BECO260: Introduction To Macroeconomics Course Schedule

BECO260
Introduction to Macroeconomics
Course Schedule
Spring 2019 - 2020
Page 1 of 7
MW Sections
Session Chapter(s) Topics to be covered Class Exercises

Chapter 6 Computing the Price Level Using the CPI 129
Macroeconomic Inflation and the CPI 131
Measurements, GDP implicit Price Deflator 133
1
Part 1: Prices
and
Unemployment
Chapter 6 Who are the Unemployed? 135
Macroeconomic The Unemployment and Employment rates 136
Measurements, Discouraged workers 137
2
Part 1: Prices Types of Unemployment 138, The Natural
and Unemployment rate and Full Employment 140
Unemployment Cyclical Unemployment 140
Chapter 6 Worksheet 1 Worksheet 1
Macroeconomic
Measurements,
3
Part 1: Prices
and
Unemployment
Chapter 7 Calculating GDP 144
Macroeconomics Final goods and intermediate goods 145
Measurements, What GDP omits? 146
4
Part 2: GDP and Per capita GDP 147
Real GDP Computing GDP using the expenditure approach 150
Computing GDP using the expenditure approach 150

Other National Income Accounting Measurements
Chapter 7 156
Macroeconomics Net Domestic Product 156,Personal income 156,
Measurements, Disposable income 157
5
Part 2: GDP and Why we need Real GDP? 157
Real GDP Computing Real GDP 158 , The General Equations
for real GDP 158
Real GDP, Economic Growth, and Business Cycles
159
Chapter 7
Macroeconomics
Measurements,
6 Worksheet 2 Worksheet 2
Part 2: GDP and
Real GDP
An Important Word on the Three Effects 168

A Change in Quantity Demanded of Real GDP
Versus a Change in Aggregate Demand 168
Chapter 8
Changes in Aggregate Demand: Shifts in the AD
Aggregate
Curve 170
7 Demand and
How Spending Components Affect Aggregate
Aggregate
Demand? 171
Supply
Factors That Can Change C, I, G, and NX (EX – IM)
and Therefore Can Change AD (Shift the AD Curve)
173
Short-Run Aggregate Supply Curve: What It Is? 179
What Puts the “Short Run” in the SRAS Curve? 181
Changes in Short-Run Aggregate Supply: Shifts in
Chapter 8
the SRAS Curve 181
Aggregate
How Short-Run Equilibrium in the Economy Is
8 Demand and
Achieved ?184
Aggregate
An Important Exhibit 187
Supply
9 Chapter 8 Going from Short Run to the Long run 188 Worksheet 3
Page 2 of 7
Aggregate Short- run equilibrium, Long- run equilibrium, and
Demand and Disequilibrium 189
Aggregate
Supply
Chapter 9 Real GDP and Natural Real GDP: Three Possibilities
Classical 199
Macroeconomics The Labor Market and The Three States of The
10
and The self- Economy 200
regulating What happens if a Self-Regulating Economy is in a
Economy Recessionary gap? 205
Chapter 9 What happens if a Self-Regulating Economy is in a Worksheet 4
Classical Recessionary gap? 205
Macroeconomics Exclude the remaking of the chapter
11
and The self-
regulating
Economy
Chapter 10 The simple Keynesian Model: Assumptions 226
Keynesian The Consumption Function 226, Consumption and
12 Macroeconomics Saving 227, The Multiplier 228
and Economic Shifts in the Aggregate Demand Curve 231
Instability
Chapter 10 The Economy in a Recessionary Gap 233
Keynesian Government’s Role in the Economy 233
13 Macroeconomics The Theme of the Simple Keynesian Model 234
and Economic Deriving a Total Expenditures curve 235
Instability
What will shift the Total Expenditure (TE) curve?
237
Chapter 10 Comparing Total Expenditures (TE) and Total
Keynesian Production (TP) 237
14 Macroeconomics Moving from Disequilibrium to Equilibrium 238
and Economic The Economy in a Recessionary Gap and the role of
Instability the Government 240
Equilibrium in the Economy 240
The Theme of the simple Keynesian Model 241
Keynesian
15 Macroeconomics
and Economic
Instability
Chapter 11 Government Expenditures 246
Fiscal Policy and Government Tax Revenues 247
16
The Federal Budget Deficit, Surplus, or balance 250
Budget Some relevant Fiscal Policy Terms 255
Chapter 11 Shifting the AD curve 255 Worksheet 6
Fiscal Policy and Fiscal Policy: Keynesian perspective 256
17
The Federal Crowding out: Questioning Expansionary Fiscal
Budget policy 257
Chapter 12 The Bank’s Reserves and More 276
Money, The Bank’s Balance Sheet 280
18 Banking, and
The Financial
System
Chapter 13 The Money Supply Expansion Process 292 Worksheet 7
19 The Federal The Money Supply Contraction Process 295
Reserve System
The Monetarist Transmission Mechanism: Direct 340 Worksheet 7
Chapter 15 Monetary Policy and The Problem of Inflationary and
20
Monetary Policy Recessionary gaps (Expansionary and Contractionary
Monetary Policy Only) 341
21 Revision Session 1 (Test 1)
Page 3 of 7
25 Revision Session 5 (Final Exam)
The above course-schedule takes into account excluded sessions due to National holidays, Test 1, and Test 2
Test 1 Date: Wednesday, March 18, 2020
Test 2 Date: Wednesday, May 13, 2020
Page 4 of 7
TTh Sections
Session Chapter(s) Topics to be covered Class Exercises

