Unemployment Rate Definition

1. What are transfer payments and how do they make their way into the GDP calculation?
In economic studies, transfer payment refers to the redistribution of income funds in the market system. The cycle has its basis from the realizations that transfer payments bring balance to the economy. The payments are said to be non-exhaustive since they do not create output or absorb resources directly. They include Medicare, social security, and subsidies etcetera which is not included in the calculation of the GDP since they are not services or goods payments but ways of distributing cash to attain social ends.
2. Is the unemployment rate the same for all groups of people in an economy? Why or Why not?
The unemployment rate is not always the same to all groups of people in an economy. This phenomenon emanates from the differences abilities of people and the demands that are there at any given time. Some factors such as educational needs for the market come into the play. The youths and the minority groups usually have higher unemployment rates probably because of their levels of education and being employed in sectors that are sensitive to business cycles; when the economy gets hit, they get hit hardest.
3. How are total output and total income related to each other and why?
They are both means of measuring the domestic product, and the total output should be equal to the total income.
4. Does a state sales tax function as a progressive, regressive or proportional source of revenue and why?
It works as a regressive tax because even though it is a fixed percentage for everyone in the state, the low-income earners find it more burdensome to part with that percentage than the others.

5. Why is it safe to assume that national defense will always be provided by the government instead of the market?
It is safe because the consumption of national defense does not depend on the ratio of contribution of an individual. Whether one pays taxes or not, they can benefit from national security because of the taxes that others pay. Free riding does not limit the amount of the good available for the taxpayers to consume either. Given the importance of national defense, it had a better stay that way than be delegated to the markets which often require people to rip only the share of what they sow.
6. Explain how discouraged workers either overstate or understate the unemployment problems?
Discouraged workers usually tend to understate the unemployment problem because they are not often incorporated in the government unemployment statistics. This makes the figures look lower than they are.
7. Based on the real interest rate, who tends to benefit from inflation regarding borrowing and lending?
By considering the areas of borrowing and renting, there is a realization that much of the benefits of inflation go to borrowers. When an individual borrows, for example from a bank, during an average period, and then there happens to be inflation, the borrower will end up paying money which is less worth, as per the real interest rates. Hence, there is much benefit to the borrower when there happens to be inflation. That is nominal interest are usually higher than the real interests when the rate of inflation is positive.
8. Why did the Full Employment and Balanced Growth Act establish 3% inflation as the benchmark rather than zero inflation?
The full employment and balanced growth act made an establishment of 3% inflation rather than zero inflation out of the considerations for the benefits of the citizens. With an inflation rate of between 2 to 5%, there seemed to be increased economic growth and a sharp decline in unemployment rates. Therefore, the crafters of the act felt that 3% was a good inflation target for any economy that wanted to enjoy these successes.
9. If the economy is in equilibrium, how can a recessionary gap exist and how will producers respond to this gap?
Though recessionary gaps are associated with a downturn in the economy, they can stay stable for a duration of time. This period represents a short time of economic equilibrium that is lower than the ideal equilibrium and which can be just as destructive to the economy as a period of instability.
10. How does the multiplier process work when there is an initial decrease in autonomous spending?
The principle dictates that slight changes in shocks like autonomous expenditure result in relatively more significant variations in the average income and production. An initial reduction in autonomous spending is likely to lead to unsold products. Producers might then be forced to lower production hence lay off some staff. This will, in turn, lead to reduced consumption which will lead to sales. The multiplier process continues until equilibrium is regained.
11. How can actual investment be greater than desired investment and what type of gap is the economy experiencing when this occurs?
Actual investment can be greater than the desired investment when there happens to be a slow movement of the goods such that the stocks do not move as fast as expected. Such a phenomenon mostly occurs when there is a gap in the stability of the economy especially towards recession; which affects the buying power of the citizens.
12. If consumers increase savings during a recession, what will this do and why?
When consumers increase savings during the recession, the recession will worsen. This increment emanates from the failure of the people to consume what is available in the market. During the recession, people usually think that they are helping the economy by saving, yet, such directions bring the economy down further. When people spend less money, the average demand goes down. When the average demand goes down, production is likely to reduce, and workers are likely to be laid off. As a result, the incomes of various households will go down, and the recessionary gap will widen.
