practice exam 2

practice exam 2 - Long Problems SHOW WORK – SERIOUSLY...

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Economics 2020 Practice Problems for Exam II Concept questions: 1. Explain irrelevance theory and its problems. 2. How do taxes on savings affect the loanable funds market? 3. How do taxes on investment affect the loanable funds market? 4. How do government budget deficits affect the loanable funds market? 5. What are the 4 roles of money? 6. What are the differences between the actual and the real money multiplier? 7. Explain the tools of the Fed, and when they are likely to use them. 8. Discuss the differences in the effectiveness and efficiency between government investment and private investment (you should explain at least 3 major differences). 9. Explain why government investment and government consumption are necessary at all for increasing future productivity.
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Unformatted text preview: Long Problems ( SHOW WORK!! – SERIOUSLY, YOU’LL LOSE POINTS IF YOU DON’T!!) : For the long problems, you should round all numbers except populations to two decimal places. This includes percentages (e.g. 0.08735 is 8.74% not 9%). Population numbers should be rounded to whole numbers. 10. Suppose that the reserve requirement for checking deposits is 5% and that banks hold no excess reserves (i.e. use the potential money multiplier) a. If the Fed buys $1 million of government securities, what is the effect on the money supply? b. Now suppose the Fed raises the reserve requirement to 8%, what is the change in the potential money multiplier and by what percentage would the money supply change?...
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