Chapter 6 Computing the Price Level Using the CPI 129
Macroeconomic Inflation and the CPI 131
Measurements, GDP implicit Price Deflator 133
1
Part 1: Prices
and
Unemployment
Chapter 6 Who are the Unemployed? 135
Macroeconomic The Unemployment and Employment rates 136
Measurements, Discouraged workers 137
2
Part 1: Prices Types of Unemployment 138, The Natural
and Unemployment rate and Full Employment 140
Unemployment Cyclical Unemployment 140
Macroeconomic
Measurements,
3
Part 1: Prices
and
Unemployment
Chapter 7 Calculating GDP 144
Macroeconomics Final goods and intermediate goods 145
Measurements, What GDP omits? 146
4
Part 2: GDP and Per capita GDP 147
Real GDP Computing GDP using the expenditure approach 150
Computing GDP using the expenditure approach 150

Chapter 7
Other National Income Accounting Measurements
Macroeconomics
156
Measurements,
5 Net Domestic Product 156, Personal income 156,
Part 2: GDP and
Disposable income 157
Real GDP
Why we need Real GDP? 157
Chapter 7
Macroeconomics Computing Real GDP 158 , The General Equations
Measurements, for real GDP 158
6
Part 2: GDP and Real GDP, Economic Growth, and Business Cycles
Real GDP 159
Chapter 7 Worksheet 2
Macroeconomics
Measurements,
7 Worksheet 2
Part 2: GDP and
Real GDP
An Important Word on the Three Effects 168

A Change in Quantity Demanded of Real GDP
Versus a Change in Aggregate Demand 168
Chapter 8
Changes in Aggregate Demand: Shifts in the AD
Aggregate
Curve 170
8 Demand and
How Spending Components Affect Aggregate
Aggregate
Demand? 171
Supply
Factors That Can Change C, I, G, and NX (EX – IM)
and Therefore Can Change AD (Shift the AD Curve)
173
Short-Run Aggregate Supply Curve: What It Is? 179
Chapter 8 What Puts the “Short Run” in the SRAS Curve? 181
Aggregate Changes in Short-Run Aggregate Supply: Shifts in
9 Demand and the SRAS Curve 181
Aggregate How Short-Run Equilibrium in the Economy Is
Supply Achieved ?184
An Important Exhibit 187
10 Chapter 8 Going from Short Run to the Long run 188
Page 5 of 7
Aggregate Short- run equilibrium, Long- run equilibrium, and
Demand and Disequilibrium 189
Aggregate
Supply
Aggregate
11 Demand and
Aggregate
Supply
Chapter 9 Real GDP and Natural Real GDP: Three Possibilities
Classical 199
Macroeconomics The Labor Market and The Three States of The
12
and The self- Economy 200
regulating What happens if a Self-Regulating Economy is in a
Economy Recessionary gap? 205
Chapter 9 What happens if a Self-Regulating Economy is in a Worksheet 4
Classical Recessionary gap? 205
Macroeconomics Exclude the remaking of the chapter
13
and The self-
regulating
Economy
Chapter 10 The simple Keynesian Model: Assumptions 226
Keynesian The Consumption Function 226, Consumption and
14 Macroeconomics Saving 227, The Multiplier 228
and Economic Shifts in the Aggregate Demand Curve 231
Instability
Chapter 10 The Economy in a Recessionary Gap 233
Keynesian Government’s Role in the Economy 233
15 Macroeconomics The Theme of the Simple Keynesian Model 234
and Economic Deriving a Total Expenditures curve 235
Instability
What will shift the Total Expenditure (TE) curve?
237
Chapter 10 Comparing Total Expenditures (TE) and Total
Keynesian Production (TP) 237
16 Macroeconomics Moving from Disequilibrium to Equilibrium 238
and Economic The Economy in a Recessionary Gap and the role of
Instability the Government 240
Equilibrium in the Economy 240
The Theme of the simple Keynesian Model 241
Keynesian
17 Macroeconomics
and Economic
Instability
Chapter 11 Government Expenditures 246
Fiscal Policy and Government Tax Revenues 247
18
The Federal Budget Deficit, Surplus, or balance 250
Budget Some relevant Fiscal Policy Terms 255
Chapter 11 Shifting the AD curve 255 Worksheet 6
Fiscal Policy and Fiscal Policy: Keynesian perspective 256
19
The Federal Crowding out: Questioning Expansionary Fiscal
Budget policy 257
Chapter 12 The Bank’s Reserves and More 276
Money, The Bank’s Balance Sheet 280
20 Banking, and
The Financial
System
The Money Supply Expansion Process 292 Worksheet 7
Chapter 13 The Money Supply Contraction Process 295
21 The Federal
Reserve System
Chapter 15 The Monetarist Transmission Mechanism: Direct 340 Worksheet 7