13. Why is there a difference in the fiscal impact of a $100 increase in defense spending versus a $100 increase in Social Security payments?
The fiscal impact of US $100 increase in defense spending is different from $100 increase in social security payments because; the expenditure in defense gives a chance for increment in the economic production. On the other hand, the rise in social security only serves to solve the problem at hand with no creation of room for further production.
14. Why is the tax cut multiplier different from the spending multiplier?
The tax cut multiplier tries to determine how much the consumers might spend if the government reduces taxes. It raises both consumer spending and disposable income. However, consumers only spend a section of the amount and save the remainder. Spending multiplier, on the other hand, is evident when increased spending leads to increased consumption and increased income.
15. What will happen to the economy if the government increases spending and increases taxes to pay for that additional government spending?
If the government raises its spending and its taxes to cater for the excess spending, there would be an improvement in the economy. Increased spending directly adds to the country’s GDP while the taxes decrease the GDP. However, the taxes help sustain other sectors of the economy, plus they would have otherwise been spent and not saved; therefore, the overall effect is a growth in the economy.
16. What is the cyclical deficit and when is it appropriate to have such a deficit? Why?
Cyclical deficit refers to the gaps that occur from economic downturns. Such differences happen when there are economic recessions which lead to ills such as loss of jobs. At such times, there would be much likelihood of government receiving less revenue than the requirements of its spending. It is appropriate to have cyclical deficits during recessions to help in rescuing the economy.
17. How do automatic stabilizers, on both the expenditure and revenue sides of the budget, respond during a recession?
During a recession, automatic stabilizers respond by dampening the fluctuations in the gross domestic product through balancing the national income with the federal spending. This turn is similar for the expenditure and the revenue sides of the budget.
18. Explain the difference between discretionary and automatic spending by the government.
Discretionary spending refers to the type of government spending that gets direction from the appropriations bill. This kind of expenditure forms part of the discretionary fiscal policy. Automatic spending, on the other hand, refers to the automatic changes in the taxes and government expenditure following economic situation which automatically helps reduce inflation and unemployment.
19. Assume a new bank has just opened for business. It has deposits of $1,00,000 and a required reserve ratio of 15%. How much can this bank lend and why?
A new bank with a deposit of $ 1000,000 and a required reserve ratio of 15% ought to lend out up to $ 850,000. This is the amount of the bank holding less the percentage of the reserve ratio.
20. Is the Federal Reserve insulated from political pressures in any way? Explain
To ensure the stability of the economy of any given country, it is essential that there is the protection of fiscal reserves from political pressures. There is insulation of the federal reserve from political interference in that; there is shielding of the decisions concerning the pool from influences of political realm including the resident. There is the attainment of high independence of the Federal Reserve, hence high security. Such shielding from the political interference ensures prioritization of the wellbeing of the citizens rather than the interest of the political class.
21. How can the Fed increase the level of output for the economy through open market operations?
The Fed can increase the level of output for the economy through open market operations in various ways. Trading of federal securities in the confines of the free market, other than in secrecy with the aim of expanding or contracting some funds in the banking system, goes a long way in increasing the level of output. Such open markets operations ought to follow the right surveys to reach the intended goal. There must be working closely with the links of the Federal Reserve in a bid to ensure that the open market operations tackle the ills that are current in the market while at the same time increasing the potentials of gains.
22. Is it possible for GDP to increase but the standard of living to decrease?
In the rational expectations, when there is an increase in the GDP, there is an increment in the living standards of the citizens. However, it can also happen that there is an increase in the GDP while the stands of life reduce. The flaw occurs in the limitations of the GDP whereby; there is an omission of other essential factors in the calculations of the standards of living such as the technological influence.
23. What is the single most difference between public and private sector budgets?
The single most important difference between public and private sector budget is the purpose whereby; the private sector aims at making the maximum profit while the public budgeting aims at ensuring the stability of the economy, such that there is a sealing of loopholes and mitigation for recession.