Presumably you have learned to diagnose the state of an economy and to explain h
ID: 1202029 • Letter: P
Question
Presumably you have learned to diagnose the state of an economy and to explain how/why classical economists and Keynesians would deal with various problems in the macroeconomy. For this problem set I want you to go to the primary sources we’ve used in class and do this for the U.S. economy over the 3rd and 4th quarter of 2015. Follow this format: 2. Provide your data (quarterly and/or monthly, depending on what is available; don’t use annual data!) (you may find it useful to organize your data like I did in various chapter 9 worksheets). 3. State your diagnosis and explain how you arrived at it. 4. Tell what classical economists think our elected officials should do about this situation (and tell why they think this; be very specific). 5. Tell what Keynesians think our elected officials should do about this situation (and tell why they think this). 6. Look again at your data for the 4th quarter of 2015. Assume that the spending multiplier equals 1.5. How much should government spending change by to get to real GDPpotential? Should it increase or decrease spending? Show your work.
Explanation / Answer
Classical economic theory is rooted in the concept of a laissez-faire economic market. A laissez-faire--also known as free--market requires little to no government intervention. It also allows individuals to act according to their own self interest regarding economic decisions. This ensures economic resources are allocated according to the desires of individuals and businesses in the marketplace. Classical economics uses the value theory to determine prices in the economic market. An item and assumption or status quo value is determined based on production output, technology and wages paid to produce the item. In terms of government spending, It is not a major force in a classical economic theory. Classical economists believe that consumer spending and business investment represents the more important parts of a nation and assumption status quo economic growth. Too much government spending takes away valuable economic resources needed by individuals and businesses. To classical economists, government spending and involvement can retard a nation and assumption and status quo economic growth by increasing the public sector and decreasing the private sector. In terms of time period, Classical economics focuses on creating long-term solutions for economic problems. The effects of inflation, government regulation and taxes can all play an important part in developing classical economic theories. Classical economists also take into account the effects of other current policies and how new economic theory will improve or distort the free market environment.Keynesian economic theory relies on spending and aggregate demand to define the economic marketplace. Keynesian economists believe the aggregate demand is often influenced by public and private decisions. Public decisions represent government agencies and municipalities. Private decisions include individuals and businesses in the economic marketplace. Keynesian economic theory relies heavily on the fact that a nation and assumption or status quo monetary policy can affect a assumption or status quo economy. In terms of government spending, Keynesian economics relies on government spending to jumpstart a nation and assumption or status quo economic growth during sluggish economic downturns. Similar to classical economists, Keynesians believe the nation and assumption or status quo economy is made up of consumer spending, business investment and government spending. However, Keynesian theory dictates that government spending can improve or take the place of economic growth in the absence of consumer spending or business investment. Keynesian economics often focuses on immediate results in economic theories. Policies focus on the short-term needs and how economic policies can make instant corrections to a nation and assumption or status quo economy. This is why government spending is such a key cog of Keynesian economics. During economic recessions and depressions, individuals and businesses do not usually have the resources for creating immediate results through consumer spending or business investment. The government is seen as the only force to end these downturns through monetary or fiscal policies providing instant economic results.
the above US data shows the GDP in dollars and GDP in billions of chained (quaterrly data from 1947q1 to 2015q4).
GDP = C + I + G + NX
GDP - T = C + I + G - T + NX (subtracting taxes from both sides)
Disposable income = C + I + Budget deficit + NX
GDP - C - T = I + G - T + NX
Savings = Investment + Budget deficit + net exports
The multiplier = 1(1-MPC)=1/MPS= 1/1.5=0.667
since the government spending is not availble couldn't calculate that. and as per the multiplier is concern the GDP potential is incerasing state.