22
Monetary Policy Monetary Policy and The Problem of Inflationary and
Page 6 of 7
Recessionary gaps (Expansionary and Contractionary
Monetary Policy Only) 341
The above course-schedule takes into account excluded sessions due to National holidays, Test 1, and Test 2
Test 1 Date: Thursday, March 19, 2020
Test 2 Date: Thursday, May 14, 2020
Page 7 of 7
School of Business Department of Economics
BECO 260
Work Sheet 1
Problem 1
U
Parts A and B are independent

U
Part A
U
The table below shows the market basket bought by a typical household.
2008 2009
Item Quantity Price Price
Movie tickets 4 $5.00 $7.50
Bags of popcorn 2 $3.00 $3.00
Drinks of soda 4 $1.00 $1.50
a. What is the cost of the market basket in 2008 the base year?
b. Given that 2008 is the base year calculate the CPI in 2009.
c. What is the percentage change in prices between 2008 and 2009? Interpret your answer.
d. By how much should this household 2009 annual income change to keep up with
inflation between 2008 and 2009?
Part B
U
A movie ticket had cost of 50 cents in 1970. The CPI in 1970 and 2011 was 38.8 and 218.8.
How much money would you have needed in 2011 to buy a movie ticket?
Problem 2
U
Given the following data about a CPI basket made of 2 goods: Gun and Apples.
Year Price of a Gun Quantity of Guns Price of Apple Quantity of Apples

1999 $50 3 $0.50 1000
2000 $60 3 $0.75 100
a. Calculate the cost of the CPI basket in the years: 1999, and 2000?
b. Given that 1999 is the base year, what is the CPI for 1999, and 2000?
c. Find the level of inflation between 1999 and 2000.
Problem 3
U
Sara, who works in the banking industry, earned $60,000 annual salary in 2010 and is used to
buying the goods mentioned in the market basket below
Market Basket
U Quantity
U Prices in 2009
U Prices in 2010
U Prices in 2011
U
Perfume
U 6 $50 $80 $100
Dresses
U 15 $100 $100 $200
Pairs of shoes
U 10 $50 $40 $70
a. How much does Sara spend on the market basket in year 2010?
b. Assuming that year 2009 is the base year, calculate CPI in 2009, 2010, and 2011.
c. What is the percentage change in price level between 2010 and 2011?
d. By how much should Sara’s 2010 annual income change to keep up with what happened
between 2010 and 2011?
e. Calculate Sara’s Real income in 2011 if her income kept up with inflation that occurred
between 2010 and 2011.
Problem 4
U
Mr. Brown got an annual income of $80,000 in year 2009 and after the increase in price levels in
2010, he got an income increase of 15 percent.
The consumer price indices were 80 and 95 in years 2009 and 2010 respectively.
a. What is Mr. Brown’s Real income in year 2009?

b. How much did Mr. Brown’s income become after the income increase in 2010?
c. Did Mr. Brown’s income keep with inflation that occurred between 2009 and 2010? If
not, how much should his income increase to keep with inflation?
Problem 5
U

U
Part A
U
Given the following:
Working-Age Population 300000

Employment
Unemployment
Unemployment Rate 4.0%
Labor Force
Labor Force Participation Rate 60%
Calculate the missing factors and complete the table.
Part B
U
Indicate for each case if it refers to an employed or unemployed person

i- Imad is ill and left his job until he recovers
ii- Sahar is a business graduate and searching for a job vacancy
iii- Jalal works at his father’s farm for 5 hours for 4 days/week
Problem 6
U
Fadi graduated in 2014 and he started looking for a job. Last week he read the following
information:
The number of unemployed is 2,450,000
The labor force is 15,000,000
Working age population is 18,540,000
Calculate the following:
a. Number of employed
b. Unemployment rate
c. Fadi noticed lately that foreign investment increased and about 125,000 vacancies were
created and filled by unemployed people. Calculate the new unemployment rate.
d. Calculate the number of people who are not in the labor force.
Problem 7
U
Refer to the information provided in the following table to answer parts (a, b, c)
a. Calculate the labor force.

