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macroeconomics-The Economy cannot be considered fully employed unless the measured unemployment rate is below 1%

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Subject: Economics
Due on: 02/28/2014
Posted On: 02/24/2014 01:29 PM
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1) The Economy cannot be considered fully employed unless the measured unemployment rate is below 1%. Agree or disagree and explain your answer in a paragraph.

2) A) Why would you expect the inflation rate to accelerate if the actual unemployment rate declined to a level lower than the "full employment" unemployment rate and remained at that low level for a year or longer? Explain your answer in a few sentences.
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B) Draw an AS/AD diagram illustrating your answer to part (A). Be sure to label all lines and axes in your diagram clearly.

3) A) Suppose Jean Splicer, an investor, buys $300,000 of shares of stock in a diversified bundle of Bio-tech firms and exactly one year later sells those shares for $315,000. Assume the value of the CPI at the date of Jean's purchase was 180 and rose by the sale date one year later to 190 while the value of the GDP Deflator was 120 at the time of her purchase and rose to 125 by the date she sold her shares. What was Jean’s real rate of return on this investment?
B) Explain why you used either the CPI data or the GDPD data in your answer to part A.

4) A) Suppose that several months of data showed the CPI increasing at a 4.5% annual rate due largely to increases in the price of energy and food related commodities following several years when the CPI only increased by 1% per year. Suppose this increase causes investor expectations of annual inflation to also increase from 1% to 4.5%. Assume, at the same time that fears of higher inflation creates concerns that rising interest rates will derail the economic recovery and lead to another recession. Assume the resulting increase in risk aversion among investors drives the expected real rate of return required to equate investor demand to the existing supply of 1 year Treasury notes down to 0.5 % from 2%. What would you expect to happen to the nominal yields on 1-year T-notes during the period over which these changes in inflation expectations and required real yields occurred? (Give a numerical answer if possible) Explain your reasoning.



B) Draw a supply/demand diagram of the US Treasury bond market to illustrate the effects on it of the developments cited in part A. (Note: you do not have to include the exact numerical price before and after the change in expectations.) Label your diagram clearly!


5) Between mid 2008 and mid 2009 measured RGDP in the economy fell by 3.8% as the US economy sank into a recession. Over that same time period total employment in terms of hours worked declined by 7% and the unemployment rate rose sharply from 5.8% to 9.4%
What can you infer from this data about the rate of labor productivity growth in the US economy during this period? If possible give a numerical answer, but in any case explain your answer in a few sentences.


6) The $787 billion stimulus package, “American Recovery and Reinvestment Act” passed in Winter 2009 contained a mix of tax rebates, tax credits and increases in various transfer payments (such as extension of unemployment compensation). It also contained funding for a large number of infrastructure spending projects and some funding for scientific research. Most republican legislators voted against the proposed stimulus bill on the grounds that it should have contained more tax cuts and less infrastructure/research spending.


A) Briefly explain the economic rationale for enacting a large fiscal stimulus package, given the macroeconomic condition of the US economy four years ago.

B) Describe and contrast the “multiplier effects” on AD of each $1 billion of tax cuts/transfer increases with the “multiplier effects” on AD of each $1billion of increased infrastructure spending. (Which has the larger multiplier effect or are they both the same?) Assume in both cases that the lower tax rates and higher infrastructure expenditure levels would be phased in over a 2 year period and are assumed to continue indefinitely following that. (This answer is worth 6 points implying that some detail is required for full credit ).
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macroeconomics-The Economy cannot be considered fully employed unless the measured unemployment rate is below 1%

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Preview: the xxxxxxxxx increase xx risk aversion xxxxx investors drives xxx expected xxxx xxxx of xxxxxx required to xxxxxx investor demand xx the xxxxxxxx xxxxxx of x year Treasury xxxxx down to x 5 x xxxx 2% xxxx would you xxxxxx to happen xx the xxxxxxx xxxxxx on xxxxxx T-notes during xxx period over xxxxx these xxxxxxx xx inflation xxxxxxxxxxxx and required xxxx yields occurred? xxxxx a xxxxxxxxx xxxxxx if xxxxxxxxx Explain your xxxxxxxxx Nominal yield xx a xxxx xxxx of xxxxxx plus the xxxxxxxxx rate (to xxxxxxxxxx for xxxxxxxxx xxxxxx over xxxxx 1 year xxxxxx nominal rates xxxxxx go xxxxx xxx plus xxxxxxxxx rate (1%) xx 3% to: x 5% xxxx xxxx plus x 5% inflation xxxx = ) xx B) xxxx x supply/demand xxxxxxx of the xx Treasury bond xxxxxx to xxxxxxxxxx xxx effects xx it of xxx developments cited xx part x xxxxxx you xx not have xx include the xxxxx numerical xxxxx xxxxxx and xxxxx the change xx expectations ) xxxxx your xxxxxxx xxxxxxxx Investors xxx willing to xxxxxx a lower xxxx rate xx xxxxxx during xxxx period of xxxxxxxxxxxx pressure Inflation xxxxxx create xxxxxx xx bond xxxxxxxxxxxx so a xxxxx in demand xx to xx xxxxxxxx The xxxxxxx rate, the xxxxxxxxxxx of the xxxx return xxx xxx inflation xxxxx will rise xx outlined 5) xxxxxxx mid xxxx xxx mid xxxx measured RGDP xx the economy xxxx by x xx as xxx US economy xxxx into a xxxxxxxxx Over xxxx xxxx time xxxxxx total employment xx terms of xxxxx worked xxxxxxxx xx 7% xxx the unemployment xxxx rose sharply xxxx 5 xx xx 9 xx What can xxx infer from xxxx data xxxxx xxx rate xx labor productivity xxxxxx in the xx economy xxxxxx xxxx period? xx possible give x numerical answer, xxx in xxx xxxx explain xxxx answer in x few sentences xxx percentage xxxxxx xx labor xxxxxxxxxxxx during the xxxxxx is the xxxxxx in xxxx xxx 8%) xxxxx loss in xxxxx volume.....
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