ESSAY ONE {85 points}. Consider the macroeconomic data provided below. Describe the

state of the macroeconomy in terms of the business cycle for the period from 1996 to 1999.
[Source: Economic Report of the President 2003; Tables B-2, B-35, B-63].
real GDP real GDP inflation unemployment
growth rate rate (%) rate (%)
(1996 dollars) (%) (CPI-U) (civilian labor force)
1995 $7.544 trillion +2.67% 2.8% 5.6%
1996 $7.813 trillion ? 3.0% 5.4%
1997 $8.160 trillion ? 2.3% 4.9%
1998 $8.509 trillion ? 1.6% 4.5%
1999 $8.859 trillion ? 2.2% 4.2%
ESSAY TWO {85 points}. In your estimation of the current situation, where is the U.S.
economy in the business cycle? Use the Aggregate Demand – Aggregate Supply model to depict,
in both static and dynamic terms the current situation, and how we arrived there over the last 6
years. (Draw a graph to accompany your narrative.)

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How does the performance of the U.S. economy in recent times compare with its long-run
trend performances? What are some possible explanations for this recent cyclical deviation from
trend?
If it were decided that it were in the public interest to to use further expansionary policies,
above and beyond those currently being exercised, to stimulate the U.S. economy, should these
be monetary policies or fiscal policies, or a mixture of both? What would be the advantages and
disadvantages of the policy mix which you would advocate?
ESSAY THREE {85 points}. The People’s Republic of China is the latest example of a
“growth miracle.” Arguably a single party state under the leadership of the Chinese Communist
Party, since the late-1980s under Deng, the People’s Republic of China has used quasi-capitalist
methods and systems to vault into the forefront of the world’s national economies. China’s
essential macroeconomic position in 2013 may be described by these values of the standard
variables provided below.
Is the People’s Republic of China a wealthy nation or a poor nation? Explain. What
are the key elements in the macroeconomic position of the P.R.C.? What institutional and
economic factors are the most important to note in explaining the performance of the Chinese
macroeconomy?
PEOPLE’S REPUBLIC OF CHINA 2013
GDP = $13,390 billion – – – ranked 3rd highest in world (out of 229 nations ranked)
(up from $12,430 billion in 2012)
GDP per capita = $9,800 – – – ranked 121st highest in world (out of total of 229 nations
ranked)
(up from $9,100 in 2012)
real GDP growth rate = +7.7% – – – ranked 14th highest in world (out of 220 nations)
(unchanged from +7.7% in 2012)
Unemployment Rate = 4.1% – – – ranked 32nd lowest in world (out of 203 nations)
(unchanged from 4.1% in 2012)
Inflation Rate = 2.6% – – – ranked 97th lowest in world (out of 224 nations)
(unchanged from +2.6% in 2012)
Gini coefficient (2013) = 47.3 – – – ranked 28th highest in world (out of 140 nations)
Government Budget surplus or deficit = -2.1% of GDP
– – – ranked 91st lowest in the world (out of 215 nations)
Public Debt = 22.4% of GDP – – – ranked 1st highest in world (out of 158 nations)
(down from 26.1% in 2012)
Exports = $2,210 billion – – – ranked 1st largest in world (out of 222 nations)
(down from $777 b. in 2012)
Imports = $1,950 billion – – – ranked 3rd largest in world (out of 223 nations)
(up from $830 b. in 2012)
[source: CIA WORLD FACTBOOK: https://www.cia.gov/library/publications/the-worldfactbook/.]
worldwide median values in 2013:
GDP per capita = $10,600 (115th position: Ecuador)
real GDP growth rate = +3.10% (111th position: Cuba)
Unemployment Rate = 9.4% (102nd position: Greenland)
Inflation Rate = 3.1% (112th position: Macedonia)
Gini Coefficient = 39.0 (69th position: Malawi)
Government Budget surplus or deficit = -2.6% of GDP (108th position: Uruguay)
Public Debt = 45.8% (79th position: Argentina)
Exports = $5.2 b. (112th position: Iceland)
Imports = $7.1 b. (112th position: Nepal)
ESSAY FOUR {85 points}. Following his 1976 victory over Nixon’s successor Gerald Ford
[REP-Michigan], Jimmy Carter [DEM-Georgia] inherited an economy with relatively high
unemployment and inflation problems. President Carter’s economic advisors recommended a
number of Keynesian remedies, and for a few years things looked to be improving. But in 1979,
the malaise of the mid-1970s had become “stagflation.” A militant U.S. Congress asserted its
authority against the President, while a number of foreign policy crises added to America’s woes.
