you will find a citizen action group that advocates a shift from the income tax to what are called “Green Taxes”. Skim over the site. Then, first explain what are meant by “Green Taxes”. Second, name some of the arguments given on this site on behalf on shifting to “Green Taxes”.
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Economics 101 Assignment #17 1. Assume that Equilibrium Real GDP equals $100. Potential Real GDP equals $200. The marginal propensity to consume equals 0.9. According to Keynesians, government purchases should __________ (increase or decrease?) by $___________. Or taxes should ____________ (increase or decrease?) by $_____________. Or transfers should ____________ (increase or decrease?) by $_____________. Show calculations. 2. The changes to the tax system initiated by President Reagan in 1981 and again in 1986 were discussed earlier. Review these changes. It is estimated that the income tax provides only half the amount of automatic stabilization as it did in 1980. Explain why the changes that were made in 1981 and in 1986 reduced the extent of automatic stabilization of the income tax. 3.Year (Fiscal) Deficit (Billions) Unemployment Rate Structural Budget Deficit 1960 - 0.3 5.5% 1961 3.3 6.7% 1962 7.1 5.5% 1963 4.8 5.7% 1964 5.9 5.2% 1965 1.4 4.5% 1966 3.7 3.8% 1967 8.6 3.8% 1968 25.2 3.6% 1969 –3.2 3.5% 1970 2.8 4.9% 1971 23.0 5.9% 1972 23.4 5.6% 1973 14.9 4.9% 1974 6.1 5.6% 1975 53.2 8.5% 1976 73.7 7.7% 1977 53.7 7.1% 1978 59.2 6.1% 1979 40.7 5.8% 1980 73.8 7.1% 1981 79.0 7.6% 1982 128.0 9.7% 1983 207.8 9.6% 1984 185.4 7.5% 1985 212.3 7.2% 1986 221.2 7.0% 1987 149.8 6.2% 1988 155.2 5.5% 1989 152.5 5.3%
- = surplus rate taken in December 1. Based on the official budget deficit, in what years was fiscal policy expansionary and in what years
was it contractionary? 2. Based on the structural budget deficit, in what years was fiscal policy expansionary and in what
years was it contractionary? Although this is not likely to be correct, calculate the structural budget deficit by assuming that full employment was 4% throughout the entire period and that each rise in the unemployment rate increases the budget deficit by $30 billion.
3. Examine the data. In the years that fiscal policy was expansionary, did unemployment fall in the following years? And in the years that fiscal policy was contractionary, did unemployment rise in the following years?
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Economics 101 Assignment #18 1. From 2001 through 2003, the economy of the state of California has experienced a serious recession. Tax revenues fell for the state. As a result, the state of California experienced a budget deficit of over $35 billion. By its Constitution, the state of California is not allowed to have a budget deficit. Go on the Internet or to any major newspaper. You can visit that site for the state of California if you wish. What actions were taken by the state government to eliminate the budget deficit? That is, what was done to California government spending? What was done to taxes in California? Considering that California is a very large state, what are the likely effects of these policies? 2. The marginal tax rates for 1980 were given in Chapter 17 and are repeated in this assignment. The marginal tax rates for 2000 also are repeated. Assume you have a family income of $25,000 in 1980. Between 1980 and 2000, prices approximately doubled. So an income of $50,000 in 2000 would represent about the same purchasing power as the income of $25,000 did in 1980. 1. Now assume that the family income from working would rise by $1,000. How much of this extra income would have gone to the federal government in taxes in 1980? 2. How much of the extra $1,000 of income would go to the federal government in taxes in 2000? 3. Did the marginal tax rates of 2000 provide a greater incentive to work than the marginal tax rates of 1980? Explain why or why not. 3. From 1998 to 2001, the government had a budget surplus. During the 2000 Presidential election, the projection was that this surplus would continue to exist at least through 2010. Both Presidential candidates proposed that at least part of this surplus be used to pay off the net national debt. President Bush’s original proposal assumed that the net national debt would be paid off by around 2012. What advantages can you see in using the budget surplus to pay off the net national debt?
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Economics 101 Assignment #19 Click on Money Supply Data on my web site. 1. What are the components of M-1? What is the total amount of each? 2. What is the total value of M-1 for the most recent period? _________________ 3. What are the additional components of M-2? What is the total value of each? 4. What is the total value of M-2 in the most recent period? ___________________ 5. Go to the site: www.bankofamerica.com Then go to the most recent Annual Report What is the value of the Total Assets of Bank of America?
What are the main assets of Bank of America? What are the main liabilities of Bank of America? What percent of the assets of Bank of America were provided by owners? (Calculate the stockholders’ equity as a percent of the total assets)
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Economics 101 Assignment #20 1. The reserve requirement on checkable deposits is 10%. The reserve requirement on savings deposits is zero. What would happen to the money supply if Bill took the $1,000 he found on the “tree” out of his checking account and put it in his savings account? 2. We assumed that the financial institutions choose to hold no excess reserves. Suppose that they become afraid that if they make loans, the loans will not be repaid. So they do indeed hold on to the excess reserves, rather than lend them. What happens to the money supply (M-1)? Why? 3. If you draw a Supply of Money curve, it looks like any other supply curve: it is upward sloping. This means that as interest rates rise, the money supply also rises. Explain why this is so. (If you have trouble with this, review the chapter.) 4. Explain in your own words why a decrease in the reserve requirement, say from 10% to 9%, would cause the money supply to increase. 5. Explain in your own words why a decrease in the discount rate from 3% to 2% would cause the money supply to increase. 6. Explain in your own words why the Federal Reserve selling Treasury securities to a dealer in the open market would cause the money supply to decrease. (Hint: if the Federal Reserve sells Treasury securities, what does the dealer get? What does the Federal Reserve get? What then happens to the money supply?) 7. Explain in your own words why a decrease in the money supply would cause interest rates to rise. 8. Explain in your own words why a decrease in the price of a security is the same as an
increase in the interest rate on that security.
