The real economy in the long run | Practice Problems, Examples & Solutions

Production and Growth

Economics

By $2019-20,$ the fiscal reserves are predicted to reach HK\$950 billion, enough to cover 22 months of the government's projected expenditure. However, Finance Secretary John Tsang's working group on long-term fiscal planning has warned that HK could face a structural deficit by $2022-23$ due to an ageing population. The group proposes to set up a "future fund" for a rainy day, to be used if HK's reserves drops to a critical level. Source: South China Morning Post, Feb 26, 2015
What is the difference between structural deficit and cyclical deficit? Explain how an ageing population may lead to a structural deficit. If the source of the future fund is the existing fiscal reserves,

Fiscal Policy

04:34

Economics

The spreadsheet lists real GDP $(Y)$ and the components of aggregate planned expenditure in billions of dollars.
$$\begin{array}{|c|c|c|c|c|c|c|c|}
\hline & \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} & \mathrm{F} & \mathrm{G} \\
\hline 1 & & \mathrm{Y} & \mathrm{C} & 1 & \mathrm{G} & \mathrm{X} & \mathrm{M} \\
\hline 2 & \mathrm{A} & 100 & 110 & 50 & 60 & 60 & 15 \\
\hline 3 & \mathrm{B} & 200 & 170 & 50 & 60 & 60 & 30 \\
\hline \mathbf{4} & \mathrm{C} & 300 & 230 & 50 & 60 & 60 & 45 \\
\hline 5 & \mathrm{D} & 400 & 290 & 50 & 60 & 60 & 60 \\
\hline 6 & E & 500 & 350 & 50 & 60 & 60 & 75 \\
\hline 7 & F & 600 & 410 & 50 & 60 & 60 & 90 \\
\hline
\end{array}$$
Calculate autonomous expenditure. Calculate the marginal propensity to consume.

Expenditure Multipliers

01:42

Economics

The U.S. Senate has passed legislation to extend the Bush-era tax cuts for high-income earners to middleclass Americans earning up to $\$ 250,000$ per year.

Fact: Middle and low-income earners spend almost all their disposable incomes. High-income earners save a significant part of their disposable incomes.
What would have a larger effect on aggregate demand: extending the Bush-era tax cuts to everyone; extending them to the middle-class only; or extending them for high-income earners only? How would each alternative compare with no tax cuts but an equivalent increase in government expenditure?

Fiscal Policy

Saving, Investment, and the Financial System

317 Practice Problems

00:44

Economics

The Federal Reserve Act of 2000 instructs the Fed to pursue its goals by "maintain[ing] long-run growth of the monetary and credit aggregates commensurate with the economy's long-run potential to increase production." a. Has the Fed followed this instruction?
b. Why might the Fed increase money by more than the potential to increase production?

Monetary Policy

01:42

Economics

Explain the when-to-work decision when technology advances.

The Business Cycle, Inflation, and Deflation

01:39

Economics

a. Explain the impact of the government budget balance on investment.
b. What fiscal policy action might increase investment and speed economic growth? Explain how the policy action would work.

Fiscal Policy

The Basic Tools of Finance

149 Practice Problems

01:10

Economics

Use the following news clip to work. Fed Sees Unemployment and Inflation Rising It is May 2008 and the Fed is confronted with a rising unemployment rate and rising inflation.
a. Why might the Fed decide to cut the interest rate in the months after May 2008 ?
b. Why might the Fed decide to raise the interest rate in the months after May 2008 ?

Monetary Policy

01:08

Economics

What are the two possible monetary policy instruments, which one does the Fed use, and how has its value behaved since 2000 ?

Monetary Policy

05:16

Economics

In Problem $5,$ the banks have no excess reserves. Suppose that the central bank in Nocoin increases bank reserves by $\$ 0.5$ billion.
a. Explain what happens to the quantity of money and why the change in the quantity of money is not equal to the change in the monetary base.
b. Calculate the money multiplier.

Money, the Price Level, and Inflation

Unemployment

105 Practice Problems

04:23

Economics

What is the cause of the high unemployment rate? One side says there is not enough government spending. The other says it's a structural problem-people who can't move to take new jobs because they are tied down to burdensome mortgages or firms that can't find workers with the requisite skills to fill job openings. Which business cycle theory would say that most of the unemployment is cyclical? Which would say it is an increase in the natural rate? Why?

The Business Cycle, Inflation, and Deflation

03:25

Economics

"Unemployment is a more serious economic problem than inflation and it should be the focus of the Fed's monetary policy." Evaluate this statement and explain why the Fed's primary policy goal is price stability.

Monetary Policy

03:05

Economics

The BLS reported that in July 2012 , employment decreased by 195,000 to 142,220,000 and the unemployment rate increased from 8.2 percent to 8.3 percent. About 3.4 million people were marginally attached workers and
0.9 million of them were discouraged.
a. Calculate the change in unemployment in July 2012
b. With 3.4 million marginally attached workers and 0.9 million of them discouraged workers, what are the characteristics of the other 2.5 million marginally attached workers?

Monitoring Jobs and Inflation