In an effort to control inflation, Paul Volcker was appointed Chair of the Federal Reserve Board
of Governors. Things did not look good for the President as he sought re-election against his
opponent former movie actor and California Governor Ronald Reagan.
Use the Aggregate Demand – Aggregate Supply model to describe the business cycle the U.S.
macroeconomy has experienced during the late 1970s and into 1980.

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YOUR CHOICE OF ANY TWO OF THESE:
ESSAY FIVE {80 points}. In the period preceding the 1960 Presidential election, the economy
was performing sluggishly. In one of the closest elections in U.S. history, the Democratic John
Kennedy defeated the Republican, sitting Vice-President Richard Nixon. Following the election,
the economy seemed to gather momentum. Yet in March 1962 the stock market experienced a
major correction. Policy advisors surrounding the President urged that legislation be enacted
providing a significant tax cut, with cuts in corporate tax rates and reductions in the overall
progressivity of the income tax schedules. These “Kennedy Tax Cuts,” enacted prior to the 1962
Congressional elections, provided a major stimulus to the U.S. macroeconomy and began one of
the longest periods of sustained real economic growth in the twentieth century.
Use the Aggregate Demand – Aggregate Supply model to describe the business cycle the U.S.
macroeconomy has experienced during the early to middle 1960s.
ESSAY SIX {80 points}. The Keynesian school of macroeconomics and the classical school
of macroeconomics differ in a number of important points. Broadly considered, the Keynesian
economists emphasize market imperfections and disequilibrium situations, having a more shortrun
viewpoint concerned with the possible danger of successively unraveling of economic
conditions. In contrast, classical economists are often characterized as being more confident in
the power of self-correcting market forces, evidencing a decidedly more pro-capitalist notion of
the actions of prices and interest rates to correct recessions in the long-run.
Suppose you were advising recently appointed Federal Reserve Board of Governors Chair,
Janet Yellen about the course of U.S. monetary policy. What recommendations would you make
about the conduct of monetary policy?
How must the Fed balance concerns about immediate economic conditions and the fear of
returning to a deflationary situation with a recession and/or a stock market decline, with the
long-run consideration of stimulating significant private-sector investment spending that will
ultimately increase productivity and increase gdp growth rate?
Would you recommend more “quantitative easing” in monetary policy? Or, alternatively,
would you recommend to Chair Yellen that she move the Fed policymaking away from
quantitative easing (zero interest rate) policies? What will happen in the macroeconomy as a
result of your recommended course of action, and how would your policymaking program be
rationalized to the working, investing, and voting public?
Is it a wise and effective exercise of policymaker discretion on the part of the Federal Reserve
to try to continuously make interest rates have near-zero values? Is it the responsibility of the
government to manipulate interest rates and the values of equities (i.e. the stock market)? What
price does a democratic society pay macroeconomically and politically for such immediate dayto-
day government involvement with the economy?
ESSAY SEVEN {80 points}. In class we discussed the average length of time of business
cycles in recent U.S. macroeconomic history as presented by the NBER. For the postwar
era (since 1945), the NBER reports that the average length of time from Trough to Peak (the
expansionary phase) is 58 months, and the average length of time from Peak to Trough is 11
months. Our slightly improved calculations on the NBER data indicated:
Trough Peak to
to Peak Trough
mean 58.4 months 11.1 months
median 39 months 10 months
standard deviation 28.7 months 3.0 months
Discuss the idea of calculating the average length of timing (the “periodicity”) of business
cycles. To what extent is the business cycle periodic? The NBER dates the last Trough as
June 2009, after which the economy was officially “in expansion.” Is this information useful in
predicting when the next Peak will occur?, the next Trough?, etc. how long these current phases
will last? Explain. Suggest how the macroeconomic “cycle” idea might be improved.
ESSAY EIGHT {80 points}. In 2012, the federal government of the United States took in
approximately $2.45 trillion in taxes and had expenditures of approximately $3.54 trillion, which
yielded a budget deficit of approximately $1.09 trillion – this was about 6.8% of GDP. The
combined state and local governments in the U.S. took in approximately $2.04 trillion in taxes
and spent approximately $2.29 trillion, for a deficit of approximately $0.25 trillion, another
about 1.6% of GDP. {Source: Economic Report of the President 2014, Tables B-19 & B-20.}
In general “Keynesian” economists argue that the government should not attempt to “balance
its budget,” by cutting expenditures and/or raising taxes because this would cause a recession.
