Chapter 34 Group C Homework

Homework for Group C
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1. What is the theory of liquidity preference and how does it help explain the downward slope of the aggregate demand curve?
2. Use the liquidity preference theory to explain how decreases in the money supply affect the AD curve.
3. Give an example of a government policy that acts as an automatic stabilizer. Explain why the policy has this effect.

1. Liquidity preference indicates that in the short run, interest rate adjusts to bring money supply and demand into balance. When the overall price level rises, in any given interest rate, people need more money to buy the same goods & services. If money supply stays the same, the interest rate must rise to offset the additional money demand. And the rise of interest rate increase the cost of investment & loan, therefore shift the aggregate demand curve to the left.

2.  If the Fed decreases the money supply, it will drive up the interest rate, and a higher interest rate makes investment more costly. Therefore, this would reduce the aggregate demand (shift to the left).

3. An example of a government policy that acts as an automatic stabilizer is the unemployment insurance. This is because the decrease of aggregate demand must rise unemployment rate. This policy will provide those who lost their job some extra money so that they could keep their spending.

Chapter 29 & 30 Group C Homework

Homework for Group C
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1. What do we mean when we say, "money is whatever society says it is?"
2. Describe the components of M1, M2 and M3. In general, how do they differ?
3. What is "the Fed" and its main purpose?
4. Take a look at the following banking in-class demonstrations. Pick one of the three demos to perform with some friends, relatives, or other persons who owe you a favor:-) You are to act as the teacher in the demonstration and you are to attempt to teach the group the concept the demonstration is attempting to illustrate. Once the role playing is completed, answer the following questions.
1. Which demonstration did you choose and why?
2. Give a general description of your volunteers - approx age, gender, etc.
3. How did the demonstration go overall?
4. Did the volunteers seem to understand the concept being demonstrated? Why or why not?
5. Add any other comments you feel are relevant.
6. Did you enjoy this exercise and did you learn anything new by performing the demonstration? Why or why not?

1. "Money is whatever society says it is" implies that anything with "exchange value" and "use value" can be accepted by the public as a means of payment.

2. M1 --> demand deposit-balances in bank accounts that depositors can access on demand by writing a check. This includes traveler's checks and other checkable deposits. It also deals with currency of paper bills and coins in the hands of the public.

    M2 --> saving deposits, small deposits, money market mutual funds, and a few other minor categories. This also involves everything in M1. 

    M3 --> the combination of M1 and M2. 

3. The "Fed" is known as the Federal Reserve, which is the central back of the United States. The purpose of the "Fed" is to establish stability among the banking system in the US. The Federal Reserve has 2 main functions: 1. to regulate banks and ensure the health of the banking system, and 2. to control the quantity of the money that is made available in the economy, also known as the money supply.

4. The Inflation Fairy

1. I chose the Inflation Fairy exercise because it was an interesting concept many people misunderstand.
2. Age: 50, Sex: Male     Age: 19, Sex: Female
3. Overall, the demonstration went pretty well. 
4. Both volunteers understood the concept of inflation. The older gentleman quickly grasped the understanding of the exercise and gave personal examples of when that occurred. The younger female also understood what concept the exercise was for, but took her longer to fully understand. I had to give her a easy example to make her learn better.
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6. I really enjoyed this exercise and I feel like I learned a great amount by trying to teach the concept to the different type of people. While the older man was trying to help me provide better examples, I was able to help the younger girl with simple and easy examples to allow her to understand it too. 

Chapter 24 Homework for Group C

1. What is the CPI and what is its purpose?
2. Fix the basket at 3 footballs and 4 basketballs.

Year	Price of Footballs	Price of Basketballs
Year 1	$10	$12
Year 2	12	15
Year 3	14	18

1. Compute the cost of the basket:
   Cost in Year 1
   Cost in Year 2
   Cost in Year 3
2. Using Year 1 as the base year, compute the index:
   CPI in Year 1
   CPI in Year 2
   CPI in Year 3
3. Compute the inflation rate:
   Inflation rate for Year 2
   Inflation rate for Year 3
4. Take a look at the following link. Notice all the different measures of a country's "Standard of Living." Which do you think is the best measure and why?

