Look up the table on Federal Receipts and Outlays, by Major Category, in the most recent Economic Report of the President available in your library or on the Internet.

Look up the table on Federal Receipts and Outlays, by Major Category, in the most recent Economic Report of the President available in your library or on the Internet.

1. Complete the following table: 

Sources: Department of the Treasury and Office of Management and Budget

[Billions of dollars; fiscal years]

Category.                                              Total outlays               Percentage of total outlays

National defense.                                  737.9                            15.5%

International affairs                               53.1                              1.1%

Health                                                       616.0                               13%

Medicare                                                  685.2                            14.4%

Income security                                     514.2                               11%          

Social Security                                     1,107.1                            23.3%

Net interest.                                            478.8                              10%

Other                                                         553.2                            11.7%

-------------------------------------------------------------------------------------------------------------------------------

Total                                                       4745.6                               100%

2. Construct a pie chart showing the percentages of spending for each category in the total.

Add caption

Suppose a country has a national debt of $5,000 billion, a GDP of $10,000 billion, and a budget deficit of $100 billion.

1. How much will its new national debt be? 

The new national debt = national debt of $5,000 billion + the budget deficit of $100 billion

So, the new national debt will be $5,100 billion ($5,000 + $100 = $5,100)

2. Compute its debt-GDP ratio.

Its debt-GDP ratio is  $5,100 billion /  $10,000 billion = 51%

3. Suppose its GDP grows by 1% in the next year and the budget deficit is again $100 billion. Compute its new level of the national debt and its new debt-GDP ratio.

Since the budget deficit is again $100 billion, and the new national debt equals the national debt plus the budget deficit.

So, next year, the new level of national debt will be $5,100 billion + $100 billion = $5,200 billion 

Because the GDP grows by 1% in the next year, the new GDP will be $10,100 billion ( 10,000*(100%+1%) )

The new debt-GDP ratio will be $5,200 billion / $10,100 billion = 51.5% (51.48%)

Suppose a country’s debt rises by 10% and its GDP rises by 12%.

1. What happens to the debt-GDP ratio?

Suppose the national debt = D, GDP = P

The debt-GDP ratio = the national debt / GDP = D/P

If the debt rises by 10% and GDP rises by 12%, then

The new debt-GDP ratio = 110%D/112%P = (110%/112%)*(D/P) = 0.98*(D/P) = 98%(D/P)

The new debt-GDP ratio is 2% lower than the former ratio.

That means the ratio of the debt-GDP is decreasing and the government surplus, and likely due to inflation.

2. Does the relative level of the initial values affect your answer?

Suppose that the debt rises by 10% and GDP rises by 10%, then the new debt-GDP ratio will be the same as the initial ratio. 

110%D/110%P = (110%/110%)*(D/P) = 1*(D/P) 

Suppose that the debt rises by 5% and GDP rises by 10%, then the new debt-GDP ratio will be lower than the initial ratio. 

110%D/110%P = (105%/110%)*(D/P) = 0.95*(D/P) = 95%(D/P)

Suppose that the debt rises by 10% and GDP rises by 5%, then the new debt-GDP ratio will be higher than the initial ratio. 

110%D/110%P = (110%/105%)*(D/P) = 1.05*(D/P) = 105%(D/P)

So, the relative level of the initial values is likely to change the answer.

The Fed uses many tools to influence economic conditions but their three most common include: 1. Open-Market Operations (OMOs) - the purchase and sale of U.S. government securities. 2. Reserve Requirements (RR): affects how much money banks can create by making loans. 3. The Discount Rate - The interest rate on loans the Fed makes to banks.

Here are annual values for M2 and for nominal GDP (all figures are in billions of dollars) for the mid-1990s.

 Year          M2        Nominal GDP

1993     3,482.0         $6,657.4

1994     3,498.1         $7,072.2

1995     3,642.1         $7,397.7

1996.    3,820.5         $7,816.9

1997     4,034.1         $8,304.3

1. Compute the velocity for each year.

According to the equation of exchange in the textbook, the relationship between money supply, velocity, and nominal GDP can express like the equation below:

 Suppose that the M=money supply=M2, V=velocity, then

MV = nominal GDP

V = (nominal GDP)/M 

So, the velocity each year on the list will be:

Year.                   Velocity

1993                    6,657.4/3,482.0 = 1.912

1994.                  7,072.2/3,498.1 = 2.022

1995                   7,397.7/3,642.1 = 2.031

1996                   7,816.9/3,820.5 = 2.046

1997                   8,304.3/4,034.1 = 2.059

2. Compute the fraction of nominal GDP that was being held as money.

According to the textbook, the equation of exchange can express the demand for money as a percentage, given by 1/V, of nominal GDP. With a velocity of V, for example, people wish to hold a quantity of money equal to 1/V of nominal GDP.

