Macroeconomics Math Homework

Macroeconomics Math Homework
There are 40 Econ/Math related problems. I need the problems solved, and it must include the math steps/work done in order to achieve the correct answer.

File #1
File #2
Instruction: Please physically do math rather than typing them out. Full credit will be awarded for correct and shown work. Partial credit will be awarded for work shown and attempt at the problem No credit will be awarded for incorrect answer and no shown work or even with the correct answer, but no work shown. In addition, please label millions (M), billions (B) or trillions (T) for your answers. Without the proper labels, your answer may be considered incorrect. Answers should be two significant digits past the decimal point (5.16% for example).

Each question is worth 2 points. The overall assignment is worth 80 points.

All the answers will be math answers.

1. Given a $1,000 billion AD shortfall and an MPC of 0.60, the desired fiscal stimulus would be?

2. To eliminate an AD shortfall of $160 billion when the economy has an MPC of 0.75, the government should increase the transfer payments by how much?

3. If the desired fiscal stimulus is $90 billion and the desired AD increase is $60 billion, what can we conclude about the MPC and multiplier?

4. If the multiplier is 5 and a change in government spending leads to a $600 million decrease in aggregate demand, then what can we conclude to happen with government spending or taxes?

5. If the MPC equals 0.85, a $350 billion tax increase will decrease consumption in the first round by how much?

6. If the MPC is 0.25, a $75 million transfer payment will ultimately do what to the overall consumption?

7. To eliminate an AD shortfall of $125 billion when the economy has an MPC of 0.90, the government should increase spending by how much?

8. If the MPC equals 0.75, a $110 billion tax increase will decrease consumption in the first round by how much?

9. Assume the MPC is 0.75, tax increases by $300 billion and the government spending increases by $200 billion. What would happen to the aggregate demand?

10. Assume that the MPC is 0.80. The change in total spending for the economy because of $750 billion government spending is what?

11. To eliminate an AD shortfall of $100 billion when the economy has an MPC of 0.85, the government should decrease taxes by how much?

12. To eliminate an AD shortfall of $400 billion when the economy has an MPC of 0.75, the government should increase spending by how much?

13. If the multiplier is 4 and a change in government spending leads to a $750 million decrease in aggregate demand, then what can we conclude to happen with government spending or taxes?

14. If the multiplier is 3 and a change in fiscal policy leads to a $150 million decrease in total spending, then what can we conclude to happen with government spending?

15. If the MPC is 0.95, a $65 million transfer payment will ultimately do what to overall consumption?

16. Assume that the MPC is 0.80. The change in total spending for the economy because of $450 billion government spending is what?

17. If the multiplier is 4 and a change in government spending leads to a $600 million decrease in aggregate demand, then what can we conclude to happen with government spending or taxes?

18. To eliminate an AD shortfall of $155 billion when the economy has an MPC of 0.85, the government should increase spending by how much?

19. If the MPC equals 0.75, a $300 billion tax increase will decrease consumption in the first round by how much?

20. An MPC of 0.85 means a $180 million transfer payment decrease would do what to consumption during the first round?

21. Given a $500 billion AD shortfall and an MPC of 0.75, the desired fiscal stimulus would be?

22. What would be the best choice between a tax hike or a tax cut and by how much if the desired fiscal stimulus is $40 billion and the desired AD increase is $70 billion?

23. If the MPC equals 0.90, a $250 billion tax increase will decrease consumption in the first round by how much?

24. Given a $500 billion AD shortfall and an MPC of 0.80, the desired fiscal stimulus would be?

25. If the MPC equals 0.90, a $140 billion tax increase will decrease consumption in the first round by how much?

26. To eliminate an AD shortfall of $190 billion when the economy has an MPC of 0.90, the government should increase the transfer payments by how much?
27. Assume the MPC is 0.80, tax increases by $200 billion and the government spending increases by $200 billion. What would happen to the aggregate demand?

28. If the multiplier is 3 and a change in fiscal policy leads to a $600 million decrease in total spending, then what can we conclude to happen with government spending?

29. To eliminate an AD shortfall of $350 billion when the economy has an MPC of 0.75, the government should increase spending by how much?

30. Assume that the MPC is 0.80. The change in total spending for the economy because of $550 billion government spending is what?

31. If the multiplier is 5 and a change in fiscal policy leads to a $150 million decrease in total spending, then what can we conclude to happen with government spending?

