Chapter 8 Assignment 2-22-2018
1. Solve the following problem:
Suppose GDP is $9 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion, and public saving is $0.2 trillion. Assuming this economy is closed (GDP=C+I+G), calculate consumption, government purchases, national savings, and investment. [Hint: See pages 165-166 in your textbook.]
Show your work so that we can explain what went wrong if you miss any aspect of this.
2. Mankiw explains the role the federal government budgetary outcome (surplus or deficit) in determining the long run rate of Investment spending and thus economic growth. Let's take a look at the actual data for the period 1997 to the present to see what has actually happened. For this data, see:
https://www.gpo.gov/fdsys/pkg/ECONI-2018-01/pdf/ECONI-2018-01-Pg32.pdf
Once at this site, 1) select 2018; 2) then select âJanuaryâ; 3) then select âFederal Financeâ; and then select the pdf version of âFederal Receipts, Outlays, and Debt.â
You should now be on page 32 where the table and graph "Federal Receipts, Outlays, and Debt" are shown. [The graphs at the top of this referenced site show the broad trends (from 2009) rather well. Please note that time in this data is shown in federal fiscal years, and the federal fiscal year begins on October 1 and ends on September 30th. We are now in FY 2018.]
Looking at this data, comment on:
2A. Between FY 1999 and the present, in which fiscal years (if any) has the federal government run a budget surplus? In which fiscal years has it run a budget deficit? [Use the âTotalâ columns on the left-hand side of the page to answer this question. Note that the âTotalâ budget surplus or deficit is the combined result of the âOn-Budgetâ and the âOff-Budgetâ results for each period.]
2B. What is the current situation for the total federal budget? If the budget outcome has changed recently, explain briefly why this change has occurred.
2C. If you were asked to predict the total federal budget outcome for next four years (FY 2018- FY 2021), what would you predict? Explain. [Might the presence of a new Administration in Washington (for example, the Presidentâs commitment to a wall on our southern border with Mexico, a promised increase in military spending, a large tax reduction, and a $1.0 trillion increase in transportation infrastructure) make a difference in your projection of the overall budget outcome? Might the current state of the U.S. economy have a significant impact on the budgetary outcome?]
[For items # 2B and # 2C, you might find it useful (and interesting) to look also at the next table (page 33) titled "Federal Receipts and Outlays by Function." Here is the link to page 33:
https://www.gpo.gov/fdsys/pkg/ECONI-2018-01/pdf/ECONI-2018-01-Pg33.pdf
[Note: Economic Indicators is a monthly publication of the President's Council of Economic Advisors. There are roughly 40 pages of detailed tables in each issue of "Economic Indicators" including three separate tables on federal government finance. If you need to find current macroeconomic data, this is usually a good place to start looking.]
Chapter 8 Assignment 2-22-2018
1. Solve the following problem:
Suppose GDP is $9 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion, and public saving is $0.2 trillion. Assuming this economy is closed (GDP=C+I+G), calculate consumption, government purchases, national savings, and investment. [Hint: See pages 165-166 in your textbook.]
Show your work so that we can explain what went wrong if you miss any aspect of this.
2. Mankiw explains the role the federal government budgetary outcome (surplus or deficit) in determining the long run rate of Investment spending and thus economic growth. Let's take a look at the actual data for the period 1997 to the present to see what has actually happened. For this data, see:
https://www.gpo.gov/fdsys/pkg/ECONI-2018-01/pdf/ECONI-2018-01-Pg32.pdf
Once at this site, 1) select 2018; 2) then select âJanuaryâ; 3) then select âFederal Financeâ; and then select the pdf version of âFederal Receipts, Outlays, and Debt.â
You should now be on page 32 where the table and graph "Federal Receipts, Outlays, and Debt" are shown. [The graphs at the top of this referenced site show the broad trends (from 2009) rather well. Please note that time in this data is shown in federal fiscal years, and the federal fiscal year begins on October 1 and ends on September 30th. We are now in FY 2018.]
Looking at this data, comment on:
2A. Between FY 1999 and the present, in which fiscal years (if any) has the federal government run a budget surplus? In which fiscal years has it run a budget deficit? [Use the âTotalâ columns on the left-hand side of the page to answer this question. Note that the âTotalâ budget surplus or deficit is the combined result of the âOn-Budgetâ and the âOff-Budgetâ results for each period.]
2B. What is the current situation for the total federal budget? If the budget outcome has changed recently, explain briefly why this change has occurred.
2C. If you were asked to predict the total federal budget outcome for next four years (FY 2018- FY 2021), what would you predict? Explain. [Might the presence of a new Administration in Washington (for example, the Presidentâs commitment to a wall on our southern border with Mexico, a promised increase in military spending, a large tax reduction, and a $1.0 trillion increase in transportation infrastructure) make a difference in your projection of the overall budget outcome? Might the current state of the U.S. economy have a significant impact on the budgetary outcome?]
[For items # 2B and # 2C, you might find it useful (and interesting) to look also at the next table (page 33) titled "Federal Receipts and Outlays by Function." Here is the link to page 33:
https://www.gpo.gov/fdsys/pkg/ECONI-2018-01/pdf/ECONI-2018-01-Pg33.pdf
[Note: Economic Indicators is a monthly publication of the President's Council of Economic Advisors. There are roughly 40 pages of detailed tables in each issue of "Economic Indicators" including three separate tables on federal government finance. If you need to find current macroeconomic data, this is usually a good place to start looking.]
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