Rider University Dr. Brownschidle

Eco 200- Spring 2024 Final Exam

Directions:Answer all questionsExplain your reasoning carefully and show your work in all calculations. All work on this exam must be your own. Some questions may require additional research. You are permitted to use your text, WSJ articles, government websites and any other reference materials you choose. The use of Generative AI tools (e.g., Chat GPT 3) is permitted as long as you reference any text or graphs produced with AI. Discussing exam questions, answers, or related topics with any other classmate or individual is considered academic dishonesty and will be dealt with accordingly (see policy statement in our syllabus). Please upload your completed exam to Canvas by the Registrar's Monday, Apr. 29 due date. Late submissions will not be accepted without prior approval of the instructor.

Read the WSJ articles below and answer the following questions:

1.(20 pt.)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. Then illustrate your results using an aggregate demand- aggregate supply graph (separate graph for each change)

1) Household wealth decreases as stock prices fall by 20 percent.

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 opening up and expanding production after the Covid-19 "lockdown."

2. (15 pt.) Go to Federal Reserve Bank websitewww.federalreserve.gov and listen to the March FED Chairperson Powell press conference.

The Federal Reserve is said to have a "dual mandate" from Congress- what are the FED's two policy goals? Define what is meant by "federal funds" interest rate? What is the current rate federal funds interest rate?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 consumer price index (CPI) between March 2023 and March 2024? This past week CPI data and PPI data for March 2024 showed an upward spike in prices. On an annualized basis how high was inflation in March as measured by the CPI? Explain why this data caused Chair Powell to dial back expectations for rate cuts. When do you expect the FED to start lowering this interest rate? Explain your reasoning. Chair Powell says their upcoming interest rate policy is "data dependent" what does he mean? What incoming data is most important to the FED?

3. (15 pt.) In 2022 the FED increased the Federal Funds interest rate from 0,25 to 5.25 percent and reduced Treasury Securities holdings by over $1 Tril. Analyze the impact of this "contractionary" 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 a well-labeled aggregate demand - aggregate supply diagram.

4. (10 pt.)Hiring Boom Continues ...How many jobs were added in March 2024? Why has it been difficult for firms to fill job openings? How many job openings are there for each unemployed worker? How fast have nominal wages increased over the past year? After adjusting for inflation calculate the change in real wages over the past year. Do wage increases of this magnitude keep inflation above the FED's target? Explain. What is the BLS formula for calculating the unemployment rate? What is the current unemployment rate? Why did the unemployment rate decrease in March? Explain.

5. (10 pt.)Define what is meant by the terms Real GDP and Nominal (current dollar) GDP? What was the rate of growth in real GDP (annualized) in the 4^th quarter of 2023 and the 1^st quarter of 2024? How fast is GDP forecasted to grow in 2024? Why is nominal GDP increasing much faster than real GDP? . Is consumer spending increasing or decreasing? Explain.What is meant by the term "recession"?Will the U.S. economy enter a recession in 2024? Explain.What is the current unemployment rate? Do you expect the unemployment rate to increase or decrease in 2024? Explain.

6. (15 pt.) President Biden's $1.9 trillion Covid-19 relief package was financed entirely with borrowed money ...Describe two expansionary fiscal policy that Congress has enacted since mid-March to offset economics dislocations of Covid-19? Include supporting numbers. Assuming that the marginal propensity to consume is 0.7 calculate the magnitude of the fiscal multiplier? On an annual basis calculate the total impact each policy will have on GDP.

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 a well-labeled aggregate demand - aggregate supply graph.

7.(15 pt.)How large was the U.S. federal budget deficit in the 2020 and 2021 fiscal year? Based on recent forecasts how large is the deficit projected to be in fiscal 2024 fiscal year.Explain how the U.S. Federal government is able to finance these deficits? Explain how the U.S. was able to run enormous budget deficits and still keep interest rates extremely low. 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 U S public debt.

http://www.usdebtclock.org/