Instructor: Basil Al Hashimi

Please be sure to visit each of the following links:

syllabus

module 1

module 2

module 3

module 4

module 5

Instructions for Module # 4

1. Required Reading as follows: Chapter 19 in Macroeconomics
2. Written Report Assignment:

   Prepare a 2-3 page report addressing one of the topics below. The paper should be based upon reading, research, or experience, such as a personal job experience or case study. Concepts from the text should be integrated when applicable. Identify the macroeconomics concept(s) or principle(s) involved, relate the report to a specific issue in our economy, and provide conclusions, recommendations, or lessons learned as a result of your research.

   Budget Deficits and Public Debt

   What are the impacts of having a balanced budget on the economy? Outline the best policy to deal with thedebt.

Important Points of Chapters 19 (handout for these chapters):

Written by: Basil Al-Hashimi Course: Macroeconomics 111

The following notes have been created in order to assist you in your understanding of the text as well as to help you prepare for your examination. Chapters 19

1. Automatic stabilizers tend to reduce nations income fluctuations.

2. Federal system of taxation acts as a built-in stabilizer because when GDP changes tax receipts change automatically in the same direction without any change in rates.

3. The federal debt may best be viewed as a burden primarily to the degree that it reduces the growth and level of the real capital stock.

4. The expansion of the government debt could result in:
   1. A decline in saving.
   2. An increase in interest rates.
   3. A decline in investment.
   4. A reduction in the capital stock.

5. "Old-fashioned" public finance is the following:
   1. Debt corrupts, government debt corrupts.
   2. The only good budget is a balanced budget.
   3. Public finance is simply an extension of family finance.

6. By old-fashioned public finance, we mean the idea that the government should collect current taxes sufficient to cover its current full-employed expenditures.

7. Discretionary fiscal policy is defined as the deliberate change in tax laws, transfer payments, and government spending to change equilibrium income.

8. Automatic stabilizers affect changes in income, if income rises, automatic stabilizers decrease spending.

9. A progressive income tax is an example of an automatic stabilizer.

10. Automatic stabilizers tend to reduce national income fluctuations.

11. A shift in the AS function could be caused by :
    1. a change in inputs prices .
    2. a short supply of oil or energy.
    3. a new technology.

12. When the level of AD is greater than the level of AS, we could expect to see the following:
    1. A depletion of inventories.
    2. An increase in recruiting worker efforts.
    3. An upward movement of the price level.
    4. Requests for wage increases.

13. Cost-push inflation is characterized by :
    1. a reduction in output.
    2. an increase in prices.
    3. an increase in unemployment.
    4. a reduction in money balances.

14. The symptoms of demand-pull inflation are:
    1. An increase in nominal GDP.
    2. An increase in the price level.
    3. A reduction in money balances.
    4. An increase in the nominal rate of interest.

15. Stagflation can be illustrated in terms of AD and AS curves by an upward shift in the AS curve.

16. The existence of stagflation can be explained by a model of cost-push inflation and inertial inflation.

17. The supply side policies represent a retreat from much of the Keynesian model.

18. Supply-side policies are likely to be effective in increasing actual GDP only when the economy behaves in a near-classical fashion.

19. The Phillips curve (SR) indicates that there is a trade-off between inflation and unemployment.

20. A vertical Phillips curve (LR) indicates that there is no trade-off between inflation and unemployment.

21. If the economy is at full employment , an increase in money supply will cause inflation.

22. Unemployment will eventually rise if AD remains constant.

23. The natural rate of interest is the interest rate that equilibrates saving and investment at full employment. Only IS curve can change the natural rate. Monetary policy has no effect on the natural rate.

24. Montarists argue that falling investment spending leads to declining interest rates.

25. From the Keynesian perspective, an increase in autonomous investment is likely to lead to an increase in output.

26. A relatively flat aggregate demand curve indicates that spending is sensitive to changes in the price level.

27. The Phillips curve implies a trade - off between inflation and unemployment.

28. If real wages and prices are flexible and expectations are formed rationally, an increase in the money supply will cause nominal wages to rise.

29. Real wages will decline if money supply growth exceeds expectations.

30. Under rational expectations, monetary policy can influence the real interest rate only if it is not systematic.

31. The Rational Expectation is based on the average.

Basil Al Hashimi

Please be sure to visit each of the following links:

syllabus

module 1

module 2

module 3

module 4

module 5

Please contact Basil al Hashimi for comments or corrections   email  Red Mountain Campus   phone: 480-654-7715   see a map

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