If reserves decrease by $4 million and the required reserve ratio is 10 percent, what is the change in the money supply?
> Explain the classical view of the credit market. 1 $100,000 $120,000 Dollars Saved or Invested Interestrates 3.
> If the economy is in an inflationary gap, where is it located with respect to both the institutional PPF and the physical PPF? LRAS Physical PPF SRAS, Institutional PPF D AD. Real GDP Real GDP Good X Price Level All Oth er Goods
> Flexible wages play a critical role in removing an economy from a recessionary gap. Do you agree or disagree? Explain your answer.
> Explain and diagrammatically represent how a self-regulating economy removes itself from an inflationary gap.
> Explain and diagrammatically represent how a self-regulating economy removes itself from a recessionary gap.
> Explain what happens to U.S. net exports and to U.S. aggregate demand as the dollar depreciates.
> Explain and diagrammatically represent the difference between equilibrium in the short run and in the long run using the AD-SRAS-LRAS model.
> Buyers always prefer lower prices to higher prices. Do you agree or disagree with this statement? Explain your answer.
> How will either the AD curve or SRAS curve shift as a result of each of the following changes: a. A rise in the interest rate b. An adverse supply shock c. A rise in wealth Price Price Price SRAS, SRAS, -> AD2 AD, AD, AD, Real GDP (b) Real GDP (a)
> Suppose that business taxes and wage rates decline and that any change in aggregate demand is greater than any change in short-run aggregate supply. Explain and diagrammatically represent the changes in the price level and Real GDP in the short run.
> Explain how the real balance effect works? Price $170 $150 AD Q, Q: Real GDP
> A good that is produced but not sold is still counted in GDP using the expenditure approach to computing GDP. Do you agree or disagree with this statement? Explain your answer.
> Explain the expenditure approach to computing GDP.
> If country A’s GDP is higher than country B’s GDP, does it follow that country A has a higher per-capita GDP than country B? Why or why not?
> Why are the sales of used goods omitted from GDP?
> Give an example that illustrates double counting.
> Is the sum of the unemployment rate and the employment rate equal to 100 percent? Why or why not?
> Six million persons are unemployed, and 60 million persons are employed. If the natural unemployment rate is 5 percent, what does the cyclical unemployment rate equal?
> Explain why fewer exchanges are made when a disequilibrium price (below equilibrium price) exists than when the equilibrium price exists.
> What is the difference between a person who is frictionally unemployed and one who is structurally unemployed?
> If nominal income is $55,000 in the current year and the CPI in the current year is 120, then what does real income equal in the current year?
> The market basket consists of 10A and 20B. The prices of A and B in the current year are $2 and $4, respectively. The prices of A and B in the base year are $1 and $2.50, respectively. What is the current-year CPI?
> Freeway congestion (at certain times of the day) is the result of a disequilibrium price (below equilibrium price) being charged to drive on the freeway. Do you agree or disagree? Explain your answer. Price Dza.m. D7 a.m. S $1.25 500 800 Freeway mil
> Renters always are better off if they have more rather than fewer days to vacate the premises after receiving an eviction notice. Do you agree or disagree? Explain your answer. Rent S2(Law: 200 days) S:(Law: 10 days) R2 R Apartments
> The schools on the east side of town are considered better schools than the schools on the west side of town. Will this fact affect house prices on each side of town? Explain your answer.
> Two colleges, A and B, that have the same number of openings for the first-year class and charge the same tuition. At college A, the standards of admission are higher than at college B. Explain why. Tuition SAB DA No. of 200 290 420 Openings
> Can the absolute price of a good rise at the same time as its relative price declines? Explain your answer.
> Are there more or fewer exchanges at a price floor than at equilibrium price? Explain your answer.
> The absolute price of X is $40 and the absolute price of Y is $10. What is the relative price of X in terms of Y? What is the relative price of Y in terms of X?
> James lives in a rent-controlled apartment and has for the past few weeks been trying to get the supervisor to fix his shower. Why does waiting to get one’s shower fixed have to do with a rent-controlled apartment?
> What will happen if businesses become optimistic about future sales at the same time that there is an increase in wage rates, and AD shifts by less than SRAS shifts? The price level will _______________ and Real GDP will _______________.
> Prove diagrammatically that a price floor reduces consumers’ surplus.
> Prove diagrammatically that a minimum wage (set above the equilibrium wage) reduces employment.
> Suppose demand increases more than supply increases. Represent diagrammatically what happens to equilibrium price and quantity.
> If the supply of a good declines, what happens to consumers’ surplus? Explain your answer and represent it diagrammatically.
> What is the difference between a change in demand and a change in quantity demanded? Between a change in supply and a change in quantity supplied?
> Does an increase in income always shift demand curves (for goods) to the right? Why or why not?
> Explain how to derive a market demand curve and represent your explanation diagrammatically.