b. What is the total number of people unemployed?
c. What is the total number of people employed?
Problem 8
U
Consider the following labor force statistics for an economy
Total population: 1,000,000 Number of adults employed: 600,000 Number of adults’

unemployed and looking for work: 50,000 Number of adults unemployed and not looking for
work: 100,000
a. Calculate the unemployment rate for this economy

b. After an economic boom, 20,000 new jobs were created, all of which are filled by adults
who were previously unemployed but looking for work. Calculate the new
unemployment rate.
c. Now the stock market crashes and the boom turn into a recession. Total employment falls
to 520,000. All the fired workers give up hope of finding another job and decide to
emigrate. So the number of people unemployed but looking for work remains at 30000 as
in part 2. What is the new unemployment rate?
Problem 9
U
A- Calculate the required rates in each of the following givens
1- In the year 2000, the working age population in Lebanon was 3,870,600, the
total number of employed persons was 2,742,200, and the rate of
unemployment was 9.2%. What was the participation rate in the labor force?
2- In the year 1995, the working age population in Lebanon was 3,870,600, not  in
the labor force were 1,501,700 people, and the total number of employed people
was 1,500,200. What was the unemployment rate in 1995?
B- Indicate without explaining whether each of the following people is frictionally

unemployed, structurally unemployed, cyclically unemployed, not included in the
unemployment rate
1- Kimberly voluntarily quit her job as an insurance agent to return to school  full-time to
earn an MBA degree. With degree in hand she is now searching  for a position in
management.
2- Assume that Hernandez is temporarily unemployed because he has voluntarily  quit his
job with company A and will begin a better job next week with  company B.
3- Kristen has lost her job in a Florida textile plant because of import  competition. She
intends to take a short course in electronics and move to  California where she
anticipates that a new job will be available.
4- Rami lost his job after the severe decline in the construction sector.
5- Mona decided to quit her job and stay with her new born Son.
BECO 260
Work Sheet 2
General questions
U
1- Why do economists avoid adding intermediate goods to GDP?

2- Why do economists rely on Real GDP measures rather Nominal GDP measures when
calculating Real Growth rate?
3- While graphing the business cycle, you should label its axis with which variables?
Problem 1
U
The below table provides data for the US economy
Calculate the following:
a- Consumption
b- Investment
c- Government purchases
d- Net exports
e- Gross Domestic Product
Problem 2
U
The economy of Malta, in which two final goods (Bikes and Cakes) and one intermediate good
(Flour) are produced, can be described as follows:
Price1998 Quantity1998 Price1999 Quantity1999
Bikes 5$ 150 10$ 230
Cakes 20 100 20 110
Flour 10 50 12 120
a- Calculate Nominal GDP for years 1998 (BASE) and 1999.

b- Calculate Real GDP for years 1998 (BASE) and 1999.
Problem 3
U
Determine which of the following would be counted in the spending approach of GDP, and
which would not be counted. Identify the category under which it would fall (C, I, G, NX, or not
counted)
a. The housecleaning services of a stay-at-home mom.
b. The housecleaning services of the “Merry Maids” company.
c. The babysitting services of a babysitter whose earnings are kept “off the books” and not
reported to the tax authorities.
d. A brand new house built and sold this year.
e. A new car made by Ford in the U.S., and sold to a household in the U.S.
f. A new car made by Ford in the U.S, and sold in Mexico.
g. A 2002 used Ford car.
h. 3 shares of Ford Motor Company stock
i. A new car made by Ford in the U.S. but not sold by the end of the year.
j. A new car added to the fleet of taxis of Mr. Taxi Company.
k. A new bridge to accommodate all the new and used cars and taxis on the road.
Problem 4
U
Given the below data representing goods consumed in a certain economy
Prices in Quantities in
Goods Prices in 2013 Quantities in 2013 2014 2014
Milk $2/bottle 45 bottles $2.5/bottle 52 bottles
Jackets $50/jacket 20 jackets $65/jacket 18 jacket
Panadol $1/box 100 boxes $1/box 120 boxes
Assuming that year 2013 is the base year calculate the following:
a- Total expenditure on the market basket in years 2013 and in 2014

b- Nominal GDP in 2013 and in 2014
c- Real GDP in 2013 and 2014
d- GDP deflator in 2014
Problem 5
U
Use the below diagram to answer questions that follow
Real GDP C Growth Trend
Time
a- How many business cycles does the diagram indicate?

