Homework 3
Macro
Due Monday, November 2
(1) The first estimate of the change in GDP for the third quarter of 2009 will be released on Thursday, October 29 by the Bureau of Economic Analysis www.bea.gov Find out this estimate, along with the changes in C, I, G, X, and IM. If a recover is over when GDP starts increasing, are we out of the recession?
(2) If a $20 billion rise in income causes a $15 billion rise in consumer spending, calculate the MPC.
(3) Other than income, what are two important factors that influence consumer spending?
(4) What are two factors that influence investment spending?
(5) What are two factors that influence net exports? What is a trade deficit?
(6) Draw a Keynesian Cross Diagram (45 degree graph).Draw the equilibrium line and the AD line.Label the equilibrium point A and the equilibrium level of GDP as $14 trillion.
(a) Now, suppose that investment rises by $80 billion.The MPC is .75.
Show the impact that this will have on your graph by shifting the AD line. Label the new equilibrium point B.
(b) Calculate the spending multiplier.
(c) Calculate the change in GDP.
(d) You now have enough information to label the new equilibrium level of GDP on your graph.
(e) Calculate the change in income.
(f) Calculate the change in consumption.
(7) Do problem 2 on page 312.
(8) Do problem 12 on page 313.
(9) Do problem 13a on page 313.
(10) Do problem 8 on page 377.
(11) If investment falls by $175 billion, with an MPC of .8
a. Calculate the spending multiplier
b. Calculate the change in GDP.
c. Calculate the change in consumption
(12) What is fiscal policy and who controls it?
(13) Estimate the impact of a $500 billion increase in government purchases, using an MPC of .6.
(14) Estimate the impact of a $287 billion tax cut by calculating the change in GDP using an MPC of .6.