Transcript File

Macro models practice problems
Get in to groups, grab boards and
markers!
Problem 1
• Hernandez’s economy is in a severe recession.
• 1. Draw and label a model showing this.
• 2. In Hernandezland, the average person saves 50
cents of every dollar they earn. Calculate the
MPC and MPS of Hernandezland.
• 3. If the government were to contract an
Hernandezland company to make 50 million
dollars worth of uniforms, what would be the
aggregate result on GDPr?
• 4. Draw that result and label it.
• 5. Draw a foreign exchange chart to show the
effects.
• 6. What happens to Net Exports?
Problem 2
• Biggsland’s economy is dealing with severe
inflationary pressures due to an unchecked
expansionary period.
• 1. Draw and label this model.
• 2. Biggsland citizens spend about 90 percent of all
new money they earn. What are their MPC and
MPS?
• 3. The wise and wonderful Biggs institutes a new
tax on citizens that collects 150 million dollars.
What was the impact of this tax?
• 4. Draw that result.
Problem 3
• Livingstonia is at long run equilibrium.
Livingstonia’s MPC is 0.75
• 1. Draw and label a graph showing this.
• 2. Livingston goes to war with their neighbor
Hernandez. This conflict leads to the
government spending 10 billion dollars on
local defense funding. What total impact
would this have on Livingstonia’s economy?
• 3. Draw that impact.
• 4. How would this affect Net Exports, and
Foreign Exchange rates?
Problem 4
• Livingstonia is at long run equilibrium.
Livingstonia’s MPC is 0.50
• 1. Draw and label a graph showing this.
• 2. Livingstonia goes to war with their neighbor
Hernandez. This conflict leads to the
government spending 50 billion dollars on local
defense funding. What total impact would this
have on Livingstonia’s economy?
• 3. Draw that impact.
• 4. Livingstonia taxes 50 billion dollars to pay for
the war, what would be the net change to AD?
Board Problem Part 1
• Hernandez is having issues with a severe
recession and the wise advisors to the great
Hernandez met to advise him on a path solving
this problem. Hernandez has a balanced budget.
• 1. Draw a model describing this situation.
• 2. Secretary of Defense George suggested to
Hernandez an increase in military spending
without a change in taxes would draw Hernandez
out of its funk, and expand her iron fist of control.
– Show how this would impact the aggregate model
– Show how would this change the loanable funds and
investment market.
Board Problem Part 2
• Hernandez is having issues with a severe
recession and the wise advisors to the great
Hernandez met to advise him on a path solving
this problem. Hernandez has a balanced budget.
• 3. Secretary of Defense George suggested to
Hernandez a massive tax cut to try to inspire
greater consumption (on fire arms for her private
army).
– Show how this would impact the aggregate model
– Show how would this change the loanable funds
market and investment.
Board Problem Part 3
• Hernandez is having issues with a severe
recession and the wise advisors to the great
Hernandez met to advise him on a path solving
this problem. Hernandez has a balanced budget.
• 4. Secretary of Defense George suggested to
Hernandez that the best course of action is to
allow the economy to self correct over time.
– Show how this would impact the aggregate model
MORE PRACTICE! YAY!
• The nation of Hernandez has been in a severe
inflationary gap for the last several years due to
increased aggregate demand. The vicious and
uncaring Hernandez is contemplating his options
for solving this issue.
• 1. Draw and label a model showing this
• Solution 1: Notably raise taxes to reign in his
citizenry's spending.
• 2. Draw how this would impact the model
• 3. What kind of policy is this?
Expansionary/Contractionary?
Discretionary/Automatic?
MORE PRACTICE! YAY!
• The nation of Hernandez has been in a severe
inflationary gap for the last several years due to
increased aggregate demand. The vicious and uncaring
Hernandez is contemplating his options for solving this
issue.
• Solution 2: Notably cut government spending
programs.
• 1. Draw how this would impact the model
• 2. What kind of policy is this?
Expansionary/Contractionary?
Discretionary/Automatic?
• How would this affect Net Exports, and Foreign
Exchange Rates?
MORE PRACTICE! YAY!
• The nation of Hernandez has been in a severe
inflationary gap for the last several years due to
increased aggregate demand. The vicious and
uncaring Hernandez is contemplating his options for
solving this issue.
• Solution 3: Do absolutely nothing, perhaps buy a lot
of sunscreen and take a vacation in Tahiti.
• 1. Draw how this would impact the model
• 2. What kind of policy is this?
Discretionary/Automatic?