b- Between which points does the above graph indicate expansion and contraction?
c- If Nominal GDP in the base year was $58 billion, calculate Real GDP in the base year.
d- If Real GDP in year 2011 is $109 billion, calculate growth rate between the base year and
year 2011.
e- What happens to the unemployment rate between B and C?
Problem 6
U
The following data are taken from the Lebanese Ministry of Economy and Trade in 2015:
Macroeconomics Indicators In Millions US$
Ministries Budget Expenditure 7,615
Exportation 2,792
Importation 17,452
Public Debt (in Billions US$) 66.2
Residential investment 57,113
Inflation in % 0.2%
Durable Goods 2,669
Non-Durable Goods 14,831
Services 890
Change in business inventory 516
Calculate the following variables:
a- Consumption.
b- Investment.
c- Government spending.
d- Net exports
e- Gross Domestic Product.
Problem 7
U
1) State whether each transaction is computed in the GDP and under which category (C, I,
G, NX, or not counted).
1- Milad buys a new house for 200,000$.
2- Grey sells his old car for 5,000$.
3- The government build a new road for 1,000,000$
4- Leila buys Treasury bonds for 3000$ dollars
5- Khaled buys new furniture for his house for 70,000$ and sells the old furniture for
30,000$
6- A farmer exports 70% of his cultivated apples to a foreign company that produces jam
for 50,000$ and the rest was bought locally for 30,000$
7- A new company build a factory and bought machines for 500,000$
8- Household bought foreign goods for 80,000$
2) Then Calculate:
a- Consumption
b- Investment
c- Government purchases
d- Net exports
e- Gross Domestic Product
BECO 260
Work Sheet 3
Problem 1
U
Show graphically and describe the short run effects on AD and AS curves
a- An increase in government spending.
b- An increase in oil prices.
c- Political uncertainty leading to an increase in uncertainty regarding businesses' future
profitability.
d- China conducts policy that causes the value of the dollar to increase relative to the
Chinese Yuan.
Problem 2
U
For the following statements, indicate whether aggregate demand, short run aggregate supply or
long run aggregate supply shifts to the right or to the left and indicate what happens to the price
level
a- Disposable income increases.

b- Output per worker decreased.
c- A new bridge was built in the city.
d- The price level increases.
Problem 3
U
Use the below figure to answer the question that follows
Explain what happens to the price of petroleum per barrel between years 1988 and 2004?
Use the below figure to answer the question that follows
Explain what happens to the price level between years 2002 and 2005?
Problem 4
U
Use the below graph to answer questions that follow:
a- What is the long run equilibrium Real GDP?

b- What is the short run equilibrium price level and Real GDP?
c- What happens to the price level if AD shifted to the right?
d- Assuming that the price level is at 110, calculate nominal GDP?
Problem 5
U

U
Part A
U
President Bush lowered income taxes for individuals in 2001. Explain graphically using
aggregate demand and aggregate supply how this policy affects the aggregate demand curve, the
price level, the level of GDP, and unemployment.
Part B
U
Explain graphically using aggregate demand and aggregate supply, what happens in the short run
if the Federal Reserve raises interest rates in the economy? Be sure to explain what happens to
aggregate demand, the price level, the level of GDP, and unemployment. Hint (Assume that the
economy is at full employment before the interest rate increase)
BECO 260
Work Sheet 4
Problem 1
U
Use the following data to work the following questions

The table shows the aggregate demand and short-run aggregate supply schedules of a country in
which potential GDP is $1,050 billion.
Real GDP Real GDP supplied

demanded in the short run
Price level (billions of 2005 dollars)
100 1,150 1,050
110 1,100 1,100
120 1,050 1,150
130 1,000 1,200
140 950 1,250
150 900 1,300
160 850 1,350
a- What is the short-run equilibrium real GDP and price level?

b- Does the country have an inflationary gap or a recessionary gap and what is its
magnitude?
Problem 2
U
Given that real GDP is $2.5 and that potential GDP is $3.5
a- Is the economy at equilibrium?

b- What is the state of the economy?
c- If the economy is self-regulatory, how will it reach its potential level in the long run?
Explain the process
d- Repeat the problem assuming that real GDP is $3.5 and that potential GDP is $2.5
Problem 3
U
Use the below figure to answer questions that follow:
Between years 1931 and 1941, the economy was under a recessionary gap. Using this fact,
answer the questions that follow:
a- According to classical view, the economy is self-regulatory, should the government or the
central bank interfere to minimize the gap and reach potential GDP?
b- According to classical view, how will the economy reach its potential level?
Problem 4
U
The below graph represents the economy of Lebanon in the long run equilibrium
Assuming that the government increased taxes and that AD curve shifted to the left after the
government actions.
a- What is the new state of the economy?

b- Use the below space and represent the state of the economy graphically.
c- According to classical, the economy regulates itself without any intervention.
State the self- regulatory process and indicate the final effects on Real GDP and price
level
Problem 5
U

