ECONOMICS QUESTIONS

FINAL EXAMINATION

ECONOMICS 202D: Introduction to Macroeconomics

Frederick J. Oerther III

Assistant Professor of Economics                                                      June 1, 2015

Western Oregon University

Monmouth, OR  USA  97361

   This exam is worth 50% of your final grade, marked on a scale of 500 points possible.  Please provide comprehensive answers to each of the first four questions given below; then you have your choice of any two of questions five through eleven.  Generally speaking, your goal is to demonstrate that you have thoughtfully and logically considered the materials which we have studied, both in the readings and the classroom discussion.  

   Your work is due in my office (West House 210) or turned in via email - no later than 4:00pm Tuesday June 4th.  No late exams will be accepted.  Please turn in typed work only.  

   Thank you.  I have enjoyed studying with you.  

NUMBER ONE {85 points}. Consider the USA 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%

NUMBER TWO {85 points}. Imagine a hypothesized macroeconomy that begins in its long-run equilibrium position.  

   Use the Aggregate Demand - Aggregate Supply model to describe in the abstract, the business cycle movements this economy would experience if:

(A) there were a large exogenous decrease in Aggregate Demand.

(B) there were a large exogenous decrease in Long-Run Aggregate Supply.

(C) both (A) and (B) were to occur simultaneously.  

Does this model describe the US recession of 2008-2009? Which of the threes variants (A), (B), or (C) is the most likely correct scenario? Explain.

NUMBER THREE {85 points}. Is Nigeria a rich nation or a poor nation?  Based upon it's macroeconomic statistics, would you say Nigeria is performing better, worse, or same as a comparable nation?  What would be an appropriate nation for comparison?  Explain.  What are the key elements in the natural resource endowment and in the social-political-economic institutions which explain the macroeconomic position of Nigeria and of the performance of Nigera’smacroeconomy?  

ECONOMIC STATISTICS FOR NIGERIA (2014 est)

total GDP (in Purchasing Power Parity) = $1,058 b.    - - - ranked 21st largest in the world (out of 230 nations ranked)

(up from $989 b. in 2013)

GDP per capita = $6,100     - - - ranked 160th highest in world (159 out of total of 230 nations)

(up from $5,800 in 2013)

real GDP growth rate = +7.0%    - - - ranked 19th highest in world (out of 222 nations)

(up from +5.4% in 2013)

Unemployment Rate = 23.9% (2011 estimate)    - - - ranked 171st lowest in world (out of 204 nations)

Inflation Rate = 8.3%        - - - no ranking available

(down from 8.5% in 2013)

Distribution of family income - Gini index = 43.7 (in 2003) - - - ranked 47th most unequal in the world (out of 141 nations)

(down from 50.6 in 1997)

Government Budget surplus (+) or deficit (-) =

-2.0% of GDP  - - -  ranked 149th lowest surplus out of 215 nations)

{note: revenues of $22.77 b. minus expenditures of $34.62 b. = deficit of $11.85 b.}

Public Debt = 11.7% of GDP    - - -  ranked149th highest in world (out of 164 nations)

(up from 10.5% in 2013)

Exports = $93.01 b.        - - - ranked 43rd largest in world (out of 223 nations)

(down from $96.74 b. in 2013)

Imports = $52.59 b.        - - - ranked 54th largest in world (out of 223 nations)

(up from $51.38 b. in 2013)

Population below poverty line = 70.0% (in 2010)

poverty line standard is set by Indian government

[source: CIA WORLD FACTBOOK: www.cia.gov]

worldwide median values in 2014:

total GDP (in Purchasing Power Parity) = $34.48 b. (Laos - - - ranked 116th largest out of 230 nations)

GDP per capita = $12,700  (South Africa - - - ranked 115th highest out of 230 nations)

real GDP growth rate = +3.0% (Jordan - - - ranked 112th highest out of 222 nations)

Unemployment Rate = 8.8% (Ukraine - - - ranked 103rd lowest out of 204 nations)

Inflation Rate = no ranking available

Distribution of family income –

Gini index = 38.0(Serbia in 2013 - - - ranked 71st most unequal out of 141 nations)

Government Budget surplus (+) or deficit (-) = -2.8% of GDP (United States of America - - -  ranked 108th lowest surplus out of 215 nations)

{note: revenues of $3,029 b. minus expenditures of $3,520 b. = deficit of $491 b.}

Public Debt = 44.3% of GDP (Honduras - - -  ranked83rd highest out of 164 nations)

Exports = $5.67 b. (Cuba  - - - ranked 112th largest out of 223 nations)

Imports = $8.081 b. (Zambia - - - ranked 111th largest out of 223 nations)

NUMBER FOUR {85 points}.Consider the recent report “The Employment Situation – April 2015” – released Friday 5-8-15) by the U.S. Department of Labor:

http://www.bls.gov/news.release/pdf/empsit.pdf

According to the Bureau of Labor Statistics, the national unemployment rate“was essentially unchanged at 5.4percent”from March to April 2015. Where does this information place the performance of the U.S. macroeconomy? From these basic unemployment rate figures can we be confident that the economy has fully recovered from the recession of 2008-2009 and is moving towards a prosperous expansion? What figures in the report (or that you can find elsewhere) might provide the basis for an argument to the contrary? Explain.

NUMBERFIVE {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.  

NUMBER SIX {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.