Quarterly (Seasonally adjusted annual rates) Quaterly GDP in billions of current dollars GDP in billions of chained 2009 dollars 1947q1 243.1 1,934.5 1947q2 246.3 1,932.3 1947q3 250.1 1,930.3 1947q4 260.3 1,960.7 1948q1 266.2 1,989.5 1948q2 272.9 2,021.9 1948q3 279.5 2,033.2 1948q4 280.7 2,035.3 1949q1 275.4 2,007.5 1949q2 271.7 2,000.8 1949q3 273.3 2,022.8 1949q4 271.0 2,004.7 1950q1 281.2 2,084.6 1950q2 290.7 2,147.6 1950q3 308.5 2,230.4 1950q4 320.3 2,273.4 1951q1 336.4 2,304.5 1951q2 344.5 2,344.5 1951q3 351.8 2,392.8 1951q4 356.6 2,398.1 1952q1 360.2 2,423.5 1952q2 361.4 2,428.5 1952q3 368.1 2,446.1 1952q4 381.2 2,526.4 1953q1 388.5 2,573.4 1953q2 392.3 2,593.5 1953q3 391.7 2,578.9 1953q4 386.5 2,539.8 1954q1 385.9 2,528.0 1954q2 386.7 2,530.7 1954q3 391.6 2,559.4 1954q4 400.3 2,609.3 1955q1 413.8 2,683.8 1955q2 422.2 2,727.5 1955q3 430.9 2,764.1 1955q4 437.8 2,780.8 1956q1 440.5 2,770.0 1956q2 446.8 2,792.9 1956q3 452.0 2,790.6 1956q4 461.3 2,836.2 1957q1 470.6 2,854.5 1957q2 472.8 2,848.2 1957q3 480.3 2,875.9 1957q4 475.7 2,846.4 1958q1 468.4 2,772.7 1958q2 472.8 2,790.9 1958q3 486.7 2,855.5 1958q4 500.4 2,922.3 1959q1 511.1 2,976.6 1959q2 524.2 3,049.0 1959q3 525.2 3,043.1 1959q4 529.3 3,055.1 1960q1 543.3 3,123.2 1960q2 542.7 3,111.3 1960q3 546.0 3,119.1 1960q4 541.1 3,081.3 1961q1 545.9 3,102.3 1961q2 557.4 3,159.9 1961q3 568.2 3,212.6 1961q4 581.6 3,277.7 1962q1 595.2 3,336.8 1962q2 602.6 3,372.7 1962q3 609.6 3,404.8 1962q4 613.1 3,418.0 1963q1 622.7 3,456.1 1963q2 631.8 3,501.1 1963q3 645.0 3,569.5 1963q4 654.8 3,595.0 1964q1 671.1 3,672.7 1964q2 680.8 3,716.4 1964q3 692.8 3,766.9 1964q4 698.4 3,780.2 1965q1 719.2 3,873.5 1965q2 732.4 3,926.4 1965q3 750.2 4,006.2 1965q4 773.1 4,100.6 1966q1 797.3 4,201.9 1966q2 807.2 4,219.1 1966q3 820.8 4,249.2 1966q4 834.9 4,285.6 1967q1 846.0 4,324.9 1967q2 851.1 4,328.7 1967q3 866.6 4,366.1 1967q4 883.2 4,401.2 1968q1 911.1 4,490.6 1968q2 936.3 4,566.4 1968q3 952.3 4,599.3 1968q4 970.1 4,619.8 1969q1 995.4 4,691.6 1969q2 1,011.4 4,706.7 1969q3 1,032.0 4,736.1 1969q4 1,040.7 4,715.5 1970q1 1,053.5 4,707.1 1970q2 1,070.1 4,715.4 1970q3 1,088.5 4,757.2 1970q4 1,091.5 4,708.3 1971q1 1,137.8 4,834.3 1971q2 1,159.4 4,861.9 1971q3 1,180.3 4,900.0 1971q4 1,193.6 4,914.3 1972q1 1,233.8 5,002.4 1972q2 1,270.1 5,118.3 1972q3 1,293.8 5,165.4 1972q4 1,332.0 5,251.2 1973q1 1,380.7 5,380.5 1973q2 1,417.6 5,441.5 1973q3 1,436.8 5,411.9 1973q4 1,479.1 5,462.4 1974q1 1,494.7 5,417.0 1974q2 1,534.2 5,431.3 1974q3 1,563.4 5,378.7 1974q4 1,603.0 5,357.2 1975q1 1,619.6 5,292.4 1975q2 1,656.4 5,333.2 1975q3 1,713.8 5,421.4 1975q4 1,765.9 5,494.4 1976q1 1,824.5 5,618.5 1976q2 1,856.9 5,661.0 1976q3 1,890.5 5,689.8 1976q4 1,938.4 5,732.5 1977q1 1,992.5 5,799.2 1977q2 2,060.2 5,913.0 1977q3 2,122.4 6,017.6 1977q4 2,168.7 6,018.2 1978q1 2,208.7 6,039.2 1978q2 2,336.6 6,274.0 1978q3 2,398.9 6,335.3 1978q4 2,482.2 6,420.3 1979q1 2,531.6 6,433.0 1979q2 2,595.9 6,440.8 1979q3 2,670.4 6,487.1 1979q4 2,730.7 6,503.9 1980q1 2,796.5 6,524.9 1980q2 2,799.9 6,392.6 1980q3 2,860.0 6,382.9 1980q4 2,993.5 6,501.2 1981q1 3,131.8 6,635.7 1981q2 3,167.3 6,587.3 1981q3 3,261.2 6,662.9 1981q4 3,283.5 6,585.1 1982q1 3,273.8 6,475.0 1982q2 3,331.3 6,510.2 1982q3 3,367.1 6,486.8 1982q4 3,407.8 