32. If the desired fiscal stimulus is $50 billion and the desired AD increase is $70 billion, what can we conclude about the MPC and multiplier?

33. Given a $400 billion AD shortfall and an MPC of 0.75, the desired fiscal stimulus would be?

34. To eliminate an AD shortfall of $300 billion when the economy has an MPC of 0.90, the government should decrease taxes by how much?

35. If the MPC equals 0.85, a $250 billion tax increase will decrease consumption in the first round by how much?

36. Given a $100 million AD shortfall and an MPC of 0.85, the desired fiscal stimulus would be?

37. If the MPC is 0.90, a $110billion transfer payment will ultimately do what to overall consumption?

38. If the desired fiscal stimulus is $40 billion and the desired AD increase is $50 billion, what can we conclude about the MPC and multiplier?

39. Assume the MPC is 0.75, tax increases by $150 billion and the government spending increases by $1000 billion. What would happen to the aggregate demand?

40. To eliminate an AD shortfall of $85 billion when the economy has an MPC of 0.95, the government should decrease taxes by how much?

Chapter 11

FISCAL POLICY
WHAT IS THIS CHAPTER ALL ABOUT?

This chapter focuses on the Keynesian solution to economic stability: fiscal policy. From the Keynesian perspective, too little aggregate demand causes unemployment and too much aggregate demand causes inflation. Since the economy doesn’t self-correct, the federal government must step in to achieve stability. This chapter examines some of the tools the federal government can use to alter macroeconomic outcomes. Questions to be kept in mind while reviewing this chapter are:

1. Can government spending and tax policies ensure full employment?
2. What policy actions will help fight inflation?
3. What are the risks of government intervention?

LEARNING OBJECTIVES: After reading the chapter, the students should know:

1. What real GDP gap and the AD shortfall measures.
2. The desired scope and the tools of fiscal stimulus.
3. What AD excess measures and the desired scope and tools of fiscal restraint.
4. How the multiplier affects fiscal policy.

NEW TO THIS EDITION

The changes to this chapter include:
• New Figure on Inflation Pressure
• New In the News on Defense Cuts
• Updated discussion and table (Table 11.2) on stimulus impact
• Updated CBO estimates of 2009-13 impact of Obama stimulus package
• 3 new Discussion Questions
• 10 revised Problems
• 1 new Problem

LECTURE LAUNCHERS

How long will this chapter take? Three or four 75-minute class periods.
Where should you start?

1. Ask the class if the government (local, state, and federal) spends too much money. What would happen to the economy if they made drastic cuts?
Use this discussion to illustrate how the governments use fiscal policy to affect economic outcomes. This is a nice introduction into the issues of fiscal policy.

2. Ask the class what they would do with a tax refund check. How much of the refund would the class spend and how much would they save?
Using their answers, calculate an average MPC for the class. Using this MPC, go through several stages of the multiplier process to illustrate the multiplier effect and the tax multiplier.

3. Bring in a recent news article about tax cuts, tax increases, government spending cuts, or government spending increases.
This article can illustrate local, state, or federal changes. Although federal changes are easiest to demonstrate the multiplier effect, the multiplier principle is the same regardless of who initiates the injection. Discuss how each change in spending affects the economy. You might want to discuss whether the changes are targeted for the local, state, or national economy. Use the MPC of the class to determine multiplier effects. This exercise also offers the opportunity to discuss leakages from the system. For example, if the spending or tax injection is from local government, how much of the injection leaks out of the local economy? How does this affect the multiplier?

4. Ask the students whether it matters who receives a tax cut or a spending increase?
This question offers the opportunity to discuss that different sectors have different MPCs. Consequently, the multiplier effect differs depending on whether spending or tax changes are targeted toward relatively wealthy or relatively poor sectors of the economy.

COMMON STUDENT ERRORS

Students often believe the following statements are true. The correct answer is explained after the incorrect statement is presented.

1. In order for the Federal government to increase spending, taxes must be increased. Spending hikes increase aggregate demand most strongly if they are not accompanied by a tax increase. The Federal government can finance spending in excess of taxes by borrowing, a topic discussed in the following chapter.