Part A
U U
Real GDP in a small economy is 2.5 billions of dollars. Potential GDP in this economy is 1.5
billions of dollars.
a- What is the state of the economy?

b- Draw a labelled graph illustrating the state of this economy.
c- Describe the situation on the labor market in this economy. How would you expect wages to
change?
Part B
U
In the following figure, which point is

representative of:
a- The economy on its LRAS curve

b- The economy in a recessionary gap
c- A surplus in the labor market
d- The economy in an inflationary gap
e- Cyclical unemployment rate
Problem 6
U
Complete the table below that explains the economy self-regulatory process in the economy:
(Hint: Use the terms between parentheses in your answers)
Unemployment
Gap Labor Market Wages SRAS
Short Run and Natural
(Recessionary (Surplus \ (Decrease / (Decrease /
Economy unemployment
\ Inflationary) Shortage) Increases) Increases)
(Greater/ Less)
Natural
GDP > Real
Long Run
GDP Equilibrium
Natural
GDP < Real
GDP
BECO 260
Work Sheet 5
Problem 1
U
The figure below shows the consumption function of a small closed economy with no taxes.
(The numbers are in millions of dollars)
a- Calculate the marginal propensity to consume in this small economy.

b- Give the equation for the consumption function.
c- Give the equation for the aggregate saving function.
d- Assume that Government spending is 60 and private investment is 40. Give the equation
for the total expenditures function (TE).
e- Calculate the macroeconomic equilibrium level of output.
f- Assume that potential GDP for this small economy is 900, and that the economy is
currently at an equilibrium level of output equal to 600.
1- What is the current state of the economy?
2- By how much should government increase its spending so that the economy reaches
long-run equilibrium?
Problem 2
U
One other factor that affects the Consumption and saving behavior is household Wealth
(accumulated savings and inheritance), but our simple Keynesian model doesn’t incorporate this
effect. Consider the following model of a very simple closed economy:
1- C = 10 + 0.75 Y + 0.6 W
2- I = 200
3- W = 1000
4- Y=C+I
5- S = Y – C , 6- AE = Y
If you assume that wealth (W) and Investment (I) remain constant (we are ignoring the fact that
saving adds to the stock of wealth) then answer the following questions
a- What are the equilibrium levels of GDP (Y), consumption (C) and Saving (S)?
b- Graph equation 4 and 6
c- If autonomous investment increased by $100, then by how much Total Expenditure is
going to change?
Problem 3
U
Assume that in 1990 the following prevails in the republic of Lebanon
Income (Y) = 200,

Government expenditures (G) = Net taxes (T) = 0,
Consumption by households (C) = 160,
Saving (S) = 40,
Investment by firms (I) = 30, and Net exports (NX) = 0
Assuming that households consume 80% of their income and save the remaining 20%, that is
C = 0.8 Y d and S = 0.2 Y d
R R R
a- Is Lebanon at equilibrium in 1990? Show your work

b- If Investment increased by $20, by how much will aggregate expenditure change?
Problem 4
U
Given the following equations representing the Lebanese economy:
C = 100 + 0.8 Y d
R
T = 100
I = 200,
G = 300 and NX = 0
a- What is the equilibrium level of income Y and Consumption C?

b- Derive the equation of saving and calculate its amount at equilibrium
c- If government reduced it’s spending by $50, by how much does the equilibrium level of
income changes?
Problem 5
U
A- Refer to the information provided in Table 1.1 below to answer the questions that follow:
Table 1.1
a- At an output level of 1500, what is the level of aggregate expenditure (TE) and
disposable income?
b- What is the equilibrium level of output and consumption?
B- For the rest of the problem, refer to the information provided in Figure 1.1 below.
Assuming that there is no government,
a- Along AE1 what is the value of MPC?
b- What is the value at point A
c- If aggregate expenditures are represented by AE2 and Investment increases by $20
billion, then by how much will the level of aggregate expenditures change?
Figure 1.1
Problem 6
U
Use the below graph to answer questions that follow:
a- Calculate MPC assuming that there is no government.

b- Derive the equation of aggregate expenditure
c- Mathematically solve for the equilibrium level of income
d- By how much should Investment increase so that equilibrium income reaches 2000?
Problem 7
U
Use the graph above to fill the empty spaces in the table below.
Points Compare between TE and TP What happens to inventories? What do firms do?
L
Problem 8
U
a- Which points represent the Macro equilibrium at AE 1 and AE 2?