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Economics 101 Assignment #21 1. Assume that every time the Federal Reserve increases the supply of money by $20 billion, interest rates will fall by 2 percentage points (for example, from 8% to 6%). Also assume that every time interest rates fall by 2 percentage points, business investment spending rises by $10 billion. Equilibrium Real GDP is equal to $400 billion. Potential Real GDP is equal to $500 billion. The marginal propensity to consume (MPC) is equal to 9/10 (0.9). The interest rate is 8%. Business investment spending is $20 billion. And the supply of money is $120 billion. In order to eliminate the recessionary gap, by how much and in what direction should the Federal Reserve change the supply of money? 2. Notice in both charts that velocity has been trending upward, especially since the end of the recession of the early 1990s. If velocity is trending upward, then the demand for money must have been trending downward. This means that people have been holding less money as part of their wealth. Based on what you have learned about the demand for money, what reasons can you suggest for this change? 3. The natural rate of unemployment is estimated to be about 4% today. In the 1980s, it was estimated to be about 6%. By any estimation, it has fallen. Each of the following has been given as explanations for the decline. Explain why each of the following might have contributed to the decline in the natural rate of unemployment: 1. the rise in the use of temporary employment agencies 2. the decline in the number of people age 16 to 22 3. the fact that married women are more experienced workers now than they were in the 1980s
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Economics 101 Assignment #22 Name_____________________ This class had discussed the monetarist explanation of what occurs following an increase in the money supply. Now assume that inflation has been very high. The Fed decreases the money supply, causing aggregate demand to __________________. Inventories in stores ________________. Orders from manufacturers _________________. Production by manufacturers ___________. The number of people employed ____________. Wages should _______________ and prices should ________________. (Answer "rise" or "fall") Describe what will occur in the short-run if expectations are adaptive. Explain why. In your answer, be sure to define "short-run" and "adaptive expectations". Describe what will occur in the long-run. Explain why. On the graphs below, draw aggregate demand and aggregate supply (on the left) and the Phillips Curve (on the right). Then, show the changes you have described above --- first for the short-run and then for the long run. Also, draw the long-run aggregate supply curve and the long-run Phillips Curve. Price Level Inflation Rate _______________________ _________________________________ 0 Real GDP 0 Unemployment Rate
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Economics 101 Assignment #23 Name______________________ In each case below, show the foreign exchange market between dollars and Japanese Yen in equilibrium. Then, assume that there is a recession in the United States but not in Japan. 1. Show the effects in the foreign exchange market assuming that there are freely floating exchange rates. Explain why you made the changes that you did. $/Y ____________________________Yen What would be the effects on the American economy of this change? 2. Show the effects in the foreign exchange market assuming that the world is on the classical gold standard. Explain why you made these changes. $/Y ___________________________________Yen What would be the effects on the American economy of this adjustment? 3. Show the effects in the foreign exchange market assuming that the world is on the Bretton Woods system. Explain why you made the changes that you made. $/Y ____________________________Yen What would be the effects on the American economy of this adjustment?
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Economics 101 Assignment #24 1. You will be assigned one of the following: A. Go to the site of the AFL-CIO. http://www.aflcio.org/ . There, you can examine the position of the AFL-CIO concerning free trade. You may read any of their position statements that relate to trade policy. Explain the position of the organization as regards free trade. B. Go to the site of the United States Chamber of Commerce. First, explain whom this
organization represents. Then, explain the position of the organization as regards international trade. The site is: http://www.uschamber.org/policy/index.html
C. Go to the site of the Business Roundtable. First, explain whom this organization represents. Then, explain the position of the organization as regards international trade. The site is: http://www.brtable.org/issue.cfm/9
D. Go to the site of the Sierra Club. First, explain whom this organization represents. Then, explain the position of the organization as regards international trade. The site is: http://www.sierraclub.org/trade/
E. Read the Chapter on International Trade (Part V) in The Economy of Japan on my web site http://daphne.palomar.edu/llee. Write a brief summary on the trade disputes between the United States and Japan. What is the American position in this dispute? What is the Japanese position? F. Read the Chapter on International Trade (Part V) in The Economy of China on my web site http://daphne.palomar.edu/llee. Write a brief summary on the trade disputes between the United States and China. What is the American position in this dispute? What is the Chinese position? Why has China desired so strongly to enter the World Trade Organization (WTO)? G. Read the section on the North American Free Trade Agreement (NAFTA) in Chapter 28 of the Microeconomics textbook on my web site (http://daphne.palomar.edu/llee). What were the arguments made by those in favor of NAFTA? What were the arguments made by those against NAFTA? 2. Go to the site of the Economic Report of the President – Statistical Tables in Spreadsheet Format. http://w3.gpo.gov/usbudget/fy2003/erp.html From Table B-1, (Gross Domestic Product), what is the Current Account Balance of the United States equal to in the most recent year? From Table B-32, what is the Gross Private Saving of the United States equal to in the most recent year? How much of this is Personal Saving and how much is Gross Business saving? What is the Gross Government Savings of the United States equal to in the most recent year? (This is the budget deficit or surplus of the government, considering all levels of government.) And finally, what is Gross Private Investment in the United States in the most recent year? Add this to the Gross Government Investment. Plug these numbers into the equation above (there may be a statistical discrepancy). How much of the current account deficit is being used to finance the excess of private investment spending over private savings? And how much of the current account deficit is being used to finance the budget deficits of the governments?
