Exploring Macroeconomics
7th Edition
ISBN: 9781285859446
Author: Sexton, Robert L.
Publisher: Cengage Learning
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Chapter 6, Problem 8P
If the
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Analyze the graph below, showing the Gross Federal Debt as a percentage of GDP for the
United States (1939-2019). Which of the following is correct?
FRED
Gross Federal Debt as Percent of Gross Domestic Product
Percent of GDP
120
110
100
60
50
40
90
30
1940
1950
1960
1970
Shaded areas indicate US recessions
1980
1990
2000
2010
1000
Sources: OMD, St. Louis Fed
myfred/g/U
In 2019, the Federal Government of the United States had an accumulated debt/GDP higher than
100%, meaning that the amount of debt accumulated over time is higher than the value of all goods
and services produced in that year.
The debt/GDP is always positive during this period, so the Federal Government of the United States
incurred in budget deficits every year since 1939.
From the mid-40s until the mid-70s, the debt/DGP was decreasing, meaning that the Federal
Government of the United States was running a budget surplus every year during those three decades.
During the second half of the 1970s, the Federal Government…
An imaginary country estimates that their economy can be approximated by the AD/AS model
below. How can this government act to move the equilibrium to potential GDP?
LRAS
Price Level
P
Y
Real GDP
E
SRAS
AD
The AD/AS model shows that a contractionary fiscal policy is suitable, but the choice of increasing
taxes, decreasing government expenditure or doing both simultaneously is mostly political
The AD/AS model shows that increasing taxes is the best fiscal policy available.
The AD/AS model shows that decreasing government expenditure is the best fiscal policy available.
The AD/AS model shows that an expansionary fiscal policy capable of shifting the AD curve to the
potential GDP level would decrease Real GDP but increase inflationary pressures
Question 1 Coursology
Consider the four policies bellow. Classify them as either fiscal or monetary policy:
I. The United States Government promoting tax cuts for small businesses to prevent a wave of
bankruptcies during the COVID-19 pandemic
II. The Congress approving a higher budget for the Affordable Health Care Act (also known as
Obamacare)
III. The Federal Reserve increasing the required reserves for commercial banks aiming to
control the rise of inflation
IV. President Joe Biden approving a new round of stimulus checks for households
I. fiscal, II. fiscal, III. monetary, IV. fiscal
I. fiscal, II. monetary, III. monetary, IV. monetary
I. monetary, II. fiscal, III. fiscal, IV. fiscal
I. monetary, II. monetary, III. fiscal, IV. monetary
Chapter 6 Solutions
Exploring Macroeconomics
Ch. 6 - Prob. 1PCh. 6 - Prob. 2PCh. 6 - Prob. 3PCh. 6 - Prob. 4PCh. 6 - Prob. 5PCh. 6 - Explain why using the midpoint formula for...Ch. 6 - Prob. 7PCh. 6 - If the elasticity of demand for hamburgers equals...Ch. 6 - Evaluate the following statement: Along a...Ch. 6 - If the midpoint on a straight-line demand curve is...