2. If the government increases spending and taxes by the same amount, there will be no effect on income. The full impact of the increased government spending turns into income for the people who provide goods and services to the government. Part of the increased taxes, however, comes from people’s savings, which had been leakages from the economy. So consumption decreases by less than the loss of taxes. This in turn means that income generated by consumption spending is not cut back by the amount of taxes. Therefore, the economy experiences a smaller cutback in incomes because of increased taxes than from the stimulus from increased government spending. The net effect is an increase in income.
ANNOTATED OUTLINE

I. Introduction
A. Keynesian theory of macro instability is practically a mandate for government intervention.
B. This chapter confronts the following questions:
1. Can government spending and tax policies ensure full employment?
2. What policy actions will help fight inflation?
3. What are the risks of government intervention?
C. Government tax and spending activities affect the level and price of output as well as the mix.

II. Taxes and Spending
A. Government Revenue
1. Government expansion started with the 16th amendment to the U.S. Constitution (1913) which extended the government’s taxing power to incomes.
2. Prior to this, most government revenue came from taxes on imports, whiskey, and tobacco.
3. Today nearly half of tax revenues come from individual income taxes; social security is the second largest revenue source, followed by corporate income taxes. Customs, whiskey and tobacco taxes now count for very little.
B. Government Expenditure
1. This chapter focuses on how government spending directly affects aggregate demand.
2. Definition: Aggregate Demand – The total quantity of output demanded at alternative price levels in a given time period, ceteris paribus.
3. Purchases vs. Transfers
• To understand how government spending affects aggregate demand, we must distinguish between government purchases and income transfers.
• Government spending on defense, highways, and health care entails the purchase of goods and services in the product and factor markets and is part of AD.
• Income transfers don’t become part of AD until recipients decide to spend income.
• Definition: Income Transfers – Payments to individuals for which no current goods or services are exchanged, such as, Social Security, welfare, unemployment benefits.
• The federal government’s tax and spending powers give it a great deal of influence over aggregate demand by:
• Purchasing more or fewer goods and services.
• Raising or lowering taxes.
• Changing the level of income transfers.
C. Fiscal policy (Figure 11.1)
1. Definition: Fiscal Policy – The use of government taxes and spending to alter macroeconomic outcomes.
2. From a macro perspective, the federal budget is a tool that can shift aggregate demand and thereby alter macroeconomic outcomes.

III. Fiscal Stimulus
A. Definitions: Equilibrium (macro) – The combination of price level and real output that is compatible with both aggregate demand and aggregate supply.
Recessionary GDP gap – The amount by which equilibrium GDP falls short of full-employment GDP.
B. Keynesian Strategy (Figure 11.2)
1. The Keynesian model of the adjustment process shows not only how the economy can get into such trouble, but also how it might get out.
2. From a Keynesian perspective, the way out of recession is to get someone to spend more on goods and services. The source of new spending could come from increased government purchases, or tax cuts that increase consumer or business spending.
3. This fiscal stimulus could propel the economy out of recession.
4. Definition: Fiscal Stimulus – Tax cuts or spending hikes intended to increase (shift) aggregate demand.
5. The general strategy is clear; however, the scope of desired intervention is not. Two strategic policy questions must be answered:
• By how much do we want to shift the AD curve to the right?
• How can we induce the desired shift?
C. The AD Shortfall (Figure 11.3)
1. If GDP gap is $400 billion, why not just increase AD by the size of the GDP gap?
2. Price Level Changes
• When the AD curve shifts to the right, the economy moves up the AS curve, not horizontally to the right, changing both real output and prices. (Figure 11-3)
• The naive Keynesian policy fails to achieve full employment.
• Shifting (increasing) aggregate demand by the amount of the GDP gap will achieve full employment only if the price level doesn’t rise.
3. The Naive Keynesian Model
• Keynes thought that fiscal policy might work.
• But achieving full employment without price increases would happen only if the aggregate supply curve were horizontal.
• Definition: Aggregate Supply – The total quantity of output producers are willing and able to supply at alternative price levels in a given time period, ceteris paribus.
• Inflation Pressure (Figure 11.4)
Increasing aggregate demand can help reduce the unemployment rate but may also increase inflationary pressures.
4. The AD Shortfall
• So long as the AS curve slopes upward, we must increase AD by more than the size of the GDP gap to achieve full employment. (Figure 11.3)
• Definition: AD shortfall – The amount of additional aggregate demand needed to achieve full employment after allowing for price level changes.
• The horizontal distance between point a and point e in Figure 11.3 measures the AD shortfall.
• The AD shortfall is the fiscal target.
E. More Government Spending
1. Increased government spending is a form of fiscal stimulus.
2. Multiplier Effects (Figure 11.5)
• Every dollar of new government spending has a multiplied impact on AD.
• How much of a boost the economy gets depends on the value of the multiplier.
• Definition: Multiplier- The multiple by which an initial change in aggregate spending will alter total expenditure after an infinite number of spending cycles; 1/(1 – MPC).
• Formula