1. The Consumer Price Index (CPI) is a measure of the overall cost of goods and services bought by a consumer. The government uses this index to report inflation rates each month and each year. The composition of the market basket for the CPI is based on spending patterns of consumers in specific periods. 

1. Cost in Year 1 = (3x10) + (4x12) = 78

    Cost in Year 2 = (3x12) + (4x15) = 96

    Cost in Year 3 = (3x14) + (4x18) = 114

2. CPI in Year 1 = (78/78) x 100 = 100

    CPI in Year 2 = (96/78) x 100 = 123.08

    CPI in Year 3 = (114/78) x 100 = 146.15

3. Inflation Rate for Year 2 = 123.08 - 100 = 23.08%

    Inflation Rate for Year 3 = 146.15 - 100 = 46.15%

4. I think the best measurement of a country's "standard of living" is the Human Poverty Index. I say this because it measures a variety of socio-economic variables which include per-capita GDP, life expectancy, political stability, family life, gender equality, and job security. The other measurements are unevenly distributed, and does not take into consideration as many variables as the Human Poverty Index does. Also, I feel that the other measurements are not as accurate due to the fact that they are not highly ranked. 

Chapter 4 Homework for Group C

Consider the market for minivans. For each of the events listed below, identify which of the determinants of demand or supply are affected. Also, indicate whether demand or supply increases or decreases and the resulting effect on price and quantity demanded.

1. People decide to have more children.
2. A strike by steelworkers raises steel prices.
3. The price of sport utility vehicles rise.
4. A stock market crash lowers people's income.

1. If people decide to have more children many determinants of demand and supply are affected. First, the demand curve would be affected by consumer income and the number of children. The more people decide to have children, the more minivans are demanded. In addition, the income of the consumer might be reduced due to the amount of children that need to be accomodated. As for supply, determinants that are affected include price of the minivans and the number of people that need to buy the minivan in order to fit their family. To sum up, demand and supply would increase due to the growing population, thus having the prices and the quantity of minivans to increase as well.

2. If there was to be a strike by steelworkers in which they raise the prices of steel, the market for minivans would be affected greatly. First, the supply of the minivans would decrease because cars would be more expensive to make, increasing the prices of the minivans. This would cause an increase in demand because more people are going to want the minivans, but there will only be a limited supply of them. The quantity demanded would decrease as well because not as many people will be willing to buy the minivan if the prices are going to raised. The determinants that affect supply would be the price of the steel, and the determinant for demand would be the number of buyers, since that would decline.

3.If the price of sport vehicles rise, the demand of minivans will rise. I say this because SUV's are bigger cars that are not technically vans or minivans. This means that if people want a SUV instead of  regular 4 door cars, but the price has risen, more people might buy minivans or vans because they are big as well, but less expensive. Although, I think the supply of minivans will remain the same because there are many different types and models of minivans, and even though the price might rise for a sports vehicles, it depends on peoples tastes of cars. The price for the market of minivans would probably remain the same, since sports vehicles are rising anyways. The quantity demanded would increase because of the better price minivans have over SUV's. Determinants would include price, the willingness of people to pay, and the different tastes people have over their cars.

4. If there was to be a stock market crash that lowered the income of people, demand would decrease, but supply of the market of minivans would increase. The demand would decrease because less people would be able or willing to afford the minivan, which causes the supply of the market to increase. The main determinant for demand is the price of the minivan as well as the income of the person trying to buy the minivan. The supply determinants would be the prices needed to make the minivan in addition to the number of different sellers that are not prosperous. This results in a great affect on price and the quantity demanded for the minivans. The price fo minivans would have to decrease due to the fact that no one is willing to buy because of the stock market crash. The quantity demanded would have to decrease as well because not as many buyers are going to be willing or possibly able to purchase the car.

Introduction

Hello! My name is Julie Oxman and I am going to be a junior at the University of Maryland. I am an accounting major and hoping to double major in finance. I am taking macroeconomics to fulfill a prerequisite in order to take another upper level economics class! I hope to better myself in the field of macroeconomics, and can't wait to be working with you all! Thanks