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- A firm has the following demand function P=200 − 2Q and the average costof AC= 100/Q + 3Q −20.a. Find the profit function. b. Estimate the marginal cost function. c. Obtain the production that maximizes the profit. d. Evaluate the average cost and the marginal cost at the maximising production level.arrow_forwardRubber: Initial investment: $159,000 Annual cost: $36,000 Annual revenue: $101,000 Salvage value: $12,000 Useful life: 10 years Using the cotermination assumptions, a study period of 6 years, and a MARR of 9%, what is the present worth of the rubber alternative? Assume that the rubber alternative's equipment has a market value of $18,000 at the end of Year 6.arrow_forwardRichard has just opened a new restaurant. Not being good at deserts, he has contracted with Carla to provide pies. Carla’s costs are $10 per pie, and she sells the pies to Richard for $25 each. Richard resells them for $50, and he incurs no costs other than the $25 he pays Carla. Assume Carla’s costs go up to $30 per pie. If courts always award expectation damages, which of the following statements is most likely to be true?arrow_forward
- Difference-in-Difference In the beginning of 2001, North Dakota legalized fireworks. Suppose you are interested in studying the effect of the legalizing of fireworks on the number of house fires in North Dakota. Unlike North Dakota, South Dakota did not legalize fireworks and continued to ban them. You decide to use a Difference-in-difference (DID) Model. The numbers of house fires in each state at the end of 2000 and 2001 are as follows: Number of house fires in Number of house fires in Year North Dakota 2000 2001 35 50 South Dakota 54 64 a. What is the change in the outcome for the treatment group between 2000 and 2001? Show your working for full credit. (10 points) b. Can we interpret the change in the outcome for the treatment group between 2000 and 2001 as the causal effect of legalizing fireworks on number of house fires? Explain your answer. (10 points)arrow_forwardC. Regression Discontinuity Birth weight is used as a common sign for a newborn's health. In the United States, if a baby has a birthweight below 1500 grams, the newborn is classified as having “very low birth weight". Suppose you want to study the effect of having very low birth weight on the number of hospital visits made before the baby's first birthday. You decide to use Regression Discontinuity to answer this question. The graph below shows the RD model: Number of hospital visits made before baby's first birthday 5 1400 1450 1500 1550 1600 Birthweight (in grams) a. What is the running variable? (5 points) b. What is the cutoff? (5 points) T What is the discontinuity in the graph and how do you interpret it? (10 points)arrow_forwardC. Regression Discontinuity Birth weight is used as a common sign for a newborn's health. In the United States, if a baby has a birthweight below 1500 grams, the newborn is classified as having “very low birth weight". Suppose you want to study the effect of having very low birth weight on the number of hospital visits made before the baby's first birthday. You decide to use Regression Discontinuity to answer this question. The graph below shows the RD model: Number of hospital visits made before baby's first birthday 5 1400 1450 1500 1550 1600 Birthweight (in grams) a. What is the running variable? (5 points) b. What is the cutoff? (5 points) T What is the discontinuity in the graph and how do you interpret it? (10 points)arrow_forward
- Experiments Research suggests that if students use laptops in class, it can have some effect on student achievement. While laptop usage can help students take lecture notes faster, some argue that the laptops may be a source of distraction for the students. Suppose you are interested in looking at the effect of using laptops in class on the students' final exam scores out of 100. You decide to conduct a randomized control trial where you randomly assign some students at UIC to use a laptop in class and other to not use a laptop in class. (Assume that the classes are in person and not online) a. Which people are a part of the treatment group and which people are a part of the control group? (10 points) b. What regression will you run? Define the variables where required. (10 points)arrow_forwardExperiments Research suggests that if students use laptops in class, it can have some effect on student achievement. While laptop usage can help students take lecture notes faster, some argue that the laptops may be a source of distraction for the students. Suppose you are interested in looking at the effect of using laptops in class on the students' final exam scores out of 100. You decide to conduct a randomized control trial where you randomly assign some students at UIC to use a laptop in class and other to not use a laptop in class. (Assume that the classes are in person and not online) a. Which people are a part of the treatment group and which people are a part of the control group? (10 points) b. What regression will you run? Define the variables where required. (10 points)arrow_forwardDummy variables News reports claim that in the last year television watching has increased. You believe that rising unemployment during Covid may be one of the causes for this. Suppose you are interested in looking at the effect of being unemployed on the hours spent watching Netflix per day. You collect data on 10,000 people from Chicago who are between the age of 20 and 60. You define the dummy variable Unemployed which takes the value 1 for those who are unemployed and 0 for those who are employed. Equation 1: Hours spent watching Netflix₁ = ßo + B₁Unemployed; + ε¿ Following is the output for equation 1: reg hours spent_watching_netflix unemployed Source SS df MS Number of obs 10,000 F(1, 9998) = 14314.03 Model Residual 3539.70065 2472.39364 9,998 1 3539.70065 .247288822 Prob F R-squared == 0.0000 = 0.5888 Total 6012.09429 9,999 . 601269556 Adj R-squared Root MSE = 0.5887 .49728 hours spen~x Coef. Std. Err. t P>|t| [95% Conf. Interval] unemployed cons 1.189908 .0099456 119.64…arrow_forward
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