Macroeconomic Analysis:

In the context of the basic macroeconomic model developed in class, analyze the impact of each of the following economic changes (ceteribus paribus) on domestic real GDP, inflation, the unemployment rate, and the budget deficit. Be sure to explain the relationships and linkages carefully. Illustrate your results using an aggregate demand- aggregate supply graph (separate graph for each change)

1) Household wealth rises as stock prices rebound 35 percent from March 23 lows.

2) Computer technology improves in the US thereby increasing labor productivity and lowering production costs in most businesses.

3) Oil prices continue to increase in international energy markets.

4) Personal income increases dramatically in March due to Biden's third round of economic stimulus checks.

5) Many manufacturing facilities, e.g., automobile plants are openingup and expanding production after theCovid-19 "lockdown."

6) Biden's Covid stimulus plan extends supplemental unemployment benefits of $300 per week until September 2021.

2. (15 pt.) Identify at least three policies taken by the Federal Reserve Bank (FED) has taken to stabilize financial markets since mid-March. Explain why these policies considered, extraordinary, unprecedented, and massive? What is the goal of these policies? Analyze the impact of the FED's "expansionary" monetary policy on U.S. business investment, household consumption, private savings, economic growth rate, unemployment rate, and the inflation rate, in the context of our basic macroeconomic model? Explain your reasoning carefully and show your result in well-labeled aggregate demand - aggregate supply diagram.

3. (15 pt.)In the article below, "Biden's Plan to Spend $4.5 Trillion Without Boosting Deficits..."

1) Identify two expansionary fiscal policies that Biden has included in this proposal. Include supporting spending numbers for the programs you identify. Assuming that the marginal propensity to consume is 0.6 calculate the magnitude of the fiscal spending multiplier? On an annual basis calculate the total impact (including multiplier effects) each policy will have on GDP.

2) In this proposal how does Biden plan to keep this revenue-neutral and not increase budget deficits? If the marginal propensity to consume is 0.6 what is the fiscal tax multiplier? If additional tax revenue does in fact offset the proposed increase in government spending will the overall Biden proposal result in increased GDP? Explain your reasoning carefully.

3) Who gains and who loses if this proposal were adopted? Based on your analysis would you vote in favor of this proposal if you were a legislator in Congress? Explain your reasoning carefully.

4. (15 pt.)President Biden's $1.9 trillion Covid-19 relief package was financed entirely with borrowed money ...Discuss three of the major provisions of this legislation. Analyze how this fiscal policy that Congress has enacted affects U.S. economic growth, unemployment, Federal budget deficits, and inflation in the context of our basic macroeconomic model. Explain your reasoning carefully. Assume initially that actual output is ten percent below potential output and show both the short-run and long-run adjustment in well-labeled aggregate demand - aggregate supply graph.

5. (15 pt.) How large was the U.S. federal budget deficit in the first half of the 2020 fiscal year?Based on recent forecasts how large is the deficit projected to grow by the end of fiscal 2021 on September 30^. Explain how the U S. Federal government is able to finance this deficit? Discuss at least three problems that are caused by deficits of this magnitude. Check out the US Debt Clock real-time projections How large is the budget deficit? What is meant by the term public debt? What is the current US public debt?

http://www.usdebtclock.org/

6. (10 pt.) What is meant by the term inflation? How is inflation measured in the U. S. economy? What is the Federal Reserve Bank's (FED) target for inflation? What was the percentage increase in the consumer price index (CPI) between March 2020 and March 2021? If the FED continues to print $120 bills per month (buying Treasury and mortgage-backed securities) over the next two years will this cause a spike in inflation? If the increased personal income resulting from the Covid stimulus is spent in 2021 will this result in a spike in inflation? What does the FED plan on doing to keep inflation under control? Explain your reasoning carefully.