What effect will the Feds decision to not change the federal funds rate have on the U.S. economy?

Use the following Show more Please answer all the questions by using the relevant economic principles learned. Use the following information to work Problem 1. Manoj Singh says that many Indians lack the education to participate in the expansion of the countrys high tech industries. To remedy this situation he wants India to create more world-class universities. He also believes that Indias labor laws are too restrictive and discourage the movement of people and human capital between regions and industries. Source: Manoj Singh The Financial Times May 15 2007 1. How would building more universities change Indias current and future production possibilities? Illustrate your answer by drawing Indias current and future PPFs. Use the following information to work Problems 2 and 3. The U.S. Department of Labor reported that Michigans unemployment rate in June 2009 rose to 15.2% becoming the first state in 25 years to suffer an unemployment rate exceeding 15%. Michigan has been battered by the collapse of the auto industry and the housing crisis and has had the highest unemployment rate in the nation for the past 12 months. Source: CNNMoney July 17 2009 2. Why is the reality of the unemployment problem in Michigan actually worse than the unemployment rate statistic of 15.2 percent? 3. Is this higher unemployment rate in Michigan frictional structural or cyclical? Explain. Use the following information to work Problems 4 and 5. The Fed has consistently said that it will not raise the federal funds rate any time soon. The Feds challenge will be how to get monetary policy back to normal over the next several years. The Fed has to make a judgment about timingtightening too early could send the economy back into recession as happened during the late 1930s; waiting too long would set the stage for inflation. Source: The New York Times November 5 2009 4. If the recovery continues and inflation starts to rise What effect will the Feds decision to not change the federal funds rate have on the U.S. economy? 5. If the economic recovery slows and the economy slips back into recession what effect will the Feds no-change decision have on the economy? 6. G-20 leaders look to shake off lingering economic troubles For the world economy to emerge stronger from the global financial crisis experts say that savings by the United States investment by Japan and consumption by China will all have to increase. Source: USA Today September 23 2009 Explain how the experts advice will affect the market for loanable funds in the United States in Japan and in China. Use the following information to work Problem 7. Federal deficit hits record $1.42 trillion -In 2009 the government collected $2.10 trillion in revenues a drop of 16.6 percent while government spending jumped to $3.52 trillion up 18.2 percent over 2008. The Obama administration has pledged to include a deficit-reduction plan in its 2011 budget which will go to Congress in February 2010. Source: Charleston Daily Mail October 16 2009 7. If the deficit-reduction plan includes a cut in transfer payments and a rise in taxes of the same amount how will this policy influence the budget deficit and real GDP? 8. Bernanke raises alarm on spending -Federal Reserve Chairman Ben Bernanke warned that government spending and budget deficit threaten financial stability and might be setting the scene for the next crisis. Source: The Globe and Mail June 4 2009 How might a large increase in government spending and the governments budget deficit threaten financial stability and make the Feds job harder? Show less


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