Ec 301 midterm

Decent Essays
1. (7 points) How are presidential election outcomes related to the performance of the economy?

The re-election of the incumbent has been synonymous with low inflation and low un-employment. There has been only a few occasions where the results did not follow this norm

2. (7 points) Discuss the difference between Microeconomics and Macroeconomics.

Microeconomics deals with the individual parts in the economy and how they relate to each other. Macroeconomics deals with the totals of these parts in our economy

3. (10 points) Use the concepts of gross and net investment to distinguish between an economy that has a rising stock of capital and one that has a falling stock of capital. “In 1933 net private domestic investment was
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So .8 x tax cut = $5 billion or tax cut = $6.25 billion. Part of the tax reduction
($1.25 billion) is saved, not spent. One combination: a $1 billion increase in government spending and a $5 billion tax cut.

10. (7 points) What are government’s fiscal policy options for ending severe demand-pull inflation? Use the aggregate demand-aggregate supply model to show the impact of these policies on the price level. Which of these fiscal policy options do you think might be favored by a person who wants to preserve the size of government? A person who thinks the public sector is too large?

Options are to reduce government spending, increase taxes, or some combination of both.
If the price level is flexible downward, it will fall to meet supply. In reality government policy is concern with inflation not with lowering prices. Conservatives would call for cuts in government spending since this would reduce the size of government. A “liberal” would call for a tax hike to continue to fund government spending

11. (10 points) Explain why relatively flat as opposite relatively steep labor demand curves are more consistent with the empirical observation that there are relatively minor changes in the real wage rate over the course of the business cycle.

If the labor demand curve was steep there would have to be a large change in the real wage rate in comparison to the nominal wage rate. This would also be
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