Name:_____Cesar Hernandez_________________________________ (80 points total) Section: ____________

E-Portfolio Signature Assignment

Salt Lake Community College
Macroeconomics - Econ 2020
Professor: Heather A Schumacker

Please type your answers to the following questions. If you need to hand draw the graphs and then scan them in
you may. When you have completed this assignment post it to your e-portfolio. Make sure to put your
reflection statement on your web site. (4pts)

1. What is the formula for PAE (write out the full name)? Circle the largest component and fill in the chart. Under each put the
components and something unique. (19pts)

PAE = __Consumer expenditure__________ + ____Investment Expenditure_____ + _Goverment
Expenditure______ + __Net Exports_________
Components:
Circle the largest category
Components: Components: Components:
1. Durable Goods 1. Business fixed investment 1. Purchases by state and
federal governments on final
goods and services
1. Imports
2. Non Durable Goods 2. Construction Investment 2. Expanding armed forces,
building bridges and public
parks
2. Exports
3. Services 3. Inventory investment goods
Excludes:
1. Transfers of ownership
(stocks bonds) or real assets,
houses jewelry.
Excludes:
1. Transfer payments- social
security, healthcare, etc.
2. Interest paid on government
debt.


2. Given the following information, what is the short-run equilibrium output (show your work) ____2610____________ What is the
autonomous expenditure _______890__________ what is the induced expenditure ____.5y_____________ where would it cross
the Y axis_____890____________ what is the slope of PAE ____.5_____________ what is the multiplier ____2_____________
if there is a 10 unit increase in PAE what will happen to the short run equilibrium (increase or
decrease)_____increase___________ and by how much _______20__________ and will it lead to a recessionary gap or an
expansionary gap___expansionary gap______________ (9pts)
C
a
= 890 MPC = 0.5 I
P
= 220 G = 300 X-M = 20 T = 250





3. What is the problem associated with being at AD
2
that makes policy makers concerned? (1pt)
__At AD2, we experience a expansionary gap, or in other
words there is too much inflation. Policy makers will
determine which tools from fiscal policy they will
used to reduce the expansionary gap. Whether it be
increased taxes or a reduction in government spending.






4. Who does fiscal and monetary policy? What are 2 fiscal policies and 3 monetary policies to correct a situation where the economy
is naturally at AD
*
but finds itself at AD
2
, as seen in the graph on the previous page. Briefly explain how each of these policies
would work to correct the situation. (12pts)
Who does fiscal policy: ___The Government_____________
1. ___Increase Taxes__________________________________
__Increasing taxes proves to be an effective tool when the economy in experiancing inflation. Higher taxes
means less money can be spent in the economy slowing economic growth.
________________________________________________________________________________________
__________________________________________________________________________________________
2. __Government Spending___________________________________
_Decreasing government spending will reduce jobs and in turn inflation will slow down to a manageable pace.
_________________________________________________________________________________________
__________________________________________________________________________________________
Who does monetary policy: ____The Federal Reserve.___________________________
1. ___Reserve Requirements__________________________________
_____Banks are required to hold a certain percentage of customers deposits incase of withdrawls. This
percentage is determined by the Fed. If inflation is rising then the Fed may increase the reserve requrement
reducing the money supply and slowing economic growth.
_____________________________________________________________________________________
__________________________________________________________________________________________
2. ___Discount Rates__________________________________
___This is the rate the Fed charges banks to lends money. If the Fed decides to raise this interst rate due to high
inflation, then borrowing money will become more expensive for banks and will become more expensive for
customers to take out loans, this will reduce the money supply and slow economic growth.
_______________________________________________________________________________________
__________________________________________________________________________________________
3. _Open Market Operations____________________________________
__This is the action of the Fed purchasing government bonds from the public. Purchasing bonds will reduce the
money supply and cause a slow down in economic
growth.___________________________________________________________________________________
_____
__________________________________________________________________________________________

5. Use the excel sheets provided to complete this problem. Scenario 1: If the initial deposit into a bank is $5,000 and the reserve
requirement is 10% use formulas to fill in the chart all the way to completion (where there will be 0 new deposits). Fix the cell
references for the reserve requirement when entering your formulas on the first line such that you can drag your information down
the rows. For scenario 2, change the reserve requirement to 40%. (10 pts)

6. Create a third page of the excel spreadsheet and label it GDP. Enter in the data given below for 2010 U.S. expenditure numbers
and then create a pie chart with percentages. (Under insert then click pie. When the graph comes up click Chart Tools, Design,
Quick Layout and select a pie chart with percentages. Create your own personal color selections for each piece of the pie and put
a background color on the percentages.) Make sure to title your chart: GDP 2012 U.S. (5pts)

Consumption Expenditures 10362.3
Investment Expenditures 1763.8
Government Expenditures 2974.7
Net Exports -499.4
P
L

Real GDP
Aggregate Demand and
Aggregate Supply
AD1
AS1
7. Begin in equilibrium in each of the following graphs; draw the effects from question 2 above as they would apply in each graph
below. Next draw the effects of an anti-inflationary policy taken by the fed to correct the result from question 2 - use all three
graphs (Money Supply and Money Demand, AD/AS, and PAE). Explain what is happening in each graph and overall in the
economy as the due to the anti-inflationary policy. (20 pts)

















PAE

PAE = Y









45
A B
Y


Y* Y

Nominal Interest Rate

Money Supply Curve (MS)




i





Money Demand (MD)
Money Supply and Money Demand Graph
AS
AD
PAE
MS1

As Fiscal Policy is inacted, Price
levels will fall and the demand
will decrease and supply will
decrease, hence shrink the
economy.
As monetary policy is
inacted supply of money
will decrease and
demand will increase
(interest) will rise until it
reaces equilibrium.