> Suppose both demand and supply rise, but equilibrium price does not change. Why? Explain your answer and represent it diagrammatically.
> A country is currently experiencing a high unemployment rate. Diagrammatically represent the country within a PPF framework of analysis.
> Illustrate scarcity, opportunity cost, and economic growth within a PPF framework of analysis.
> Many of the proponents of price ceilings argue that government-mandated maximum prices simply reduce producers’ profits and do not affect the quantity supplied of a good on the market. What must the supply curve look like before a price ceiling does not
> Based on the data below, identify which good each person has a comparative advantage in producing. a. Person A can produce the following three combinations of goods: (1) 10X and 0Y, (2) 5X and, (3) 0X and 10Y. b. Person B can produce the following t
> What does a PPF that is bowed outward imply about the opportunity cost of production?
> Explain how to derive a production possibilities frontier (PPF).
> Complete the following table: Federal Reserve Action Effect on the Money Supply (up or down?) Lower the discount rate Conduct open market purchase Lower required reserve ratio Raise the discount rate Conduct open market sale
> If the federal funds rate is 6 percent and the discount rate is 5.1 percent, to whom will a bank be more likely to go for a loan, another bank or the Fed? Explain your answer.
> If reserves decrease by $3 million and the required reserve ratio is 8 percent, what is the change in the money supply? What does the simple deposit multiplier equal?
> Reserves change by $10 million and the money supply changes by $50 million. What does the simple deposit multiplier equal? What does the required reserve ratio equal?
> If reserves increase by $2 million and the required reserve ratio is 10 percent, what is the change in the money supply?
> If reserves increase by $2 million and the required reserve ratio is 8 percent, what is the change in the money supply?
> Think of ticket scalpers at a rock concert, a baseball game, and an opera. Might they exist because the tickets to these events were originally sold for less than the equilibrium price? Why or why not? In what way is a ticket scalper like and unlike your
> If excess reserves are $2 million and required reserves are $22 million, then how much do reserves equal?
> If checkable deposits are $20 million and the required reserve ratio is 15 percent, how much do required reserves equal?
> Currency held outside banks is $100 billion, money market mutual funds (retail) are $120 billion, small-denomination time deposits are $50 billion, and savings deposits (including money market deposit accounts) are $200 billion. How much does M2 equal?
> If currency held outside banks is $200 billion and M1 is $600 billion, do we know for sure how much checkable deposits equal? Why or why not?
> Currency held outside banks is $400 billion, checkable deposits amount to $350 billion, traveler’s checks are $2 billion, and money market mutual funds (retail) are $100 billion. What does M1 equal?
> A bank currently has $100 million checkable deposits, $4 million in reserves, and $8 million in securities. If the required reserve ratio is 10 percent, is the bank meeting its legal reserve requirements? Explain.
> A bank’s assets are $90 million, and its liabilities are $71 million. Its assets increase by 10 percent, and its liabilities increase by 6 percent. What is the percentage change in the bank’s capital, or net worth?
> The required reserve ratio is 9 percent, required reserves are $10 million, and (total) reserves are $50 million. How much do excess reserves equal? How much do checkable deposits equal?
> If bank deposits at the Fed equal $40 million and reserves equal $43 million, then how much does vault cash equal?
> Checkable deposits are $50 million, and required reserves are $4 million. What is the required reserve ratio?
> Should grades in an economics class be “rationed” according to dollar price instead of how well a student does on the exams? If they were and prospective employers learned of this, what effect might this have on the value of your college degree?
> Illustrate the following graphically: (a) Fiscal policy destabilizes the economy. (b) Fiscal policy eliminates an inflationary gap. (c) Fiscal policy only partly eliminates a recessionary gap.
> Illustrate graphically how government can use supply-side fiscal policy to get an economy out of a recessionary gap.
> A hypothetical society has three income earners, and all three must pay income taxes. The taxable income of Smith is $40,000, the taxable income of Jones is $100,000 and the taxable income of Brown is $200,000. (a) How much tax revenue is raised under a
> What is the average tax rate of someone with a taxable income of $13,766?
> What is the marginal tax rate on the 10,001st dollar? What is the marginal tax rate on the 10,000th dollar? Taxable Income Taxes $1,000-$5,000 10% of taxable income $5,001-$10,000 $500 + 12% of everything over $5,000 $10,001-$15,000 $1,100
> If a person’s income is $14,000, how much does she pay in taxes? Taxable Income Taxes $1,000-$5,000 10% of taxable income $5,001-$10,000 $500 + 12% of everything over $5,000 $10,001-$15,000 $1,100 + 15% of everything over $10,000
> If a person’s income is $6,000, how much does he pay in taxes? Taxable Income Taxes $1,000-$5,000 10% of taxable income $5,001-$10,000 $500 + 12% of everything over $5,000 $10,001-$15,000 $1,100 + 15% of everything over $10,000
> In the accompanying figure, if Natural Real GDP is Q2, in what state is the economy at point A? 45° Line B. TE = C +1+ G A E Q3 Q2 Real GDP
> In the accompanying figure, explain what happens if: a. The economy is at Q1 b. The economy is at Q2 45° Line B. TE = C + I+ G A E Q3 Q2 Real GDP ТР, ТЕ
> In Exhibit 11(d), what does the vertical distance between the origin and the point at which the TE curve cuts the vertical axis represent?
