Assignment:
Problem 1: Kala, A.J. (2017, Nov. 6). This was supposed to be India's big year, but businesses aren't investing. Wall Street Journal (Online).
a. At what annual rate did the Indian economy grow in the first half of 2017? What are two reasons for this year's slowdown in economic activity, and which areas of GDP have been the most negatively affected? To what extent have Indian policymakers contributed to this slowdown?
b. What is one monetary policy action that India's central bank can take to boost economic growth in 2018? Briefly assess how this action would affect household consumption, business investment, interest rates, inflation, output and unemployment. Include a well-labeled graphs with your response to show how these actions would affect price levels and output.
c. What is one fiscal policy action that could be taken by India's legislators to increase economic growth in 2018? Briefly outline the impacts, if any, on household consumption, business investment, inflation, output and unemployment. Include a well-labeled AS/AD graph with your response to show how these actions would affect price levels and output.
d. Do you believe Indian policymakers should attempt to increase the country's economic growth rate next year? Why or why not? If so, which policy action do you prefer and why?
Problem 2: Harrison, D. (2017, Nov. 1). Fed leaves rates unchanged, cites ‘solid rate' of economic growth. Wall Street Journal (Online).
a. How many times has the Federal Reserve raised interest rates since the end of the 2008-09 financial crisis? Which interest rate does the Federal Reserve use as its policy rate? How does the Fed go about changing this interest rate?
b. What macroeconomic rationales did Fed officials give in setting the stage for interest rate hikes in the coming months? Be specific.
c. What are the main goals of the Federal Reserve? Briefly explain how the Federal Reserve is trying to achieve at least one of these goals through raising interest rates.
d. Discuss the effects raising interest rates may have on U.S. economic output, inflation, and unemployment. Include a well-labeled graphs showing the effects on output and the price level.
Problem 3: Rubin, R. (2017, Nov. 2). House GOP tax plan sticks with big corporate cuts. Wall Street Journal (Online).
a. Briefly describe the main parts of the Republicans' tax plan. How will U.S. businesses and households be impacted by these legislative changes? Who are the main winners and losers if this tax legislation is passed?
b. Will this tax plan result in a higher or lower public debt over the next decade? Include numbers to support your answer.
c. How would these tax changes affect the U.S. economy over the next several years? Be sure to explain the effects on household consumption, business investment, economic output, inflation, and unemployment. Include a well-labeled aggregate supply/demand graph with your answer.
d. Are you in favor of the proposed tax plan? Why or why not? Be sure to include in your answer a discussion of both the U.S. macroeconomic impacts and the effects on the federal budget.