• Definition: Marginal propensity to consume (MPC) – The fraction of each additional (marginal) dollar of disposable income spent on consumption; the change in consumption divided by the change in disposable income.
• The impact of fiscal stimulus on aggregate demand includes both the new government spending and all subsequent increases in consumer spending triggered by the additional government outlays.
• Formula

3. The Desired Stimulus
• Formula
• In the News: “U.S. Congress Gives Final Approval to $787B Stimulus”
In his first month in office, President Obama signed onto the largest stimulus bill ever passed by Congress.
F. Tax Cuts
1. By lowering taxes, the government increases the disposable income of the private sector.
• Definition: Disposable Income – After-tax income of consumers; personal income less personal taxes.
2. Taxes and Consumption (Figure 11.5)
• Tax cuts directly increase the disposable income of consumers, but the more important question is how a tax cut affects spending.
• The amount consumption increases depends on the marginal propensity to consume.
• Formula
• The effect of a tax cut that increases disposable incomes is to stimulate consumer spending.
• A tax cut contains less fiscal stimulus than an increase in government spending of the same size.
• The initial spending injection is less than the size of the tax cuts.
• The AD shortfall can be closed with a tax cut.
Formula

• A dollar of tax cuts is less simulative than a dollar of government purchases. (Table 11.1)
• In the News: “Just How Stimulating Are Those Checks?”
The tax rebate checks in early 2008 led to increases in spending across various sectors.
3. Taxes and Investment
• A tax cut may also be an effective mechanism for increasing investment spending.
• Tax cuts have been used numerous times to stimulate the economy. Notable examples were in 1963, 1981, 2002, 2003 and 2009.
• The stimulus of January 2009 is projected to increase RGDP and employment for years to come; at least through 2013 (Table 11.2).
G. Increased Transfers
1. A third fiscal-policy option to stimulate the economy is to increase transfer payments such as social security, welfare, unemployment benefits, and veterans’ benefits.
2. Formula

IV. Fiscal Restraint
A. Definition: Fiscal Restraint – Tax hikes or spending cuts intended to reduce (shift) aggregate demand.
B. There are times when the economy is expanding too fast and fiscal restraint is more appropriate.
1. The objective is to reduce aggregate demand.
2. This policy tool uses the budget tools in reverse: reducing government spending, increasing taxes, or decreasing transfer payments.
C. The AD Excess (Figure 11.7)
1. The first task is to determine how much AD needs to fall.
2. Definitions: Inflationary GDP Gap – The amount by which equilibrium GDP exceeds full-employment GDP.
Aggregate Demand Excess – The amount by which aggregate demand must be reduced to achieve full employment equilibrium after allowing for price-level changes.
3. The AD excess exceeds the GDP gap.
4. Formula
D. Budget Cuts
1. Budget cuts reduce government spending and induce cutbacks in consumer spending.
2. The budget cuts have a multiplied effect on AD.
• Formula

3. The budget cuts should be equal to the size of the desired fiscal restraint.
4. In The News: “Defense Cuts Kill Jobs”
Reductions in government spending on goods and services decrease aggregate demand. Multiplier effects also induce cutbacks in consumption, thereby further decreasing aggregate demand.
E. Tax Hikes
1. Tax hikes can be used to shift the AD curve to the left.
2. The direct effect of tax increases is a reduction in disposable income.
3. Taxes must be increased more than a dollar to get a dollar of fiscal restraint.
4. Formula

5. Tax increases have been used to “cool” the economy several times. Examples are 1968 (to reduce inflationary pressure during the Vietnam War) and The Tax Equity and Fiscal Responsibility Act of 1982 (to reduce inflationary pressure caused by the 1981 tax cut).
F. Reduced Transfers
1. A third option for fiscal restraint is to reduce transfer payments.
2. A cut in transfer payments works like a tax hike, reducing the disposable income of transfer recipients.
3. The desired reduction in transfers is the same as a desired tax increase.
4. Reduced transfers are seldom used since recipients include the aged, poor, unemployed, and disabled.