> What kind of information does price transmit?
> The TE curve in Exhibit 11(d) is upward-sloping because the consumption function is upward-sloping. Explain.
> Use the accompanying figure to explain the following two statements: (a) According to Keynes, aggregate demand may be insufficient to bring about the full-employment output level (or Natural Real GDP). (b) A decrease in consumption (due to increased s
> Economist Smith believes that changes in aggregate demand affect only the price level and economist Jones believes that changes in aggregate demand affect only Real GDP. What do the AD and AS curves look like for each economist?
> Write an investment function (equation) that specifies two components: (a) Autonomous investment spending (b) Induced investment spending
> Compute the multiplier in each of the following cases: (a) MPC = 0.60 (b) MPC = 0.80 (c) MPC = 0.50
> Diagrammatically represent an economy in a recessionary gap. Next, identify where the economy in a recessionary gap lies in terms of both the institutional and physical PPFs.
> Diagrammatically show what happens when the institutional constraints in the economy become less effective.
> Economist Jones believes that there is always sufficient (aggregate) demand in the economy to buy all the goods and services supplied at full employment. Diagrammatically represent what the economy looks like for Jones.
> Represent the following situations diagrammatically: (a) An economy in which AD increases as the economy is self-regulating out of a recessionary gap, (b) An economy in which AD decreases as the economy is self-regulating out of an inflationary gap.
> Which of the following figures, (a)-(c), is consistent with or representative of: (a) The economy operating at the natural unemployment rate, (b) A surplus in the labor market, (c) A recessionary gap, and (d) A cyclical unemployment rate of zero.
> If the absolute price of good X is $10 and the absolute price of good Y is $14, then what is; (a) The relative price of good X in terms of good Y (b) The relative price of good Y in terms of good X?
> In the following figure, which point is representative of: (a) The economy on its LRAS curve, (b) The economy in a recessionary gap, and (c) The economy in an inflationary gap? E Physical PPF D Institutional PPF Good X All Other Goods
> In the following figure, which part is representative of each of the following: (a) A decrease in wage rates, (b) An increase in the price level, (c) A beneficial supply shock, and (d) An increase in the price of non-labor inputs.
> Diagrammatically represent the following and identify the effect on Real GDP and the price level in the short run: (a) An increase in SRAS that is greater than the increase in AD; (b) A decrease in AD that is greater than the increase in SRAS; and (c)
> Diagrammatically represent the effect on the price level and Real GDP in the short-run of each of the following: (a) An increase in wealth, (b) An increase in wage rates, and (c) An increase in labor productivity.
> Suppose that at a price index of 154, the quantity demanded of U.S. Real GDP is $10.0 trillion worth of goods. Do these data represent aggregate demand or a point on an aggregate demand curve? Explain your answer.
> The following figure shows a business cycle. Identify each of the following as a phase of the business cycle: (a) Point A (b) Between points A and B (c) Point B (d) Between points B and C (e) Point D B Time Real GDP
> If Real GDP is $487 billion in year 1 and $498 billion in year 2, what is the economic growth rate equal to?
> Consumption spending flows into U.S. product markets but import spending does not. But U.S. households buy imported goods in U.S. markets, don’t they? Explain.
> Nondurable goods spending = $400 million, durable goods spending = $300 million, new residential housing spending = $200 million, and spending on services = $500 million. What does consumption equal?
> In year 1, the prices of goods X, Y, and Z are $2, $4, and $6 per unit, respectively. In year 2, the prices of good X, Y, and Z are $3, $4, and $7, respectively. In year 2, twice as many units of each good are produced as in year 1. In year 1, 20 units
> “If price were outlawed as the rationing device (used in markets), there would be no need for another rationing device to take its place. We would have reached utopia.” Discuss.
> Inventory investment is $62 billion and total investment is $1.122 trillion. What does fixed investment equal?
> Consumption spending is $3.708 trillion, spending on nondurable goods is $1.215 trillion, and spending on services is $2.041 trillion. What does spending on durable goods equal?
> Net exports are –$114 billion and exports are $857 billion. What are imports?
> Using the following data, compute (a) the unemployment rate, (b) the employment rate, and (c) the labor force participation rate. The civilian noninstitutional population = 200 million, number of employed persons = 126 million, and number of unemployed p