So, the velocity each year on the list will be:

Year.                   Being Held

1993                    (6,657.4)*(1/1.912)=3481.90

1994.                   (7,072.2)*(1/2.022)=3497.63

1995                    (7,397.7)*(1/2.031)=3642.39

1996                    (7,816.9)*(1/2.046)=3820.58

1997                    (8,304.3)*(1/2.059)=4033.17

3. What is your conclusion about the stability of velocity in this five-year period?

In this case, during the five-year period, the stability of velocity might due to the stability of the interest rate. People do not like to hold something that expected to lose their value. The interest rate will affect the extra money that people can earn from deposit it more. The reason for the stability of velocity is likely to be a stability of interest rate policy.

Another reason for this case is possibly the expectation of stability. The expectation of deflation or inflation will affect the money people want to hold, they can turn their money back really fast these days. 

Here are annual values for M2 and for nominal GDP (all figures are in billions of dollars) for the mid-2000s.

Year.        M2                Nominal GDP

2003        6,055.5                $10,960.8

2004        6,400.7                $11,685.9

2005        6,659.7                $12,421.9

2006        7,012.3                $13,178.4

2007        7,404.3                $13,807.5

1. Compute the velocity for each year.

Suppose that the M=money supply=M2, V=velocity, then

MV = nominal GDP

V = (nominal GDP)/M 

So, the velocity each year on the list will be:

Year.                           Velocity

2003                            10,960.8/6,055.5 = 1.810

2004.                           11,685.9/6,400.7 = 1.826

2005                            12,421.9/6,659.7 = 1.865

2006                            13,178.4/7,012.3 = 1.879

2007                            13,807.5/7,404.3 = 1.864

2. Compute the fraction of nominal GDP that was being held as money.

Year.                      Being Held

2003                       (10,960.8)*(1/1.810)=6055.69

2004.                      (11,685.9)*(1/1.826)=6399.73

2005                       (12,421.9)*(1/1.865)=6660.54

2006                       (13,178.4)*(1/1.879)=7013.51

2007                       (13,807.5)*(1/1.864)=7407.45

3. What is your conclusion about the stability of velocity in this five-year period?

In this five-year period, people hold more and more money. And in the short run, it is not reasonable to assume that velocity and output are constants. Due to the expectations of the interest rate, people adjust their holding to react to the condition. In this case, people are likely to expect that there are some reasons for them to increase their holdings.

Suppose the velocity of money is constant and potential output grows by 3% per year. By what percentage should the money supply grow in order to achieve the following inflation rate targets?

Suppose that :

%ΔM = the percentage rates of change in the money supply

%ΔP = the percentage rates of change in the price level

%ΔYp = the percentage rates of change in the real GDP(potential output)

%ΔM ≌ %ΔP + %ΔYp

%ΔP ≌ %ΔM - %ΔYp

If the velocity of money is constant and potential output grows by 3% per year

1. 0% 

If the rate of inflation, %ΔP = 0% is our target, then

%0 ≌ %ΔM - 3%

%ΔM = 3%

The money supply should grow 3%, in order to achieve the inflation rate targets 0%

2. 1% 

If the rate of inflation, %ΔP = 1% is our target, then

%1 ≌ %ΔM - 1%

%ΔM = 2%

The money supply should grow 2%, in order to achieve the inflation rate targets 1%

3. 2%

If the rate of inflation, %ΔP = 2% is our target, then

%2 ≌ %ΔM - 2%

%ΔM = 4%

The money supply should grow 4%, in order to achieve the inflation rate targets 2%

About Marginal Propensity to Consume and the Multiplier

What is the marginal propensity to consume when consumption changes from 7 to 6 and disposable income changes from 5 to 3?