V. Fiscal Guidelines
A. A Primer: Simple Rules (Table 11.3)
1. The essence of fiscal policy entails deliberate shifting of the aggregate demand curve. The steps required to formulate fiscal policy are:
• Specify the amount of the desired AD shift (AD excess or AD shortfall).
• Select the policy tools needed to induce the desired shift.
2. See Table 11.3 for a summary of policy options and the desired use of each.
B. A Warning: Crowding Out
1. Fiscal policy guidelines are a useful tool but neglect a critical dimension of fiscal policy – how is the government going to finance its expenditures?
2. Some of the intended fiscal stimulus may be offset by the crowding out of private investment expenditure.
3. Definition: Crowding Out – A reduction in private-sector borrowing (and spending) caused by increased government borrowing.
C. Time Lags
1. Fiscal policy is somewhat hampered because it takes time to recognize that a problem exists and to then formulate policy to address the problem.
2. In addition, the very nature of the macro problems could change if the economy is hit with other internal or external shocks.
D. Pork-Barrel Politics
1. Once a tax or spending plan arrives at the U.S. Capitol, politics take over.
2. No member of Congress wants spending cuts in their own districts.
3. If taxes are cut, members of Congress want their constituents to get the biggest tax savings.
4. No one in Congress wants a tax hike or spending cut before the election.
5. This kind of “pork-barrel” politics can alter the content and timing of fiscal policy.

VI. The Economy Tomorrow: The Concern for Content
A. Guidelines for fiscal policy do not say anything about how the government spends its revenue or whom it taxes.
B. The “Second Crisis”
1. It does matter whether federal expenditures are devoted to military hardware, urban transit systems, or tennis courts.
2. Our economic goals include not only full employment and price stability, but also a desirable mix of output, equitable distribution of income, and adequate economic growth.
3. The relative emphasis on, and sometimes exclusive concern for, stabilization objectives – to the neglect of related GDP content – has been designated by Joan Robinson as the “second crisis of economic theory”
C. Private vs. Public Spending
1. Fiscal policy can be directed toward private expenditure (C + I) or public expenditure (G).
D. Output Mixes within Each Sector
1. In addition to choosing whether to increase public or private spending, fiscal policy must also consider the specific content of spending within each sector.
2. Changes in the mix of output, not just the level of government spending, will affect the quality of life later.

IN-CLASS DEBATE, EXTENDING THE DEBATE, AND DEBATE PROJECT

In-class Debate

Fiscal policy: Long run impetus or drag?

Does an active fiscal policy help or hinder long run growth in the economy? The textbook presents arguments that can be used to support both sides in this debate. How do they compare?

List reasons why an active fiscal policy helps the long run growth of the economy.

List reasons why an active fiscal policy hinders the long run growth of the economy.

Should the US use fiscal policy to encourage long run growth of the economy?

Teaching note

Student answers:

List in favor will include
• education and training to improve labor quality;
• research and development;
• regulations have benefits.

List against will include:
• lower capital gains tax helps investment;
• federal deficit crowds out private investment;
• deregulation prompts productivity;
• saving incentives increase investment.

Use a cooperative controversy to focus the debate. Format: Organize students into groups of two. (Use instructor assignment or random assignment so that friends don’t work together.) One half of the groups take the pro side; the other half take the con side. Each pair lists the strongest three arguments for their position. Then pairs combine into groups of four with one pair on each side of the debate. One pair reads their reasons while the other side listens. Then reverse so that the other pair reads their reasons. Group of four selects strongest argument on each side and, if appropriate, reaches consensus on final position.

Extending the Debate

Was the 2009 stimulus plan a good idea?

The American Recovery and Reinvestment Act of 2009 was the largest stimulus bill ever passed by Congress. It became law in January of 2009. By July, only 10% of the stimulus money had actually been spent. The bill also included some big tax cuts for middle and lower class income earners. The goal of this stimulus and tax cut plan was to increase consumer spending and government spending and therefore raise aggregate demand.

http://www.recovery.gov/?q=content/act

Will the stimulus do what the president and Congress hoped? To answer that question, go to a web page of the Heritage Foundation that provides a rapid response, and compare that to the information about the recovery at recovery.gov (the previous link).

http://www.heritage.org/Research/Testimony/2011/02/Why-the-Demand-Side-Stimulus-Failed

Based on what you see, do you think the 2009 stimulus will be successful in eliminating the recession? Please explain your reasoning.

Debate project

What’s the best fiscal policy?