6,493.1 1983q1 3,480.3 6,578.2 1983q2 3,583.8 6,728.3 1983q3 3,692.3 6,860.0 1983q4 3,796.1 7,001.5 1984q1 3,912.8 7,140.6 1984q2 4,015.0 7,266.0 1984q3 4,087.4 7,337.5 1984q4 4,147.6 7,396.0 1985q1 4,237.0 7,469.5 1985q2 4,302.3 7,537.9 1985q3 4,394.6 7,655.2 1985q4 4,453.1 7,712.6 1986q1 4,516.3 7,784.1 1986q2 4,555.2 7,819.8 1986q3 4,619.6 7,898.6 1986q4 4,669.4 7,939.5 1987q1 4,736.2 7,995.0 1987q2 4,821.5 8,084.7 1987q3 4,900.5 8,158.0 1987q4 5,022.7 8,292.7 1988q1 5,090.6 8,339.3 1988q2 5,207.7 8,449.5 1988q3 5,299.5 8,498.3 1988q4 5,412.7 8,610.9 1989q1 5,527.4 8,697.7 1989q2 5,628.4 8,766.1 1989q3 5,711.6 8,831.5 1989q4 5,763.4 8,850.2 1990q1 5,890.8 8,947.1 1990q2 5,974.7 8,981.7 1990q3 6,029.5 8,983.9 1990q4 6,023.3 8,907.4 1991q1 6,054.9 8,865.6 1991q2 6,143.6 8,934.4 1991q3 6,218.4 8,977.3 1991q4 6,279.3 9,016.4 1992q1 6,380.8 9,123.0 1992q2 6,492.3 9,223.5 1992q3 6,586.5 9,313.2 1992q4 6,697.6 9,406.5 1993q1 6,748.2 9,424.1 1993q2 6,829.6 9,480.1 1993q3 6,904.2 9,526.3 1993q4 7,032.8 9,653.5 1994q1 7,136.3 9,748.2 1994q2 7,269.8 9,881.4 1994q3 7,352.3 9,939.7 1994q4 7,476.7 10,052.5 1995q1 7,545.3 10,086.9 1995q2 7,604.9 10,122.1 1995q3 7,706.5 10,208.8 1995q4 7,799.5 10,281.2 1996q1 7,893.1 10,348.7 1996q2 8,061.5 10,529.4 1996q3 8,159.0 10,626.8 1996q4 8,287.1 10,739.1 1997q1 8,402.1 10,820.9 1997q2 8,551.9 10,984.2 1997q3 8,691.8 11,124.0 1997q4 8,788.3 11,210.3 1998q1 8,889.7 11,321.2 1998q2 8,994.7 11,431.0 1998q3 9,146.5 11,580.6 1998q4 9,325.7 11,770.7 1999q1 9,447.1 11,864.7 1999q2 9,557.0 11,962.5 1999q3 9,712.3 12,113.1 1999q4 9,926.1 12,323.3 2000q1 10,031.0 12,359.1 2000q2 10,278.3 12,592.5 2000q3 10,357.4 12,607.7 2000q4 10,472.3 12,679.3 2001q1 10,508.1 12,643.3 2001q2 10,638.4 12,710.3 2001q3 10,639.5 12,670.1 2001q4 10,701.3 12,705.3 2002q1 10,834.4 12,822.3 2002q2 10,934.8 12,893.0 2002q3 11,037.1 12,955.8 2002q4 11,103.8 12,964.0 2003q1 11,230.1 13,031.2 2003q2 11,370.7 13,152.1 2003q3 11,625.1 13,372.4 2003q4 11,816.8 13,528.7 2004q1 11,988.4 13,606.5 2004q2 12,181.4 13,706.2 2004q3 12,367.7 13,830.8 2004q4 12,562.2 13,950.4 2005q1 12,813.7 14,099.1 2005q2 12,974.1 14,172.7 2005q3 13,205.4 14,291.8 2005q4 13,381.6 14,373.4 2006q1 13,648.9 14,546.1 2006q2 13,799.8 14,589.6 2006q3 13,908.5 14,602.6 2006q4 14,066.4 14,716.9 2007q1 14,233.2 14,726.0 2007q2 14,422.3 14,838.7 2007q3 14,569.7 14,938.5 2007q4 14,685.3 14,991.8 2008q1 14,668.4 14,889.5 2008q2 14,813.0 14,963.4 2008q3 14,843.0 14,891.6 2008q4 14,549.9 14,577.0 2009q1 14,383.9 14,375.0 2009q2 14,340.4 14,355.6 2009q3 14,384.1 14,402.5 2009q4 14,566.5 14,541.9 2010q1 14,681.1 14,604.8 2010q2 14,888.6 14,745.9 2010q3 15,057.7 14,845.5 2010q4 15,230.2 14,939.0 2011q1 15,238.4 14,881.3 2011q2 15,460.9 14,989.6 2011q3 15,587.1 15,021.1 2011q4 15,785.3 15,190.3 2012q1 15,973.9 15,291.0 2012q2 16,121.9 15,362.4 2012q3 16,227.9 15,380.8 2012q4 16,297.3 15,384.3 2013q1 16,440.7 15,457.2 2013q2 16,526.8 15,500.2 2013q3 16,727.5 15,614.4 2013q4 16,957.6 15,761.5 2014q1 16,984.3 15,724.9 2014q2 17,270.0 15,901.5 2014q3 17,522.1 16,068.8 2014q4 17,615.9 16,151.4 2015q1 17,649.3 16,177.3 2015q2 17,913.7 16,333.6 2015q3 18,060.2 16,414.0 2015q4 18,164.8 16,470.6Related Questions
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