According to the material, the ratio of the change in consumption (ΔC) to the change in disposable personal income (ΔYd) is the marginal propensity to consume (MPC). The Greek letter delta (Δ) is used to denote “change in.”

The marginal propensity to consume (MPC)=(ΔC)/(ΔYd)

The change in consumption (ΔC) is from 7 to 6, so the change is -1 (If we focus on the "change", not the direction of positive or negative, that answer is 1)

The change in disposable personal income (ΔYd) is from 5 to 3, the change is -2 (If we focus on the "change", not the direction of positive or negative, that answer is 2)

The marginal propensity to consume (MPC)=(ΔC)/(ΔYd)=(-1)/(-2)=0.5

If disposable personal income is 10 and consumption is 12, what is personal savings? 

According to the material, personal saving is disposable personal income not spent on consumption during a particular period. ( Personal saving = disposable personal income - consumption )

If disposable personal income is 10 and consumption is 12, then the personal saving will be 10 minus 12, that equals minus 2 (10-12=-2)

What does this mean?

In this case, the consumption exceeds disposable personal income, so we get a negative value for saving and the excess must have come from saving accumulated in the past, from selling assets that earned in the past, or even from borrowing.

It also means that consumption choices could be affected by expectations of income and almost all consumption choices could be affected by it over a very long period. 

What is the multiplier when the change in the equilibrium level of real GDP in the aggregate expenditures model is 9, and change in autonomous aggregate expenditures is 3?

Suppose that :

ΔYeq = The change in the equilibrium level of real GDP

ΔA ̄ = The change in autonomous aggregate expenditures

MPC = marginal propensity to consume 

MPS = marginal propensity to save

And, the multiplier is the number by which we multiply an initial change in aggregate demand to get the full amount of the shift in the aggregate demand curve. 

So, the multiplier = ΔYeq/ΔA ̄ 

The relationship between a change in autonomous aggregate expenditures and the change in the equilibrium level of real GDP.

The multiplier = ΔYeq/ΔA ̄ = 9/3 = 3

According to the material, a change in autonomous aggregate expenditures changes equilibrium real GDP by a multiple of the change in autonomous aggregate expenditures. The size of the multiplier depends on the slope of the aggregate expenditures curve. The steeper the aggregate expenditures curve, the larger the multiplier; the flatter the aggregate expenditures curve, the smaller the multiplier.

What is the multiplier when the marginal propensity to save is 1/3?

The multiplier = ΔYeq/ΔA ̄ = 1/(1-MPC) = 1/MPS = 1/(1/3) = 3

What would happen to the marginal propensity to save when a tax cut was enacted causing the multiplier to change to 5?

Suppose that :

MPS = marginal propensity to save

MPC = marginal propensity to consume

If the multiplier = ΔYeq/ΔA ̄ = 1/(1-MPC) = 1/MPS = 5

then, MPS = 1/5 = 0.2 

Reference

https://my.uopeople.edu/pluginfile.php/588647/mod_resource/content/1/TEXT%20macroeconomics-principles-v2.0.pdf

#Learning Journal “The Business Cycle

When I was a little boy, my father runs a key and locker manufactury factory. It was all so great during my childhood. It seems like all kinds of toys, foods, entertainment I don't need to be just wanted. But that kind of living ends in 1997.

It's the Asian financial crisis. 

While Thailand announced the abandonment of the fixed exchange rate system and the implementation of a floating exchange rate system. The exchange rate of the Thai baht to the US dollar plummeted by 17%, causing other financial markets to become chaos. Under the influence of the fluctuation of the Thai baht, the Philippine peso, the Indonesian rupiah and the Malaysian ringgit have successively become the targets of international speculators. Taiwan suddenly abandoned the Taiwan dollar exchange rate, depreciating 3.46% a day. The South Korean government sought help from the International Monetary Fund to temporarily control the crisis. The crisis also hit the Japanese financial industry, which has invested heavily in South Korea. A series of Japanese banks and securities companies went bankrupt. 

An Economic Trough

During that period, my father has to downsize the business and cut down on the number of staff. And it's not only my father's business got influenced but also the entire country or even Asia got chaos. The unemployment seems to be out of control and the government did not use their monetary policy tools well. The financial crisis had dramatic and immediate effects on the economy. I think it's the first time in my life sawing an economic trough. After that, I began to know that as cold fear gripped financial markets and expectations of further slowdown ensued, firms cut down on investment spending.

