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Macroeconomics 2301
questions for Exam 2
You must send me your answers to all of the questions.
I will grade 6 of your answers.
1. GDP is a key concept in Macroeconomics. Please review the material covered in the topic called Measuring Domestic Output
and National Income.
a. What is the definition of GDP?
b. Tell me the level of real GDP and real GDP per capita for the past 5 years and tell me how you think we are doing
today and why.
c. Go to topic called Economic Growth and look at slide 3 and tell me if the falling trend line is a good or bad thing for the
nation and why. Please be thorough!
d. List and explain in detail, the 3 different approaches to calculating GDP.
i. List and explain the approaches and how you would use each to calculate GDP.
e. List and explain 4 types of transactions that would not be included in GDP and why they should be omitted.
i. Look in the notes and find 4 types of transactions that are excluded from the computation of GDP and write them down
along with the explanation of each and why they are not
included.
f. Nominal versus real GDP. i. Explain the difference between nominal and real
GDP.
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ii. Explain in detail, how to calculate real GDP, including the factors used in the calculation.
1. Look in the notes to find this – very straight forward.
iii. Explain in detail the CPI since it is used to make the conversion. The following url should help –
https://www.bls.gov/cpi/
iv. Explain what you can do with real GDP that you cannot do with nominal GDP and explain why that
is important.
g. GDP and GDP per-capita. i. Explain the difference between GDP and Per Capita
GDP;
ii. Explain how to calculate Per Capita GDP, and how Per Capita GDP can be used.
2. Economic growth. Two key sources of economic growth have been increases in resources and increases in productivity. Please
review the topic called Introduction to Economic Growth and
Instability.
a. Please list 3 factors that might contribute to falling U.S. GDP growth rates and explain how each factor might cause
falling GDP growth rates.
b. Please provide 3 recommendations for achieving an acceptable level of economic growth that reduces wealth
and income inequality and minimizes the production of
greenhouse gasses.
3. The Business Cycle and Built in stabilizers.
a. What can the business cycle tell you about the status of our economy today and what we might experience over the next
12 months. (please provide detail)?
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b. Given what you have learned about the U.S. Business cycle over the past 60 years, please explain 3 ways you can use
that information to enhance your personal odds of
achieving future personal success. Please do not talk about
your financial portfolio or playing around with the stock
market.
c. Explain in some detail the 4 phases of the business cycle,
including the characteristics of each. Please don’t include
Depression as one of them. Be thorough! You should have
at least 4 characteristics for each phase! Include in your
discussion how each phase of the business cycle might
impact your life and what you should do to minimize the
negative impacts on your future.
d. Built-in Stability
1. Explain the difference between discretionary and non-discretionary fiscal policy. Include in
your explanation the differences in the roles of
the three branches of government in each case.
2. Explain the key relationships that supports the built-in stabilizer which were provided in the
slides and lecture.
3. Explain thoroughly how the built-in stabilizer works to reduce inflation. Need to see the step
by step of what happens.
4. Explain thoroughly how the built-in stabilizer works to reduce recession. Need to see the step
by step of what happens.
5. Explain why the presence of the built-in-stabilizer is important to managing the macro
economy.
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4. Unemployment and Recession Please review the topic called Introduction to Economic Growth and Instability
a. Explain in detail, how the unemployment rate is calculated.
b. Explain in detail, how we define the employed, the unemployed, and who is in the labor force?
i. The link BLS website should help – http://www.bls.gov/news.release/empsit.t15.htm
c. List and explain the various unemployment rates used by the BLS, and indicate which one of the 6 is the official
unemployment rate. i. This link to the BLS website should help –
http://www.bls.gov/news.release/empsit.t15.htm
d. There has been a historic disparity between unemployment rates for Black, Hispanic, and White workers.
i. Please provide detailed explanations of 5 reasons the Black and Hispanic unemployment rates are
always significantly higher than the unemployment
rate for Whites.
ii. Explain in detail, 1 thing that should be done to correct each of the things that cause the problem.
Be sure you explain how each recommendation
would actually lead to solution of the problem.
Please be very thorough with this.
e. The 3 types of unemployment. i. List and explain the 3 types of unemployment that
we discussed. Include the characteristics of each
and the role of skills for each.
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f. List and explain thoroughly, 3 examples of significant economic costs of unemployment and what we might do to
reduce those costs.
g. Unemployment and how to use Fiscal Policy to address Recession. Please review the topics called Fiscal Policy and
The Aggregate Demand and Aggregate Supply Model
Background for this question:
The US economy is currently experiencing recession
according to the Federal Government. You can use only
Fiscal Policy and the AD – AS model.
i. List and explain the 3 Fiscal Policy tools covered in the slides that apply to fixing recession, and indicate
the one tool that you want to use to attack the
recession problem?
Please note that transfer payments would come
under the heading of government spending! So
don’t use it as one of your 3 tools of fiscal policy.
ii. Explain why you selected the tool and not the others. Refer to your decision criteria.