b- If the Potential GDP equals $100 million. The economy is currently producing GDP1
which is equal to $90 million. Calculate the recessionary gap.
c- If Potential GDP equals $100 million. The economy is currently producing GDP1, which
is equal to $90 million. If the MPC is 0.8, then how much must autonomous spending
change for the economy to move to potential GDP at $100 million? (Hint: Show all your
calculations and the formulas used)
Problem 9
U
Refer to the information provided in the table below to answer the questions that follow:
Output
(Y) Consumption Planned Investment Government Aggregate Expenditure
2000 2100 100 300
3000 2850 300
4000 3600 300
5000 4350 300
6000 5100 300
7000 5850 300
a- Fill in the blank for the planned investment and determine the equilibrium level of output.
b- Calculate the marginal propensity to save (MPS).
c- If investment decreases by $20, find the new level of aggregate output.
d- At an output level of $6000, what is the level of unplanned investment? What will happen
to output and inventory?
Problem 10
U
Answer the following questions based on the below graph
Investment I: $400
Government G: $300
Taxes T: $0
Net Export NX: $100
a- Graphically determine the equilibrium level of output.

b- Derive the consumption and saving functions.
c- Mathematically solve for the equilibrium level of income.

d- When the economy is at full employment the output level is $5500. How much would
government purchases change to create full employment?
BECO 260
Work Sheet 6
Problem 1
U
Refer to the below graph, assume the economy is initially at point “B”.
a- If the government wants to intervene, should it implement a contractionary fiscal policy

or an expansionary fiscal policy? Why?
b- What are possible tools that can be applied?
c- Show graphically the effect of a contractionary fiscal policy to bring the economy back to
potential. Make sure to indicate the effect on RGDP, Price Levels, and Unemployment
rate.
Problem 2
U
Use the below table to answer questions that follow
Aggregate demand Short-run aggregate Long-run aggregate

Price level (trillions of 2005 supply (trillions of supply (trillions of
dollars) 2005 dollars) 2005 dollars)
100 11 7 10
110 10 8 10
120 9 9 10
130 8 10 10
140 7 11 10
a- What is in short-run equilibrium price?

b- At the price you mentioned in part a, what is the state of the economy?
c- What fiscal policy should the government undertake? What tools can it use?
Problem 3
U
Use the below figure to answer the questions that follow:
a- What is the state of the economy in year 2012?

b- What fiscal policy should the government use to push the economy to its potential level
in year 2012?
c- Based on your answer in part b, what happens to the following:
1- Aggregate demand curve
2- Short run aggregate supply curve
3- Unemployment rate
4- Price level
d- If the government borrowed from financial markets, analyse the effects of such action.
Problem 4
U
The above graph shows an economy suffering a recessionary gap.
a- What type of fiscal policy must government lead in order to help the economy move
toward potential GDP?
b- What are the possible tools to implement the policy you mentioned in part a).
c- Show the expected effect of the policy you suggested in part a) on the above graph. Show
the macroeconomic effect of this policies (HINT: is there any possibility of any side
effect?).
Problem 5
U
Under the current Lebanese situation, the government in Lebanon is seeking a solution to
stimulate the economy and decrease the unemployment rate.
a- The government is considering demand side fiscal policy, what is the effect of the
decrease in personal income tax rate on real output, unemployment rate and price level?
b- What is the effect of the increase in government purchases that are financed by
borrowing?
c- If the government is trying to get rid of a $ 1 million recessionary gap by increasing its
spending, explain the multiplier effect in this process. Given that the marginal propensity
to consume (MPC) is 0.8.
Problem 6
U
Economy “A” recorded 50 million dollars of government spending and 55 million dollars of Tax
revenues.
Economy “B” recorded 50 million dollars of government spending and 45 million dollars of Tax
revenues.
The marginal propensity to save in both economies is mps= 0.2.
a- Which economy is more likely to suffer from crowding out? Explain

b- By how much should government “A” increase its spending to close a 10 million dollar
recessionary gap?
Problem 7
U
Consider the following graph of a hypothetical economy that is facing a recessionary gap and is
originally on point A. to overcome this gap the government decides to intervene and implement
an expansionary fiscal policy, and increases the government spending.
In the following situations state whether there is a (complete crowding-out effect, partial
crowding-out effect, no crowding-out effect).
Situation 1: The economy moves to point B.

U U
Situation 2: The economy stays at point A.

U U
Situation 3: The economy moves to point C.

