ECO102H1 Lecture Notes - Lecture 10: Excess Reserves, Fiat Money, Unemployment

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beigetortoise333

12 Mar 2019

School

UTSG

Department

Economics

Course

ECO102H1

Professor

Ho Cheung (Michael) Ho

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ECO102H1 Lecture Notes - Lecture 9: Fiscal Policy, Stagflation, Government Budget Balance

ECO102H1 Lecture Notes - Lecture 10: Excess Reserves, Fiat Money, Unemployment

ECO102H1 Lecture Notes - Lecture 11: Commercial Bank, Reserve Requirement, Profit Margin

Document Summary

In recession, income and taxes drop, while transfer payments will go up. T goes down and transfer goes up. But it is more likely to run a deficit. If you do expansionary fiscal policy, where you increase government spending. Bad if the government giving transfer payments so that people can increase consumption, this is bad. Recessions likely result in sg < 0. It is difficult to judge if its good or not. Because of that we have cyclically adjusted budget balance employment output, where cyclical unemployment = 0. We remove cyclically component by stating when we would be in the full. If the economy is running at full capacity and the government is having a deficit, there is a concern. Budget deficit is a flow causes crisis. It adds to the stock (government debt) But when the country reaches its limit, it will enter a default, which means the government bankrupts crisis.

Related Questions

The Modified Keynesian Model

Y = C + I + G + X â IM â¦ equilibrium condition in a 4-sector model where:

C = 150 + 0.9DI â¦ consumption function

I = 50 â¦ autonomous investment

G = 100 â¦ autonomous government spending

X = 200 â¦ autonomous exports

IM = 100 â¦ autonomous imports

And also:

DI = Y â T + Tr T = 0 â¦ autonomous taxes

Tr = 0 â¦ autonomous transfer payments

YF = 5000 â¦ full-employment Y

1. Solve for the equilibrium level of real output/income (Y*) in this economy.

2. Given the model above, net exports equal $________. Does this represent a trade deficit or trade surplus?

3. Given the model above, the federal budget has a (deficit/surplus) equal to $________.

4. What is the value of the MPC? â¦ the value of the MPS?

5. Calculate the âoversimplifiedâ expenditure multiplier.

6. Suppose that full-employment (YF) equals $5000. Is there a recessionary or inflationary output gap?

7. (Refer to question â6â.) How much is the gap equal to?

8. Suppose the government chooses to eliminate the gap by using expansionary fiscal policy (i.e., increasing G). Given the numbers above, by how much would government spending (G) need to increase to achieve the goal of full-employment?

9. Suppose instead that the government decided to lower taxes to eliminate the output gap in question â6â. How much would taxes need to fall to achieve the goal of full-employment?

10. Which action (raising G or lowering T) has the largest effect on the federal budget deficit and the national debt?

11. Suppose the national debt equaled $6000 before the tax cut (refer to question â9â). What would be the value of the national debt after this policy action?

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You hear on the nightly news that the president has vowed to decrease the nation's debt. Both the government and private citizens will have to buckle down and learn to do without, he says.

In order to reduce its debt, a nation must:

A.	run lower deficits.
B.	decrease tax rates.
C.	run lower surpluses.
D.	increase in government spending.

Debt reduction will result in:

A.	more public works projects, higher transfer payments, and more money available for households to spend.
B.	fewer public works projects, higher transfer payments, and more money available for households to spend.
C.	more public works projects, lower transfer payments, and less money available for households to spend.
D.	fewer public works projects, lower transfer payments, and less money available for households to spend.

A friend of yours looks at the state of the U.S. debt in 2011 and tells you, Since the debt is so high, we must be running an incredibly large deficit every year. Your friend's analysis is:

A.	not valid, because the debt is always changing even when deficits are the same.
B.	not valid, because the debt can be high even when the deficit for an individual year is small.
C.	valid, because the debt is always changing even when deficits are the same.
D.	valid, because the public debt is the sum of all deficits and surpluses run by the government over time and can be high even when the deficit for an individual year is small.

Assume that the government in some nations intended to respond to low employment via fiscal policy.

a. What type of policy would this require?

