Managerial Economics

Discuss:

Using what you have learned in this unit, choose an expansionary FISCAL policy that you would recommend to help an economy that is in a recession. This should be a specific action that government could take to increase GDP. You should not choose a monetary policy (i.e. interest rate manipulation, selling of bonds, or printing of money).

Explain how your policy would help increase aggregate demand. That is, does it increase C, I, G, or X?

Explain what would happen to prices (i.e. inflation).

You may use either the Modern Keynesian model or the Classical Model to conduct your analysis. Just be sure to note which one you are using.

For your responses to classmates, help them identify other effects of their policy OR explain how they might have arrived at a different conclusion if they had chosen the other model.

 

Question

#1.Compare and contrast the three types of unemployment that are covered in Slides 8-10 of the Attend section. If you were a policy maker which type of unemployment would be most bothersome to you?

#2. What costs are associated with inflation? Explain at least 3 different costs that individuals or businesses experience when inflation rises.

#3. Explain why transfer payments are not included in GDP.

#4.Using the components of GDP covered in section 22.1 of your text, explain which component would be affected by the following (only one component should be chosen for each scenario):

a. You buy an Italian purse.

b. You buy a new house.

c. New lanes are added to Interstate 40.

d. You buy groceries.

e.You buy a new washer and dryer.

#5.

Suppose the economy is at a macroeconomic equilibrium as is shown on Slide 40 of the Attend section. The government decides to give every taxpayer a $500 tax refund.

a. What happens to the aggregate demand curve after the refund?

b. What happens to the price level after this change?

c. Is real wealth increased or decreased as a result of the refund?

#6.

Review Section 22.7 in your text. Compare and contrast the results of the Classical Model and the Keynesian model after an expansionary policy. Keep in mind that the economy is in a recession and not at full employment. Address the following:

a. The shape of the aggregate supply curve in each model in both the long-run and short-run.

b. The effect of an expansionary policy on aggregate demand in both the long-run and short-run.

c. The effect of an expansionary policy on the price level in both the long-run and short-run.

 

 

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