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# BSP2001

MACRO&INTERNATIONALECONOMICS

SEM22014/2015

## (Cover page to accompany every submission of assignment)

COVER PAGE

Team Submission: Drop-Off Box @ Department of Strategy & Policy BIZ 1/#6-48
*Late submissions will be penalized*

## Tutorial Group : ________________________________________________

(eg: G01 Tuesday 2pm-3pm)
Date:
Assignment #
Team #

Team Members

Matric Number

## Marks: ____________ (out of a maximum score of 10)

BSP2001

MACRO&INTERNATIONALECONOMICS

SEM22014/2015

Assignment #5

## DUE: 5 MAR THURSDAY BEFORE 12 NOON

*Late submissions will be penalized*
Team Submission: Drop-Off Box @ Department of Strategy & Policy
BIZ 1/#6-48

Instructions
Please include COVER PAGE (see page 1).
All assignments are to be TYPED. Hand-written assignments will NOT be

BSP2001

MACRO&INTERNATIONALECONOMICS

SEM22014/2015

Question 1
Given the following information:
Inflation rate (annual %)
2005

2006

2007

2008

2009

2010

2011

2012

Singapore

0.43

1.02

2.10

6.52

0.60

2.80

5.25

4.53

USA

3.39

3.23

2.85

3.84

-0.36

1.64

3.16

2.07

2005

2006

2007

2008

2009

2010

2011

2012

Singapore

4.10

3.60

3.00

3.20

4.30

3.10

2.90

2.80

USA

5.10

4.60

4.60

5.80

9.30

9.60

8.90

8.10

Unemployment Rate %

## Source: World Bank

a) Describe briefly the trends of inflation rate and unemployment rate during this period for
both Singapore and USA. What are some factors that may account for these trends?
b) Plot the Philips curves for both Singapore and USA. Is there any relationship between
inflation and unemployment for both countries during this period?
c) Assume that the natural rate of unemployment is 5% for USA. Use Okuns Law: (Y Y*)/Y*
= -2(u u*) to calculate the % output gap for 2007 and 2008. In which of 2007 and 2008 did
USA experience a recessionary gap?
d) According to Okuns Law: (Y-Y*)/Y* = - (u-u*), why are changes in the output gap larger
than changes in the unemployment gap (alternatively, explain intuitively why > 1)?

BSP2001

MACRO&INTERNATIONALECONOMICS

SEM22014/2015

Question 2
(Please do not exceed 2 pages when answering this question Point form is accepted)
WASHINGTON Congress on Friday approved a \$787 billion economic stimulus measure,
of President Obamas early agenda but without quelling partisan divisions in Washington. Not a
single House Republican voted for the bill.
Despite the bills promise of increased unemployment benefits and new health care subsidies,
as well as more than \$100 billion in aid for states, House Republicans did not break rank. Even
those from states hit hardest by the recession opposed the bill, in a rebuke of the new president.
During the debate, the Republican leader, Representative John A. Boehner of Ohio, angrily
dropped the 1,073-page bill text to the floor with a thump, as he accused Democrats of failing to
jobs, Mr. Boehner said after the vote. Jobs. Jobs. Jobs. And what its turned into is nothing
more than spending, spending and more spending.
The \$787 billion plan a combination of fast-acting tax cuts and longer-term government
spending on public works projects, education, health care, energy and technology was smaller
than Democrats first proposed. But, according to an analysis by the Congressional Budget Office,
more than 74 percent of the money will be spent within the next 18 months, a relatively rapid
pace that could determine whether the plan succeeds.
The House voted in the afternoon, and Speaker Nancy Pelosi and fellow Democrats cheered on
the floor. Ms. Pelosi handed out chocolate bars to her committee chairmen. The label showed a
picture of the Capitol and read, A stimulus package we can all sink our teeth into. At a news
conference, Ms. Pelosi and her top lieutenants praised Mr. Obama for completing the legislation
so quickly. The president requested swift, bold action, Ms. Pelosi said. The American people
are feeling a great deal of pain. They have uncertainty about their jobs, about health care, about
the ability to pay for the education of their children, and sad to say in our great country, even to
put food on the table. And today we have passed legislation that does take that swift, bold action
on their behalf.
Source: New York Times, 2009
a) The Obama economic stimulus package was implemented in response to the financial market
crisis. Explain briefly what caused the financial market crisis.
b) Given part a), did the financial market crisis cause a recession in the USA?
c) Is the Obama economic stimulus package considered to be a fiscal policy? How did it affect
the USA economy? Explain briefly.
d) Discuss briefly some differences or similarities between fiscal policies used in USA and
Singapore.
4

BSP2001

MACRO&INTERNATIONALECONOMICS

SEM22014/2015

MCQ1
A recession occurs when _______.
A) unemployment rate is less than the natural rate of unemployment.
B) unemployment rate is falling over time.
C) All of the above.
D) None of the above.

MCQ2
Which of the following will most likely occur in the labor market during a recession?
A) The growth of real wages falls.
B) Bonuses and promotions become more frequent.
C) New entrants to the labor market are able to find jobs easily.
D) Demand of labor rises.

MCQ3
The following data gives the dates of successive turnings points in economic activity and the
corresponding real GDP levels at the time:
Turning Point
A
B
C
D
E

Date
July 1983
May 1984
April 1987
May 1988
April 1990

1993
1942
2183
2120
2390

## Which of the turning points are peaks?

A) B, D
B) A, B, C
C) A, C, E
D) C, D, E

BSP2001

MACRO&INTERNATIONALECONOMICS

SEM22014/2015

MCQ4
For policymakers the problem with a recessionary gap is ______ and the problem with an
expansionary gap is _____.
A)
B)
C)
D)

## a tendency for inflation to develop;

wasted resources;
an increase in cyclical unemployment;
an increase in cyclical unemployment;

wasted resources.
a tendency for inflation to develop.
wasted resources.
an increase in structural unemployment.

## MCQ5 (*Past-year Exam Question)

The natural rate of unemployment will most likely increase if _______.
A) unemployment benefits are increased.
B) cyclical unemployment is increased.
C) All of the above.
D) None of the above.

THE END