Economics Homework 03

1- ) The National Bureau of Economic Research maintains a Web page devoted to business cycle expansions and contractions at to an external site.. Please take a look at this page to see if you can determine how the business cycle has been changing in recent decades. Has the overall length of cycles been changing? Have recessions been getting longer or shorter?

2- ) Please review the Summary of Commentary on Current Economic Conditions by Federal Reserve District (Beige Book), available through the Federal Reserve System at to an external site. Summarize the national economic conditions for the most recent period covered in the report. Overall, is the economy healthy? If not, what problems is it experiencing? 

3- ) (Economic Fluctuations) Describe the various components of fluctuations in economy activity over time. Because economic activity fluctuates, how is long-term growth possible?

4- ) (Aggregate Demand and Supply) Determine whether each of the following would cause a shift of the aggregate demand curve, a shift of the aggregate supply curve, neither, or both.  Which curve shifts, and in which direction? What happens to aggregate output and the price level in each case?

a. The price level changes

b. Consumer confidence declines

c. The supply of resources increases

d. The wage rate increases

5- ) One supply-side measure introduced by the Reagan administration was a cut in income tax rates. Use an aggregate demand/aggregate supply diagram to show what effect was intended. What might happen if such a tax cut also shifted the aggregate demand curve?

6- ) How are economic fluctuations linked among national economies?  Could a recession in the United States trigger a recession abroad? 7-) What is the relationship between demand-side economics and the federal budget deficit? Briefly explain.8-) Why does an aggregate demand curve slope downward? Briefly explain.9-) Is it possible for the price level fall (deflation) while production and employment both rise? (Hint: Use AD-AS Model)10-) Why do economists pay attention total employment, price level and growth? Briefly discuss.

Chapter 6 questions:

11. How does the income approach to measuring GDP differ from the expenditure approach? Explain the meaning of value added and its importance in the income approach. Consider the following data for the selling price at each stage in the production of a five-pound bag of flour sold by your local grocer. Calculate the final market value of the flour.

 Stage of Production    Sale Price 

Farmer:            $0.30Miller:              $0.50Wholesaler:     $1.00Grocer:            $1.50

12. Given the following annual information about a hypothetical country, answer questions a and b:

Personal consumption expenditures:   $200

Personal taxes: 50

Exports: 30

Government purchases: 50

Gross private domestic investment: 40

Imports: 40

Government transfer payments: 20

a.      What is the value of GDP?b.      What is the value of net exports? 

13. What are the leakages from and injections into the circular flow? How are leakages and injections related in the circular flow?

14. One often-heard criticism of the U.S. national income accounts is that they ignore the effect of environmental pollution. The World Bank’s group on Environmental Economics and Indicators has been investigating ways of assessing environmental degradation. Pleasetake a look at the World Bank’s work on “green accounting” at,,contentMDK:20487830~menuPK:1187769~pagePK:148956~piPK:216618~theSitePK:408050,00.htmlLinks to an external site. Briefly discuss what kinds of problems the World Bank has identified, and what proposals it has made to deal with those problems?15. Identify the component of aggregate expenditure to which each of the following belongs:a. A US resident’s purchase a new car manufactured in Japan.b. Construction of a new housec. A city government’s acquisition of 10 new police carsd. An increase in semiconductor inventories over last year’s level16. Suppose US economy is in a deep recession. How does this recession affect the US major trading partners such as Canada, China, Japan, etc? Briefly discuss.