A Peak

Before the Asian financial crisis, I think it's a booming economy situation or a peak while everything looks great and my father's business went successfully. During that period, you can see so much positive news on TV. The government tends to increase spending on welfare and healthcare, financial crimes are also rarely being talked.

When was the economy expanding? 

I believe it's a tremendous expanding from 1950 to 1980. The population of Taiwan increased from nearly six million to almost eighteen million, It's triple of the original population. Because of the increasing population, the needs of goods and services have also pushed the economy to a higher level.

When was it contracting?

The 2007-2008 Global Financial Crisis, also known as the 2008 Global Financial Crisis. The central banks in many countries have provided huge amounts of money in the financial market, they cannot stop the financial crisis. In September 2008, the financial crisis began to run out of control and causing the collapse of many large financial institutions or takeover by the government, triggering a recession.

Consequences of Unemployment in My Country

Consequences of Unemployment in My Country

Personal

During the financial crisis in 2008, some of my friends in Taiwan who work in the banks lost their jobs. Although they have excellent job skills of being work at the banks, they still being fired in that period of time. They started to reduce their spending and finding lower-income but much more stable jobs such as working for the government. The competition of government labors interview increases dramatically and many highly-educated individuals tended to accept lower-paying, less-attractive jobs below their skill levels. You can see many people who have master's degrees working at the positions that just need a high school diploma. The cost of higher education is not so cheap at that time, but it seems like they don't care about what they really want to do or what really makes them happy. Why did they need a higher education if they just wanted to be a bartender? I'm not meaning that being a bartender is a bad thing or something like that, but the point is the opportunity cost of doing this job might alter your future to another field.

Social

Of course, the social consequences of prolonged unemployment can be significant. During the financial crisis in 2008, my father's food manufacturing factory fired lots of labors. When they lost their jobs, they protested at my father's factory and office. I told my father not to sue them for their protesting behaviors because unable to go through the crisis is also the responsibility of my father. Imagining that if the protest spread to the citizen level, the consequences can be much worse. When you get hurt, you need more instructions for your body to repair. But virtually, it is hard to do it while you are losing your job. And it's really a bad cycle because if you can not work unit you get well. Unemployment can be even worse if the labors just can not get back to work.

The government should play to reduce negative consequences? 

The government of my country was facing a big challenge during the crisis of 2008 while politicians are seeking opportunities to increase their exposure and supporters. In my opinion, the government should do something to reduce the negative consequences of unemployment. A truly rich country always has a lot of rich citizens not just the government get rich because their wealth is also from the people in the country. 

But don't misunderstand my meanings, the government has to repair your fishing rod not just keep giving you "unhired-fish" for you to eat. 

Summarize Key Developments in Macroeconomic History

Summarize Key Developments in Macroeconomic History.

We are all human beings and we fall and learn from our own mistakes. Why do we fall? So we can learn to pick ourselves up. The developments in macroeconomic history were the same. We learn from the past then try to explain it and fix it. To summarize the key developments in macroeconomic history, we can follow the big events such as the Great Depression or the Great Recession to get the timeline more quickly. 

In the 1930s, under the Great Depression’s cruel grip, the collapse defies the dominant economic theory which was “economies should be able to reach full employment through a process of self-correction.” The economics try to fix the old ideas of macroeconomics and replace it with something new and effective. Unfortunately, the Great Depression still lasted for more than a decade. 

Then, time moves to the 1960s. While most economists believe that Keynes’s can effectively explain how to solve the problem, the tools Keynes suggested have won widespread acceptance among governments all over the world. But there are always some different ideas come out, economist Milton Friedman argues that money, not fiscal policy, is what affects aggregate demand. He insists that monetary policy should not be used to move the economic activity.

When It comes to the1970s. While Keynes’s theory can not perfectly explain everything, several other economists begin work on a radically new approach to macroeconomic thought.

The Great Recession and the financial crisis in the late 2000s, all follow the same process which is fall, recover and learn how to deal with it when it comes again. Although there are many rounds of controversy, we are still in the natural evolution progress.