1. Consider the pros and cons of each of the 3 tools and tell me why you picked the one you picked and why you did
not pick the other option(s).
iii. Explain how your tool would solve the recession problem and what effects your solution would have
on at least five key economic variables. BE SPECIFIC! I WANT TO SEE THE DETAIL. USE THE WHAT HAPPENS
NEXT APPROACH! 1. Explain how your choice of tools would work to solve the
problem of recession. Start with the implementation of
your tool and then list step by step what happens next, until
you arrive at the appropriate impact on GDP. Be sure you
provide the detailed step by step flow.
2. Using that approach allows the list the key economic variables and how each would be affected, to pop right out.
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5. Inflation Please review the topic called Introduction to Economic Growth and Instability
a. What is inflation and how can you use the CPI data to calculate it?
b. List and explain the two types of inflation.
c. Give two examples of who might be hurt by inflation and why.
d. Give two examples of who might be helped by inflation and why.
e. Inflation and how to use Fiscal Policy to address the problem of Inflation. Please review the topic called Fiscal
Policy and The Aggregate Demand and Aggregate Supply
Model.
Background for this question:
Assume the US economy is currently experiencing high
rates of inflation according to the Federal Reserve. Use only
Fiscal Policy and the AD – AS model.
i. List and explain the 3 Fiscal Policy tools covered in the slides and indicate which tool you will use to
attack the inflation problem? 1. List the 3 possible choices and then just tell me which of
the tools you would select. Just write it down.
ii. Explain why you selected this particular tool and not the others. Refer to your decision criteria.
1. Consider the pros and cons of each of the 3 tools and tell me why you picked the one you picked and why you did
not pick the other option(s).
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iii. Explain how your solution would work to solve the problem of inflation and what effects your solution
would have on at least five key economic Variables?
BE SPECIFIC! I NEED TO SEE THE DETAIL.
USE THE WHAT HAPPENS NEXT APPROACH! 1. Explain how your choice of tools would work to solve the
problem of recession. Start with the implementation of
your tool and then list step by step what happens next, until
you arrive at the appropriate impact on GDP. Be sure you
provide the detailed step by step flow.
2. Using that approach allows the list the key economic variables and how each would be affected, to pop right out.
6. Aggregate Demand Please review the topics called The Aggregate demand and aggregate supply model and the Aggregate
Expenditures model.
a. List and thoroughly explain the three reasons the Aggregate Demand curve is downward sloping.
i. In your explanation, please start with an increase in prices and work through to a decrease in AD.
b. List and explain in detail, the components of Aggregate Demand and explain each of their determinants.
i. You studied the 4 components. List and explain them and under each list and explain the determinants of each.
7. The basic macroeconomic relationships introduced a number of key concepts. Please review the topic called Basic
Macroeconomic Relationships.
a. Please explain in detail the relationships between income, consumption, savings, and GDP.
i. Define each ii. Explain the relationship between these items.
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b. Please explain in detail the relationships between interest rates, expected rates of return, investment, and GDP. Be
specific and be thorough. i. All of the necessary info is provided in the slides and audio
lectures
c. Please explain the concept of the multiplier, including: 1. What information is required to calculate the
spending multiplier a. Refer to the slides, the info is there. Look closely –
don’t miss this!
2. List and explain the 3 different multipliers that we discussed.
a. Again, refer to the slides, it’s all there.
3. Explain in detail how the multiplier works to impact GDP. Be specific!
a. Use the chart from the slide set as the basis of your explanation. Start with the injection of money into
the economy and then how that affects household
income and then spending via the mpc. Go on to
discuss the rounds of spending, etc. and how the
ultimate impact on gdp is amplified by the
multiplier effect.
8. The Aggregate Supply curve shows the level of real output that the business sector will produce at various possible price levels.
Please review the topic called The aggregate demand and
aggregate supply model.
a. Explain the Long Run Aggregate Supply curve and the assumptions that support its shape at full employment.
i. List the assumptions, discuss the shape of the LR AS curve and why it takes that shape.
b. Explain the Short Run Aggregate Supply curve and the assumptions that support its shape.
i. List the assumptions, discuss the shape of the SR AS curve and why it takes that shape. Discuss the difference in the shape of
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the curve at levels below full employment GDP and what you see
at levels above full employment GDP.
9. We discussed four problems that complicate the application of fiscal policy. Please review the topic called Fiscal Policy.
a. List and thoroughly explain these 4 problems, including how each would likely impact the overall effectiveness of
fiscal policy. Be specific! Be thorough! i. You should list the 4 problems associated with Fiscal Policy that
were listed in the slides and explain the factors associated with
each. And as you address each problem, discuss how each would
impact the effectiveness of fiscal policy.
10. Scenario: Climate scientists are in agreement that inhabitants of earth must
immediately make changes to our economic systems in order for
us to have any hope of minimizing the global impacts of climate
change. They have determined that we must reduce greenhouse
gas emissions to a level that will limit global heating to no more
than 1.51C above pre-industrial levels.
Please tell me about the policy changes you would recommend for
America. Please talk about the things that
• the Federal, State, and local governments must do
• the things corporations must do
• and the things individuals must do to achieve this goal.
Please provide as much explanation as possible. It would be
useful to include discussion of the good things that can result
from your policy suggestions and the bad things that can result
from your policy suggestions.