assignment 5

BSP2001 MACRO&INTERNATIONALECONOMICS SEM22014/2015

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(Cover page to accompany every submission of assignment)

COVER PAGE

Team Submission: Drop-Off Box @ Department of Strategy & Policy BIZ 1/#6-48

*Late submissions will be penalized*

Tutorial Group : ________________________________________________ (eg: G01 Tuesday 2pm-3pm)

Date: Assignment # Team #

Team Members Matric Number

For Official Use:

Marks: ____________ (out of a maximum score of 10)


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Assignment #5

DUE: 5 MAR THURSDAY BEFORE 12 NOON

*Late submissions will be penalized*

Team Submission: Drop-Off Box @ Department of Strategy & Policy

BIZ 1/#6-48

Instructions

Assignment Submission Teams: A, B, C, D (Please answer ALL questions) Please include COVER PAGE (see page 1). All assignments are to be TYPED. Hand-written assignments will NOT be

graded.


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Question 1

Given the following information: Inflation rate (annual %)

2005 2006 2007 2008 2009 2010 2011 2012

Singapore 0.43 1.02 2.10 6.52 0.60 2.80 5.25 4.53

USA 3.39 3.23 2.85 3.84 -0.36 1.64 3.16 2.07

Unemployment Rate %

2005 2006 2007 2008 2009 2010 2011 2012

Singapore 4.10 3.60 3.00 3.20 4.30 3.10 2.90 2.80

USA 5.10 4.60 4.60 5.80 9.30 9.60 8.90 8.10

Source: World Bank

a) Describe briefly the trends of inflation rate and unemployment rate during this period for

both Singapore and USA. What are some factors that may account for these trends? b) Plot the Philips curves for both Singapore and USA. Is there any relationship between

inflation and unemployment for both countries during this period? c) Assume that the natural rate of unemployment is 5% for USA. Use Okuns Law: (Y Y*)/Y*

= -2(u u*) to calculate the % output gap for 2007 and 2008. In which of 2007 and 2008 did USA experience a recessionary gap?

d) According to Okuns Law: (Y-Y*)/Y* = - (u-u*), why are changes in the output gap larger than changes in the unemployment gap (alternatively, explain intuitively why > 1)?


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Question 2 (Please do not exceed 2 pages when answering this question Point form is accepted)

WASHINGTON Congress on Friday approved a $787 billion economic stimulus measure, meeting the crushing mid-February deadline that Democrats had set for adopting the centerpiece of President Obamas early agenda but without quelling partisan divisions in Washington. Not a single House Republican voted for the bill.

Despite the bills promise of increased unemployment benefits and new health care subsidies, as well as more than $100 billion in aid for states, House Republicans did not break rank. Even those from states hit hardest by the recession opposed the bill, in a rebuke of the new president. During the debate, the Republican leader, Representative John A. Boehner of Ohio, angrily dropped the 1,073-page bill text to the floor with a thump, as he accused Democrats of failing to read the legislation. The president made clear when we started this process that this was about jobs, Mr. Boehner said after the vote. Jobs. Jobs. Jobs. And what its turned into is nothing more than spending, spending and more spending.

The $787 billion plan a combination of fast-acting tax cuts and longer-term government spending on public works projects, education, health care, energy and technology was smaller than Democrats first proposed. But, according to an analysis by the Congressional Budget Office, more than 74 percent of the money will be spent within the next 18 months, a relatively rapid pace that could determine whether the plan succeeds.

The House voted in the afternoon, and Speaker Nancy Pelosi and fellow Democrats cheered on the floor. Ms. Pelosi handed out chocolate bars to her committee chairmen. The label showed a picture of the Capitol and read, A stimulus package we can all sink our teeth into. At a news conference, Ms. Pelosi and her top lieutenants praised Mr. Obama for completing the legislation so quickly. The president requested swift, bold action, Ms. Pelosi said. The American people are feeling a great deal of pain. They have uncertainty about their jobs, about health care, about the ability to pay for the education of their children, and sad to say in our great country, even to put food on the table. And today we have passed legislation that does take that swift, bold action on their behalf.

Source: New York Times, 2009 a) The Obama economic stimulus package was implemented in response to the financial market

crisis. Explain briefly what caused the financial market crisis. b) Given part a), did the financial market crisis cause a recession in the USA? c) Is the Obama economic stimulus package considered to be a fiscal policy? How did it affect

the USA economy? Explain briefly. d) Discuss briefly some differences or similarities between fiscal policies used in USA and

Singapore.


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MCQ1 A recession occurs when _______. A) unemployment rate is less than the natural rate of unemployment. B) unemployment rate is falling over time. C) All of the above. D) None of the above. MCQ2 Which of the following will most likely occur in the labor market during a recession? A) The growth of real wages falls. B) Bonuses and promotions become more frequent. C) New entrants to the labor market are able to find jobs easily. D) Demand of labor rises.

MCQ3 The following data gives the dates of successive turnings points in economic activity and the corresponding real GDP levels at the time: Turning Point Date Real GDP ($ billions) A July 1983 1993 B May 1984 1942 C April 1987 2183 D May 1988 2120 E April 1990 2390 Which of the turning points are peaks? A) B, D B) A, B, C C) A, C, E D) C, D, E


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MCQ4 For policymakers the problem with a recessionary gap is ______ and the problem with an expansionary gap is _____. A) a tendency for inflation to develop; wasted resources. B) wasted resources; a tendency for inflation to develop. C) an increase in cyclical unemployment; wasted resources. D) an increase in cyclical unemployment; an increase in structural unemployment. MCQ5 (*Past-year Exam Question) The natural rate of unemployment will most likely increase if _______. A) unemployment benefits are increased. B) cyclical unemployment is increased. C) All of the above. D) None of the above.

THE END

assignment 5

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