The text explains the connection between the state of the economy and the appropriate fiscal policy. If output is too low, below the full employment level, then too high unemployment is likely the main problem facing the economy. We should raise government spending or cut taxes. If output is too high, above the full employment level, then rising inflation is probably the main economic problem. We should cut government spending or raise taxes.

The text also suggests a connection between the state of the economy and the federal budget. When output is below full employment, it says a budget deficit is in order. When output is above full employment, it says we should run a budget deficit.

Use the first web site listed below to find the budget surplus or deficit for the last three years. Use the second web site to find the unemployment rate during those same years. Explain whether you think fiscal policy was appropriate during the last three years, assuming the economy is at the full employment level when the unemployment rate is 5 percent. Make your reasons clear.

The Congressional Budget Office provides nonpartisan analysis of the economy and the budget to Congress. Go to their home page (see the URL below), click on “Historical Budget Data,” and then roll down to look at the last three years of data in Table 1. Write down the last three numbers in the fourth column, the “on-budget surplus or deficit”.
www.cbo.gov

The Federal Reserve Bank of St. Louis maintains a free database of economic data called FRED II. Go to the page (find the URL below) and click on “Civilian Unemployment Rate.” Look at the chart to get the unemployment rate over the last 3 years.”
www.research.stlouisfed.org/fred2
PRINT MEDIA EXERCISE Name:
Chapter 11 Section:
Fiscal Policy Grade:

Find an article that illustrates the multiplier process at work. Use the article you have found to fulfill the following instructions and questions:

1. Mount a copy (do not cut up newspapers or magazines) of the article on a letter-sized page. Make sure there is room at the bottom of the article to write the answers to the questions.

2. What is the cause of the change in income in the economy? Underline not more than one sentence that describes the cause of a change in income in the economy. Then, below the article, write what has caused the change in income.

3. Can the cause of the change in income be classified as an injection or a leakage? The change in income should be caused by a change in a leakage (savings, taxes, or imports), or an injection (investment, exports, or government expenditure), or in consumption (see Chapters 9 and 10). Write below the article whether the change in income is due to an injection or a leakage.

4. Does the change mean there is more or less of the injection or leakage? Write “more” or “less” below your article, whichever is most appropriate.

5. What group initially experiences the change in income? Use an arrow to point to the single word or phrase indicating the group whose income has initially increased or decreased.

6. What is the change in spending resulting from the change in income? Circle not more than one sentence describing the change in spending of those whose income initially has changed.

7. What evidence of secondary changes in income are reported? The changes in spending should affect the income of others. Place brackets around the one sentence describing this secondary impact of the initial spending change on the income of others (who were not affected by the change in number 2 above).

8. In the remaining space below your article, indicate the source (name of newspaper or magazine), title (newspaper headline or magazine article title), date, and page for the article you have chosen. Use this format:

Source: _________________________ Date: _____________ Page: ________
Title: ___________________________________________________

If this information also appears in the article itself, circle each item.

9. Neatness counts.
Professor’s Note

Learning Objective for Media Exercise

To refamiliarize students with the notions of leakages and injections, to show how changes in leakages and injections have a multiplier effect on the economy, and to recognize such multiplier effects described in the media.

Suggestions for Correcting Media Exercise

1. Compare the passage that is underlined with the description below the article of whether an injection or a leakage is involved. Students should be able to identify the change in a leakage or an injection properly.
2. Check that the indication of “more” or “less” in number 4 is consistent with the leakage or injection noted in number 3 and with the underlined passage.
3. Check that the circled passage does in fact represent a change in domestic expenditure caused by the leakage or injection change.
4. Check that the bracketed passage does in fact represent a secondary change in domestic income from the initial change.

Likely Student Mistakes and Lecture Opportunities

1. This exercise forces the students to look through several articles to find an example of a secondary impact of a change in aggregate demand. Great sources of information on multiplying effects can be found in reporting on events such as OPEC oil price changes, strikes, tax code changes, stock market crashes, currency devaluations, floods, and other major macroeconomic events.

2. The exercise is a complement to a lecture on the flow of goods and services through the economy.

SUPPLEMENTARY RESOURCES

Eisner, Robert: “The Balanced Budget Crusade,” The Public Interest, Winter 1996. A lively, thought-provoking argument against mandatory balanced budgets.

Symposium: “Fiscal Policy” The Journal of Economic Perspectives, Summer 2000, pp. 3-74. Accessible discussion of recent research on fiscal policy.

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