A.	A contractionary fiscal policy designed to decrease the aggregate demand curve.
B.	An expansionary fiscal policy designed to decrease the aggregate demand curve.
C.	An expansionary fiscal policy designed to increase the aggregate demand curve.
D.	A contractionary fiscal policy designed to increase the aggregate demand curve.

b. Assume that this policy ended up having an undesirable outcome. How could this happen in terms of formulation and implementation lags?

A.	This could happen if the implementation lag exceeded the formulation lag.
B.	This could happen if the formulation lag exceeded the implementation lag.
C.	This could happen if the formulation lag and the implementation lag exceeded the expansion.
D.	This could happen if the formulation lag and the implementation lag exceeded the recession.

Econo Nation started 2008 with no national budget debt or surplus. By the end of 2008, it had a budget surplus of $286 million; in 2009, it had a budget deficit of $-425 million; in 2010, it had a budget surplus of $100 million, and the amount of its budget deficit or surplus in 2011 is unknown. If at the end of 2011 Econo Nation's national debt totalled $52 million, determine the deficit or surplus in 2011.

Instructions: Enter your answer as a whole number and include a negative sign if there is a deficit.

Period	Deficit (-) or surplus (+)
Beginning of 2008	$0
End of 2008	$286 million
2009	$-425 million
2010	$100 million
End of 2011	_______ million

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QUESTION 41

The consumer price index is intended to measure the cost of all goods purchased in the economy over time.

True

False

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QUESTION 42

When an economy has reached a zero unemployment rate, it is said to have reached full employment.

True

False

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QUESTION 43

The official unemployment rate is a useful but not altogether accurate measure of joblessness.

True

False

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QUESTION 44

The two types of reserves are federal reserves and required reserves.

True

False

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QUESTION 45

Automatic stabilizers, such as tax revenues and transfer payments, eliminate fluctuations in the business cycle.

True

False

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QUESTION 46

When the actual rate of unemployment is equal to the natural rate of unemployment, we conclude that there is no cyclical unemployment.

True

False

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QUESTION 47

Increased government regulation can cause the aggregate supply curve to shift to the left.

True

False

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QUESTION 48

The price index in the base year is normalized so that it equals 100.

True

False

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QUESTION 49

If the Federal Reserve wants to increase the money supply, it should raise the required reserve ratio.

True

False

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QUESTION 50

The aggregate supply curve in the long run is vertical because wages and other input prices respond completely to a change in price level.

True

False

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QUESTION 51

Public choice analysis helps us to understand why deficits seem inevitable, since we always pay the full costs of government programs today.

True

False

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QUESTION 52

Expansionary demand-side fiscal policies set up a tradeoff between increasing output at the expense of raising prices.

True

False

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QUESTION 53

Cathy works part-time as a bookkeeper but would like to have a full-time position. She has been actively searching for months but so far has not found a job. According to the Bureau of Labor Statistics, Cathy is unemployed.

True

False

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QUESTION 54

The real rate of interest is the nominal rate of interest times the inflation rate.

True

False

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QUESTION 55

The time required to comprehend that a recession has in fact begun is called the recognition lag.

True

False

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QUESTION 56

If an economy is in long-run equilibrium, it is also in short-run equilibrium.

True

False

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QUESTION 57

Policymakers can increase output by enacting policies that expand government spending, consumption, investment, or net exports or reduce taxes.

True

False

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QUESTION 58

When Disney builds a new amusement park in the United States, it is counted as part of GDP.

True

False

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QUESTION 59

The oil shock of 1973 led to demand-pull inflation.

True

False

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QUESTION 60

Casey is a 16-year-old high school student who has no marketable skills. He has been browsing the want-ads in the local newspaper for months but finally got so discouraged that he quit looking. According to the Bureau of Labor Statistics, Casey is unemployed.

True

False

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ECO102H1 Lecture Notes - Lecture 10: Excess Reserves, Fiat Money, Unemployment

ECO102H1 Lecture Notes - Lecture 9: Fiscal Policy, Stagflation, Government Budget Balance

ECO102H1 Lecture Notes - Lecture 10: Excess Reserves, Fiat Money, Unemployment

ECO102H1 Lecture Notes - Lecture 11: Commercial Bank, Reserve Requirement, Profit Margin

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