The similarities and differences between Keynesian and classical economics

The Similarities

The first similarity between Keynesian and classical economics is that both of the two are trying to reduce unemployment. They all think unemployment is a big problem and we must have a solution to deal with it. The second similarity is that both of the two ideas pay attention to the price, spending which is the flow of the economy. 

The differences

Although both Keynesian and classical economics was trying to help us deal with the problems, their solutions were not the same. The most significant divergence is the involvement of governments. Keynesian suggested that the monetary and fiscal system can be a tool to solve the problem effectively and it's quick. In contrast, classical economics tends to hold back the tools and let the market, the economy recover by itself.

How does each handle issues of unemployment? 

As I said, they all want to handle issues of unemployment and depression, but the solutions are different. If the governments take advantage of the monetary and fiscal system which is Keynesian suggested, they can quickly adjust the unhealthy parts of the downward economy and move it to a healthier situation. The classical economics, in contrast, suggested that the economy would right itself, and returning to the natural level of employment. 

What new developments starting in the 1980s have changed macroeconomic thought?

After the 1980s, the greater use of microeconomic analysis came out, thus better explained the macroeconomic phenomena. Since the monetary policy has become a tool for the governments to use during a weak economy period, the central bank such as the Fed plays a crucial role in the economic system. A significant advance in monetary policy came in the 1990s, under Federal Reserve Chairman Alan Greenspan. The Fed shifted to an expansionary policy as the economy slipped into a recession when Iraq’s invasion of Kuwait in 1990 began the Persian Gulf War and sent oil prices soaring. As a result, the real GDP was rising, but the economy remained in a recessionary gap. After that, The Fed, for the first time, had explicitly taken the impact lag of monetary policy into account. The issue of lags was also a part of Fed discussions in the 2000s.

Advances in fiscal policy and the interest.

When Reagan defeated the Democratic Jimmy Carter in the 1980 election campaign. The Republican Party also won the first half of the Senate in 26 years. Reagan’s economic policy is supply-side economics, known as Reagan’s economics, which reduces income taxes by 25%, reduces inflation, lowers interest rates, increases military spending, increases government deficits and national debt. He deregulation of business moves the US economy to start a strong economic growth in 1982 after a sharp recession in 1981-1982. President Reagan is skeptical about the ability of the federal government on dealing with these kinds of problems, especially in economic matters. His solution is to withdraw government intervention and reduce tax rates and commercial controls so that free-market mechanisms can automatically correct the problems of its own. However, In 1990, with the economy slipping into a recession, President George H. W. Bush agreed to a tax increase despite an earlier promise not to do so. President Bill Clinton, whose 1992 election resulted largely from the recession of 1990–1991, introduced another tax increase in 1994, with the economy still in a recessionary gap. Both tax increases were designed to curb the rising deficit. But the US Congress in the first years of the 1990s rejected the idea of using an expansionary fiscal policy to close a recessionary gap on grounds it would increase the deficit. 

The recession Threatening the Economy Largely

All of the discussions and advances above, tend to have different solutions on less or more government intervention, the federal deficit, and government spendings. However, the tax cuts had provided only a minor amount of stimulus to the economy, while people tend to save money not to spend it, and the recession threatening the economy was larger than they thought.

The New Keynesian Economics School

New problems always come out with a new idea. New Keynesian economics successfully incorporated important monetarist and new classical ideas and provided a solution for many people who lack the confidence in the ability of the monetarist or the new classical school alone to explain the macroeconomic change.

The Deregulation of the banks

The deregulation of the banking industry was a crucial matter in the early 1980s because it's produced sharp changes in the ways individuals dealt with money. Such as the introduction of bond funds offered by banks that allowed customers to earn the higher interest rates paid by long-term bonds while at the same time being able to transfer funds easily into checking accounts as needed. 

Advances with Stable and Unstable

The experience of the 1980s, 1990s, and 2000s makes monetary policy much more controversial, while someone thought it's an inappropriate tool that contributes just for short term goals.

