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Fall 2000 |
ECONOMICS 1312
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J.G. Gonzalez
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Problem Set # 1 |
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This problem set is due Thursday,
September 21, at the beginning of the class period. Problem sets done on notebook paper or
unstapled will not be accepted. Late
problem sets are unacceptable also.
1. The following information is from the 1999
United States’ national income accounts:
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1.
Government transfer payments |
$ |
988.6 |
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2.
Personal income taxes |
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1152.1 |
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3.
Consumer purchases of goods and services |
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6257.3 |
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4.
Rental income |
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145.9 |
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5.
Government expenditures on goods and services |
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1630.1 |
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6.
Value of leisure time |
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8224.7 |
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7.
Imports of goods and services |
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1252.2 |
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8.
Gross domestic investment |
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1622.7 |
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9.
Depreciation |
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1135.8 |
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10.
Pollution damage |
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2981.2 |
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11.
Exports of goods and services |
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998.3 |
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12.
Proprietors' income |
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658.5 |
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13.
Corporate profits |
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892.7 |
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14.
Receipts of factor income from the rest of the world |
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302.3 |
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15.
Indirect business taxes |
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604.1 |
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16.
Social Security taxes |
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658.2 |
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17.
Household production |
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5004.9 |
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18.
Corporate profits tax |
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521.0 |
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19.
Personal dividend income |
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364.3 |
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20.
Personal interest income |
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931.4 |
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21.
Payments of factor income to the rest of the world |
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322.3 |
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22.
Net interest |
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467.5 |
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23.
Business transfer payments |
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29.6 |
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24.
Wages and salaries |
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5331.7 |
a) Compute the U.S. GDP for 1999 using the
flow-of-expenditures approach.
b) Compute
the U.S. GDP for 1999 using the flow-of-earnings approach.
c) Compute
the U.S. GNP for 1999. Was the 1999 GNP
higher or lower than GDP? Why?
d) Compute the U.S. NNP, NI, PI, and DI for
1999.
2. a)
Use aggregate supply and demand analysis to explain the macroeconomic
consequences of the devaluation of the Argentinean Peso for their economy.
b)
Assume that Fernando de la Rúa says that he wants to follow
non-accommodative economic policy in response to the changes in part a). What fiscal policies would you suggest be
used? What monetary policies could also
be used? Use a diagram to show the
effects of your suggested polices.
3. You are the President's economic advisor and
you are trying to figure out where the U.S. economy is headed next year. You have the following forecasts for next
year's AD, short-run AS, and long-run AS curves (output is given in trillions
of 1998 dollars):
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Price Level |
Real
GDP Demanded |
Real
GDP Supplied
in the
short run |
Long-run Aggregate Supply |
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176 |
10.3 |
9.1 |
9.5 |
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178 |
10.0 |
9.4 |
9.5 |
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180 |
9.7 |
9.7 |
9.5 |
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182 |
9.4 |
10.0 |
9.5 |
This year, real GDP is $9.3 trillion
and the price level is 174. The
President wants answers to the following questions:
a) What is your forecast of next year's real
GDP?
b) What is your forecast of next year's price
level?
c) What is your forecast of the inflation rate?
d) What will happen to the unemployment rate?
e) Will real GDP be above or below trend? By
how much?
4. Use the information in problem 3 to answer
the following questions (use diagrams in your answers):
a) What will have to be done to aggregate
demand to move the economy to potential output? What type of monetary policy could be used to achieve this
objective? What fiscal policy could be
used to achieve this objective?
b) What will the price level be if aggregate
demand is manipulated to move the economy to potential output? (For simplicity you can assume that the AD
and AS are straight lines).
5. Use the information available on the
Internet ( http://www.stls.frb.org/fred/data/wkly.html
) to obtain the data
necessary to answer the following questions.
a) What were the interest rates on 3-month U.S.
Treasury bills (the data series is called:
3-Month Constant Maturity Rate –daily-) on:
i.
January 4, 1999
ii.
April 1, 1999
iii.
July 1, 1999
iv.
October 1, 1999
b) What were the interest rates on 10-year U.S.
Treasury bonds (the data series is called:
10-Year Constant Maturity Rate –daily-) on:
i.
January 4, 1999
ii.
April 1, 1999
iii.
July 1, 1999
iv.
October 1, 1999
c) Draw the yield curves for:
i.
January 4, 1999
ii.
April 1, 1999
iii.
July 1, 1999
iv.
October 1, 1999
d) What were the changes in the yield curve from Jan. 4, 1999 to October 1, 1999 predicting about the future of the U.S. economy for 2000? Explain. On the basis of that information, what actions would you have recommended the Fed take at that time? Why?
e) Find the corresponding interest rates for September 8, 2000. What are the changes in the yield curve from October 1, 1999 to September 8, 2000 predicting about the future of the U.S. economy for 2001? Explain.
f) What is the probability of a recession according to the yield curve of September 8, 2000? (Note: Use the diagram from the WSJ article (Aug. 12, 1996) that we discussed in class to answer this question).
6. The country of Dawson has 130 million people over the age of 16. You are told that there is only one wage in the economy and that it is equal to $25 per hour. At this wage 90 million people are willing to work. You are told that when the wage equals $25 per hour there is no involuntary unemployment in Dawson.
a) Use the geometry of supply and demand to describe the labor market of Dawson (Make sure that you show the number of workers employed, voluntarily unemployed, and the total population).
b) Suppose that as a result of a decline in consumption and investment expenditures, 20 million workers become involuntarily unemployed. Illustrate these changes with the use of a new diagram (Make sure that you show the number of workers that are employed, involuntarily unemployed, voluntarily unemployed, and the total population).
c) What assumption is necessary to generate
involuntary unemployment in the labor market?