U U
BECO 260
Work Sheet 7
Problem 1
U
You are given this account for a bank:

The required reserve ratio is 10 percent
Assets Liabilities
Reserves 500 Deposits 3500
Loans 3000
Other Assets 5000 Equity 5000
a- How much is the bank required to hold as reserves?

b- How much are its excess reserves?
c- Can the bank give any more loans?
d- Show the new balance sheet after this event above
e- By how much the money supply will increase?
Problem 2
U
Use the above table that provides data about People’s bank to answer the following questions:
a- What is the value of net worth?

b- What is the value of the required reserve ratio?
c- What are excess reserves at People’s bank?
d- What is the value of loans?
e- Can the bank give any more loans? If yes then how much?
Problem 3
U
Suppose the Central Bank requires banks to hold reserves of at least 20% of their deposit.
Consider the below simplified balance sheet of Bank X
Assets (millions) Liabilities (millions)

Reserves 10,000$ Deposits 40,000$
Loans 30,000$
Total 40,000$ Total 40,000$
a- Calculate required reserves and Excess reserve.

b- Can this bank give any more loans? If yes, by how much can the bank increase its loans?
c- Suppose that the bank decides to use the excess reserves they have, and loans them. Draw
a new T account representing this operation.
d- By how much can the money supply change now?
Problem 4
U
Assume a banking system with the following balance sheet
Assets Liabilities
Reserves $400 000 Checkable deposits $1 000 000
Loans $600 000
Total $1 000 000 Total $1 000 000
a- Suppose that the bank is fully loaned up, what is the required reserve ratio?
b- Now suppose that the required reserve ratio is 20%, show the new T-account.
c- By how much can the bank increase its loans?
d- By how much can the money supply change now?
Problem 5
U
An economy is currently at equilibrium and is producing $10 billion of goods and services.
Assume that potential output of this economy is $12 billion.
a- Draw a graph that shows the current status of the economy. Label the equilibrium with A
b- Is this economy in a long run or short run equilibrium? Explain.
c- Explain how does the economy reaches back its long run equilibrium if the central bank
was to interfere? Show your work on the graph. What will happen to the real GDP, Price,
and unemployment?
Problem 6
U
The above graph shows an economy suffering a recessionary gap.
a- What type of fiscal policy must government lead in order to help the economy move toward
potential GDP?
b- What are the possible tools to implement the policy you mentioned in part (a)?
c- What type of policy must the Central bank implement in order to the economy move out from its
recession?
d- What are the possible tools to implement the policy you mentioned in part (c)?
e- Show the expected effect of the two policies on the above graph. Compare the macroeconomic
effects of the two policies.

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BECO260

Spring 2019 - 2020

Session Chapter(s) Topics to be covered Class Exercises

Computing GDP using the expenditure approach 150

An Important Word on the Three Effects 168

Test 1 Date: Wednesday, March 18, 2020

Test 2 Date: Wednesday, May 13, 2020

Session Chapter(s) Topics to be covered Class Exercises

Computing GDP using the expenditure approach 150

An Important Word on the Three Effects 168

Chapter 15 The Monetarist Transmission Mechanism: Direct 340 Worksheet 7

Test 1 Date: Thursday, March 19, 2020

Test 2 Date: Thursday, May 14, 2020

Parts A and B are independent

Year Price of a Gun Quantity of Guns Price of Apple Quantity of Apples

a. What is Mr. Brown’s Real income in year 2009?

Parts A and B are independent

Given the following:

Working-Age Population 300000

Calculate the missing factors and complete the table.

Indicate for each case if it refers to an employed or unemployed person

ii- Sahar is a business graduate and searching for a job vacancy

The number of unemployed is 2,450,000

The labor force is 15,000,000

Working age population is 18,540,000

Calculate the following:

a. Calculate the labor force.

Consider the following labor force statistics for an economy

Total population: 1,000,000 Number of adults employed: 600,000 Number of adults’

a. Calculate the unemployment rate for this economy

A- Calculate the required rates in each of the following givens

B- Indicate without explaining whether each of the following people is frictionally

1- Why do economists avoid adding intermediate goods to GDP?

The below table provides data for the US economy

Calculate the following:

Price1998 Quantity1998 Price1999 Quantity1999

Bikes 5$ 150 10$ 230

Cakes 20 100 20 110

a- Calculate Nominal GDP for years 1998 (BASE) and 1999.

a. The housecleaning services of a stay-at-home mom.

b. The housecleaning services of the “Merry Maids” company.

d. A brand new house built and sold this year.

f. A new car made by Ford in the U.S, and sold in Mexico.

g. A 2002 used Ford car.

h. 3 shares of Ford Motor Company stock

j. A new car added to the fleet of taxis of Mr. Taxi Company.

Given the below data representing goods consumed in a certain economy

a- Total expenditure on the market basket in years 2013 and in 2014

Use the below diagram to answer questions that follow

Real GDP C Growth Trend

a- How many business cycles does the diagram indicate?

Macroeconomics Indicators In Millions US$

Ministries Budget Expenditure 7,615

Public Debt (in Billions US$) 66.2

Residential investment 57,113

Durable Goods 2,669

Non-Durable Goods 14,831

Total population: 1,000,000 Number of adults employed: 600,000 Number of adults’