I F yalr 2 Sample Questions Itlentify and explain the significance of I Inventory adjustuent mechanism ruo I y aGDP f b Excess t ffi Y 0 wl w v Y Reserves I 24 a VO TvX Tl c Thre ca n t o x t l a l Lt rd a Ms EF f loyment aa 2r LbB lh tr almL l tLt7iu L rnL f c t n 1 offu P a4 d inventory adjustnent mechanism e Quantif theory of moneY f Frictional unemplolment g eflects ofunanticipated inflation on creditors h Three functions of moneY a 1 gcljo o aa o u v fr t r ff D i Default risk t Y u u sfroa 1 of va 4 j ConsumerWealth P f Do k how inflation affects creditors WaAa I ofMoneytoexprain Z the Federal Reserve Board of Governors what three policies would o fffiJ l iks 1 iT9 n l a k4 q4 usi g money andbondmar et TT 3 ffi roo suggestedoqenlarketoperatio r S r 0 l ffi fu L fof L n ALL l 7 ry effects lth I 4of l j Pto ulTFto Assume a the economy is inilially in equilibrium nl lsninflationary firll emplolment GDP biilion and E Y due to terorist attacks the consumption firnction shifts downward by 100 J J c LX l illustrate and explain the probable macroeconomic effects of ttre decline in AC Ipo t LY J o g a fe oS ldJ t l circumstan to restore full employrhent full employrirent ftddr Sddr the circumstances 1 Y o k w4 l 4 ac soa e U Ln iw Ln t rn Ac thl o Yl ii6c s z oY tlc o I afd aTf c6 I u t fl3l lr t o Ti J1 b marginal propensity to consume is 0 8 Using a Keynesian total expenditure TB laggregate Asr Pi tf 16 0e ey Y h 1 F j 4 W nfl Dfr rv a l tua r 42 AA T t tr fz aatt A k7rr t r g N lnr an frs A W grob Eorr r 4 o yt g P l u vr tl orclt rwarnda 4 r F r ry markets your answer with diagfams of the money and bond rzyti ru d Lur or re n tz t ro wlooNr 3 I l4o tlol 0 GDP gap of o i i t D L tt olia eu q rfr t td V ll Iu billion Now suppose that MPC s oar a v a 4 qa r J government spending G is increased by 2 billion and at the same time taxes T are decreased aG f5 VzvS io Sz billion Will this combination of policies restore noninflationary full emplolment GDP aT l i hbtew o t ff Why or why not Show your calculations and illustrate your answer graphicatly I PC r tri r r J Y O government spending G is cut by 8 billion c taxes T are cut by 10 billion and d 1o t h cl ev4L lrf marginal propensity fn nncrrmp fl r PC Uthe n pncifrr to consume MPC ot AA S l tDn a7 io ll te n9a O 0 8 Using your knowledge of the government spending and tax multipli e in government spending then calculate the ch t h tlc r e k Mq oA 8 i 4o ttl W tal Expenditure TB laggregate supply A56 iot 1 g experiencing after these t eDP k o M re tv r l J laggegate wlthclrawals diagram W illustrate and briefly explain the combined effects of tax cuts banees Wh ffJ Tffi lJJ ulterest reacted ilr ruTT Tn 1T T the li ffi t rates When the market crash wiped out consumer wealth n 1929 however the Fed bv raising interest rates Many economists believe this credit tightening made the verall economic activity u o o r aC oBs 1W h I K ipore W 7 I 1 r 11 initially that velocity V is cons L l e n Tf L l l uF T Qumtrviicu lo p t tl a U l wzo ToDM o s cts oTinflatlbn Be the effects ofinflation on debtors and creditors c Yd C Ft D e Fb r L woa ff WaLr rt Wzofrr Ytrto7 lt tw r L SiL A i ri y v l rJw2 A t i oL va Lu r f u4 t e u44 t FaLrrI f la tvg relutc i ryc 7 ta tQ I 1r r fut c roo tana O lain m O Yff A i L o s fnur a 4 w f L n L t ho S tJ t 1 9otT t Mo 1t J L 6r r Xo J I g tX V Jt l cfl recentlyproposed a 25 billion tax cut Congressional Democrats recently proposed a 50 billion increase in govemment spending cDP CYl o l ao a 4 t ad io o no minal macroeconomic 13c 6 xIo d o aY aY r t aYS n TIo at firll employment Y what o SttLtort problem will these policies qeate V hy Y a tf nD t fta u n fu of i Using a Keynesian aggregate injections J aggregate withdrawals W diagram illustate the combined effects of these policies 14 following Some Clinton Adminishation officials have urged the Federal to lower interest rates in an affempt to increase the growth rate of real oueut These officials claim that real grouth will accelerate while inflation leanins at its current rate about3o o per year Fed Chairman Alan Greenspan has rejected the Administration s proposals Consider the Reserve Fed monetary same arguing that such expansionary sult intrigher output gowth remains the P l4a 4 Use the Quantrty Theory Greenspan s of Money to contentions 5 7 44 I l o analyze the Administration s and Chairman cn fo a t Ye Y r t Mtt T A v o4 Ba aL rl1 A t Yt y r firt I l p tr 14b If the Fed decides to lower interest rates what open market operations would they use Illustate these expansionary open market operations using supply demand diagrams of the moneyandbondmarkets ir Wa a irir oAt FoLr r ro c 8 lnr tor oy oya o ffi l K rnS y that government spending G and taxes T are increased by the same amount Show L f it Pc f j Tuppose trt zP urknowledgeof thegovernmentspendin mc andtax mrax multipliersinpredictingtn fl a6 lt4Pc at effectsofthisequalincreaseinGandTon ominalgrossdomesticproduct Y Whqt if ov btV L macroeconomicprob gmwou resultfromthesepolicychangqs ll4uruEuullu trtuploute lwoul reSUItIromInesepOXCyCnanFeS rr A Artc Why W ny 1 MIC l l suppose o Mfo l ag af6 aT l q ft aYs a6 1rtu A Mo tffC jq MPg aJ 016 Whatarethethreet1pesof ptoy Jls i d ffi id rvv uurvu l vw ruPPu e ul4llYlr J o 1utt klxcs IJ iale AeCreASeQ Oy DfUU OIIIIOIIWIUI 4f l p A the sante time government spending G is decreasedby 100 billion Iill this combination of I policies restore noninflationary GDP at Y answer with a Keynesian TE aggregate supply withdrawals W Hinf calculate TE Show ail …