#Discussion Consequences of Unemployment in My Country

Consequences of Unemployment in My Country

Personal

During the financial crisis in 2008, some of my friends in Taiwan who work in the banks lost their jobs. Although they have excellent job skills of being work at the banks, they still being fired in that period of time. They started to reduce their spending and finding lower-income but much more stable jobs such as working for the government. The competition of government labors interview increases dramatically and many highly-educated individuals tended to accept lower-paying, less-attractive jobs below their skill levels. You can see many people who have master's degrees working at the positions that just need a high school diploma. The cost of higher education is not so cheap at that time, but it seems like they don't care about what they really want to do or what really makes them happy. Why did they need a higher education if they just wanted to be a bartender? I'm meaning that being a bartender is a bad thing or something like that, but the point is the opportunity cost of doing this job might alter your future to another field.

Social

Of course, the social consequences of prolonged unemployment can be significant. During the financial crisis in 2008, my father's food manufacturing factory fired lots of labors. When they lost their jobs, they protested at my father's factory and office. I told my father not to sue them for their protesting behaviors because unable to go through the crisis is also the responsibility of my father. Imagining that if the protest spread to the citizen level, the consequences can be much worse. When you get hurt, you need more instructions for your body to repair. But virtually, it is hard to do it while you are losing your job. And it's really a bad cycle because if you can not work unit you get well. Unemployment can be even worse if the labors just can not get back to work.

The government should play to reduce negative consequences? 

The government of my country was facing a big challenge during the crisis of 2008 while politicians are seeking opportunities to increase their exposure and supporters. In my opinion, the government should do something to reduce the negative consequences of unemployment. A truly rich country always has a lot of rich citizens not just the government get rich because their wealth is also from the people in the country. 

But don't misunderstand my meanings, the government has to repair your fishing rod not just keep giving you "unhired-fish" for you to eat. 

Develop The Concepts of The “Circular Flow” of Goods and Services

Develop The Concepts of The “Circular Flow” of Goods and Services

In a 1-2 page paper develop the concepts of the “circular flow” of goods and services. Begin by reviewing this video:  Circular Flow from the St. Lois Federal Reserve.

Select one good you are familiar with. Describe how the goods move in relation to:

Starbucks Corporation is an American coffee company and coffeehouse chain that sales espresso coffee drinks and other beverages such as fruit juice and iced cocoa macchiato.

Households

Starbucks buys goods and services such as labor(to work at the store), coffee beans(to make espresso coffee drinks), land(to open a store), and cocoa beans(to make the iced cocoa drinks) from households. The labors who work at the coffee store making coffees and provide services to customers are from households, and coffee beans come from farmers who plant coffee trees, is also come from households. The land for Starbucks to open a store can be owned by a company or individuals, and both of the two are related to households. These costs of production have many different types such as human resources, physical equipment or even knowledge and information. 

Starbucks sales goods and services such as espresso coffee drinks, provide a place to stay, and iced cocoa drinks to households. The customers are from households, and they buy espresso coffee drinks and enjoy it inside a store or pick it up to any other places. Starbucks sales multiples service to customers such as a comfortable environment to stay and enjoy coffee, a table to put your bag on, a chair to sit down, and free internet to use. Although customers are not straightly paying for the place, they also pay it when they buy the drink. 

Suppliers of goods and services

Suppliers sales goods and services such as land, coffee beans, water, espresso machine, tables and chairs to Starbucks. The suppliers pack and transport the coffee beans to the stores for them to make coffee drinks. The supplier sales well-designed coffee machines to Starbucks for them to provide excellent coffee drinks. The chairs and tables are also from suppliers who build them. The utility company is the supplier of water and electricity for making drinks and lighten the stores. Starbucks also purchase their uniforms from the supplier for their employees to wear when they working at the store. 

The suppliers buy goods and services from other suppliers or households such as labors, raw materials, and trucks. The labors work at the suppliers' factory and office to build or design the coffee machine, and the truck driver delivers the equipment to Starbucks' store. The delivery service might supply by another supplier that being paid to do the delivery. 

Money

When Starbucks sales coffee to a customer, the money flows from the customers to Starbucks, and the goods and services flow from Starbucks to the customer. Similarly, while the supplier sales goods and services such as land, coffee beans, water, espresso machine, tables and chairs to Starbucks, the money flow from Starbucks to the suppliers, too. 

The money that flows to Starbucks or suppliers does not stop from flowing. Starbucks uses the money to pay the checks for labors' salaries, buy new or maintain the equipment and decorating the store, purchasing coffee beans in order to keep running its business. The suppliers use the money to pay the checks for labors' salaries and buying new or maintain the equipment, either.