ECON 736 UCLA Statistics Analytical Worksheet

Read these instructions very carefully!! You will be held to these expectations.

The purpose of this analytical assignment is to allow you an opportunity to demonstrate your fluency with the economic concepts and models that we have covered to date in the class. In particular, it requires you to demonstrate your ability to apply the models for analysis and inference.

Assignment Expectations:

There are Read these instructions very carefully!! You will be held to these expectations.

The purpose of this analytical assignment is to allow you an opportunity to demonstrate your fluency with the economic concepts and models that we have covered to date in the class. In particular, it requires you to demonstrate your ability to apply the models for analysis and inference.Assignment Expectations:There are four questions in this Analytical Assignment. Each question is worth the same – 10 points. You should answer all four. Answer ONLY what the question asks, as points are not awarded for verbosity!   For any questions that require algebraic and numerical calculations:Show your calculations, and not just the answer in your write up.

You may use your lecture notes and the textbook.

Please submit a Word or pdf document that contains your solutions to the submission folder here. Handwritten solutions are also accepted as a pdf file. t. Each question is worth the same – 10 points. You should answer all four. Answer ONLY what the question asks, as points are not awarded for verbosity!   For any questions that require algebraic and numerical calculations:Show your calculations, and not just the answer in your write up. Business Conditions Analysis
ECON 736
Analytical Assignment #3
Professor Yamin Ahmad
Instructions:
There are four questions in this Analytical Assignment. Each question is worth the same – 10
points. You should answer all four. Please be concise in your answers. Answer ONLY what the question
asks, as points are not awarded for verbosity! You should limit your answers to each question to a
single page.
For short answer questions:
You should limit your answers to each question to a single page. As a general hint for these types of
questions, try to relate the context of the questions to any of the models that we have studied in lectures
to try and maximize points. Where appropriate, use graphs and equations to help elucidate your answer!
For questions that require calculations: show your calculations, and not just the answer.
You may use your lecture notes and the textbook.
You may not work with anyone else on this assignment. Your submission must be put into the
appropriate submission folder by the assignment deadline indicated within Canvas. Please
include and sign the agreement below when turning in the assignment into the relevant Canvas
submission folder.
Agreement: All of the work on this exam has been done independently by myself, without consulting
any other students in this class or faculty in other classes. As presented in class, the essays may be
done with a referral to formulae, but all of the written material in the essay is original, “synthetic”
independent work, with no copying of published or unpublished material. I attest that this assignment
has not been copied or distributed in any part or form.
Name (Please Print): _________________________________
Student Id#: ____________________
Signature: ____________________________________
Date: __________________________
[For electronic submissions, please put your initials in the signature space above to indicate acquiescence
to the agreement above.]
Econ 736 Analytical Assignment #3
1. (10 points) Evaluate the following statement using the models studied in class: “A fiscal
expansion will always reduce investment in an economy”. Is this statement true or false, and
why?
2. (10 points) If the government wants to reduce the budget deficit, how can the central bank
keep the economy from going into a recession? Use the closed economy IS‑LM model to
illustrate graphically the impact of both the fiscal policy reducing the deficit and the monetary
policy, which prevents output from falling. Be sure to label:
i. the axes;
ii. the curves;
iii. the initial equilibrium values;
iv. the direction the curves shift; and
v. the terminal equilibrium values.
3. (10 points) Using the AD/SRAS/LRAS model (with the sticky price version of the SRAS
model), graph the impact of the coronavirus (COVID‐19) on the US economy. What should
happen to output and inflation in the short run? In the absence of policy intervention (by
either the fiscal or monetary authorities), what would happen to output and inflation in the
long run?
4. (10 points) Consider the inflation and unemployment data in the table below for the United States
between 1990 and 2005.
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Unemployment
U
5.6
6.9
7.5
6.9
6.1
5.6
5.4
4.9
4.5
4.2
4.0
4.7
5.8
6.0
5.5
5.1
Natural Rate
Unemployment
Un
6.1
6.4
6.5
6.4
6.2
5.8
5.4
5.0
4.8
4.6
4.6
4.8
4.9
5.0
5.1
5.2
Inflation
5.4
4.2
3.0
3.0
2.6
2.8
3.0
2.3
1.6
2.2
3.4
2.8
1.6
2.3
2.7
3.4
You may assume that Okun’s Law holds true (i.e. 1% of unemployment is approximately equal to 2% of
lost output). Recall that the sacrifice ratio is calculated as:
Econ 736 Analytical Assignment #3
Sacrifice Ratio 
Lost Output
 Inflation
Using the data above, calculate the sacrifice ratio for the US economy between the 1990‐2005 period
(overall).
What value would the sacrifice ratio be under adaptive expectations? What value would it be under
rational expectations? Based on the answer you calculated above, can you say anything about whether
people in the economy form expectations based on rational expectations or adaptive expectations? [Note:
you do not have to calculate the value of the sacrifice ratio under adaptive or rational expectations here;
rather, you may simply state what values they would be.]