How does the increase in interest rates raise the chances of a recession? How can we expect the increase in interest rates to affect the consumption of the poorest 20% and richest 20% of households?
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How does the increase in interest rates raise the chances of a recession? How can we expect the increase in interest rates to affect the consumption of the poorest 20% and richest 20% of households?
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- Recent data from the Bureau of Labor Statistics show that the average price level for consumers rose 5.4% over the past year. While some are expressing concern over rising inflation leading the economy to “overheat,” there is some evidence indicating that this is due to the reopening of the economy as producers adjust to rising demand for goods and services. Many of the goods with the largest price increases, like bacon or cars and trucks, cannot have their production ramped up as quickly as demand is increasing. Other industries are facing supply chain challenges, like shortages of truck drivers. These problems are most likely to be short term, so, as supply catches up with demand, we can expect to see prices return to normal. As evidence, after spiking to record highs in early summer, lumber prices have now fallen below their price at the start of the year. The reason for the dramatic price increase earlier in the year was a combination of reduced supply in 2019 and a surge in demand…In the first quarter of 2020, US real GDP declined about 9%, due to the economics shocks from the Covid 19 virus. If prices were completely flexible, and this means all prices, both inputs (such as labor), as well as output prices, what would you think would have been the drop in GDP? If prices are completely fixed, would the drop in GDP be greater or less than the flexible case? Why? If the Expenditure method of accounting for GDP, has to equal the Income Side, and the economy overproduces a particular item, say automobiles, the income side will also be higher, workers will buy the extra cars with extra income and the economy can gyrate indefinitely higher? Why or why not?Based on the articles “Unemployment Claims Remain Historically High” and “US Consumer Spending Rose More Slowly in July” from the August 27, 2020 and August 28, 2020 issues of the wall Street Journal, respectively, please respond to the following questions: a. What do you think caused the substantial reversal in consumer spending after the dramatic drop during March and April of 2020? Illustrate graphically how would that have affected the consumption schedule. b. What seems to be possible reasons why consumer spending has slowed down in July and August? Are these factors consistent with some of the non-income determinants of consumption discussed in the text? If so, which ones? c. Investment spending also fell dramatically during the second quarter of 2020. What shifters in the investment demand curve seem to be important here? d. Given your answer to part c, explain and illustrate graphically using the investment demand curve diagram why a Federal Reserve policy of lower interest…
- In the first quarter of 2020, US real GDP declined about 9%, due to the economics shocks from the Covid 19 virus. If prices were completely flexible, and this means all prices, both inputs (such as labor), as well as output prices, what would you think would have been the drop in GDP? If prices are completely fixed, would the drop in GDP be greater or less than the flexible case? Why?Stagflation and recession are increasingly being used to describe where the economy might be headed. The World Bank warned on 14th June 2022, that global economies were at risk of stagflation if not recession. "The world economy is again in danger," David Malpass, president of the World Bank, said in the latest edition of the Global Economic Prospects report. "It is facing high inflation and slow growth at the same time. Even if a global recession is averted, the pain of stagflation could persist for several years - unless major supply increases are set in motion. Explain the main differences between stagflation and recession, if we had to face one, which one would be less painful?Discuss the following questions in 1 paragraph each: Why/how has Covid-19 led to a global economic recession? While the originating place of Covid-19 was China, why do you think Western countries have experienced a sharper economic recession than China? As per the definition(s) of recession that we discussed in Chapter 13 of the Econoomy from CORE, do you think Afghanistan is currently in a recession?
- The government of Australia has embarked on various policies in order to reduce the severity of COVID 19 on the economy. Has COVID 19 caused economic expansion or a recession? Explain your answer using at least two economic effects on the economy of AustraliaThe Federal Reserve Bank of Atlanta releases its monthly Wage Growth Tracker to study trends in wages across various industries. One interesting issue is whether wages rise faster for those who stay in their current jobs (job stayers) or those who seek new opportunities (job switchers). According to the data, job stayers tend to do better than job switchers during a recession. But when the labor market is strong, job switchers experience higher wage growth than job stayers. a. During a recession, job stayers do better than job switchers because a.labor demand increases and job switchers can find jobs with higher wages. b.labor supply decreases and job switchers can find jobs with higher wages. c.labor demand decreases and job switchers cannot find jobs with higher wages. b. When the labor market is strong, job switchers experience higher wages than job stayers because a.labor demand decreases and job switchers cannot find jobs with higher wages. b.labor supply…Please list the 4 key supply-side growth factors we discussed and discuss their viability (do-ability) in terms of getting our economy growing again, given that today our economy is not growing. The issue of viability – if the economy is growing slowly or not at all, do we have any chance of achieving success with each of the 4 growth factors? What will likely cause us problems? What approaches could we use to increase our odds of success? You need to think carefully about this one.
- How can they say that "Rising prices are symptom of an expanding current supply"?A number of macroeconomic variables decline during recessions. One of these variables is the GDP. What other variables, besides real GDP, tend to decline during recessions? Given the definition of real GDP and its components, explain the declines in these economic variables which are to be expected. Empirical studies indicate that the long-run trend in real GDP of the USA has an upward trend. How is this possible given business cycles and macroeconomic fluctuations? What factors explain the upward trend in spite of the cycles?The table below shows information on aggregate supply, aggregate demand and the price level for the imaginary country of Xurbia. Price Level AD AS 110 700 600 120 690 640 130 680 680 140 670 720 150 660 740 160 650 760 170 640 770 Plot the AD/AS diagram from the data shown (Don't have to show graph but do draw it to help you answer the questions). a. Identify the equilibrium. b. Imagine that as a result of a government tax cut, aggregate demand becomes higher by 50 at every price level. Identify the new equilibrium. c. How will the new equilibrium alter output? How will it alter the price level? What do you think will happen to employment?