The “neo-classical” economists argue that the government should move towards reducing its
budget deficit because large and continuous government budget deficits are a serious fiscal drag
on the rate of real economic growth in the long-run. Who is right? What is the best fiscal policy
position for the U.S. government to take? Explain.
ESSAY NINE {80 points}. What caused the recession of 2008? Examining some
macroeconomic statistics describing the current situation of the U.S. economy, in your
estimation, have we recovered from the 2008-2009 downturn, and are we in an expansionary
phase towards new times of prosperity?
Prominent Keynesian economists, both inside and outside of official government positions,
advocate using aggressive monetary and fiscal policies to “re-flate” (i.e. eliminate “deflation”)
the sluggish economy. Would such policies be wise and effective? Explain.
ESSAY TEN {80 points}. The unemployment rate is a measure of the “natural” condition of
the U.S. labor market. That is, it measures the availability of employment (and employees) in
its simplest sense, just taking the state of the economy and the business cycle movement as a
naturally occurring phenomenon. Some allied measures of labor market conditions which take
into account part-time, temporary and discouraged workers have arguably improved upon the
simple unemployment metric.
As we have discussed, the “institutional” context of measures of macroeconomic performance
is also very important to consider. Measures of government regulations and state-involvement
are important because the provide descriptions of the background of “economic conditions”
against which to compare simple metrics like the unemployment rate.
For example, the U.S. Department of Labor reported on Thursday 29May2014 that the number
of Americans filing claims for new jobless (unemployment) benefits fell to 300,000 last month.
{Source: Dieterich, Chris [30May2014], “GDP Reversal Doesn’t Halt Stocks’ Climb,” Wall
Street Journal, pC4.}Need a Professional Writer to Work on this Paper and Give you Original Paper? CLICK HERE TO GET THIS PAPER WRITTEN
Discuss the relevance of seeing a broad macroeconomic indicator -such as the unemployment
rate – in the “institutional-incentive government-policy” context. Would using a measure such
as the number of people filing claims for unemployment payments help to predict or explain
the performance of the macroeconomy? How would they help contextualize simple, natural
statistics like the unemployment rate? Explain. How could the economist use or understand
other “institutional” measures of labor market conditions? {Hint: some possibilities might
include –
A. the length of time for which unemployment benefits are paid,
B. whether eligibility for benefits is a one-time-only thing or whether a recipient can “reapply”
later,
C. the rate of acceptance to receive benefits (how easy it is to get them),
D. the dollar amount which a recipient of such benefits would get (perhaps as a percentage of
their previous salary),
E. the level of the minimum wage rate mandated by law,
F. other labor market mandates such as the requirement that employers provide “free” health care
or maternity leave,and,
G. the level of payroll taxes (for FICA and the income tax).
ESSAY TEN {80 points}. Consider the figures for the U.S. economy provided below.
M2 is a broad measure of the “money supply.” As a tool for explaining the rate of change
in the price level, is the Equation of Exchange, which forms the basis of the Quantity Theory
of Money, broken? What should social scientist economists do when real world data failure to
confirm what is predicted by their theory?
year M2 percentage Inflation real GDP
change in M2 rate growth rate
2007 $7,444 +5.73% +4.1% +1.8%
2008 $8,166 +9.70% +0.1% -0.3%
2009 $8464 +3.65% +2.7% -2.8%
2010 $8.766 +3.57% +1.5% +2.5%
2011 $9.620 +9.74% +3.0% +1.8%
2012 $10.407 +8.18% +1.7% +2.8%
2013 $10.959 +5.30% +1.5% +1.9%
{Source: Economic Report of the President 2014, Tables B-1, B-10 & B-18.}
ESSAY TWELVE {80 points}. Comment on the graph provided below. These were U.S. data
from 2011 and 2012 for all of the largest and most important states. What can we conclude
about the relationship between these key macroeconomic variables? Why are some states more
successful than others?
REAL GDP GROWTH versus UNEMPLOYMENT: MAJOR STATES OF U.S.A.
VERTICAL AXIS: CHANGE IN UNEMPLOYMENT RATE FROM 2011 TO 2012 (%).
HORIZONTAL AXIS: REAL GDP GROWTH RATE (%) IN 2012
key
A = Arizona Q = Colorado
B = Alabama R = North Carolina
C = California S = Massachusetts
D = Maryland T = Texas
E = Tennessee U = Missouri
F = Florida V = Virginia
G = Georgia W = Washington
I = Illinois X = Iowa
J = New Jersey Y = New York
K = Kansas Z = Indiana
L = Louisiana
M = Michigan O = Ohio
N = Oregon P = Pennsylvania

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