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%

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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.