HW3_ans

HW3_ans - University of Southern California Department of...

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Unformatted text preview: University of Southern California Department of Economics ECON 205 Principles of Macroeconomics Spring 2008 Prof. Safarzadeh Assignment # 3 Student Name: % I. In each problem below, the short-run equilibrium of the economy is illustrated by the intersection of the aggregate demand (AD) and the aggregate supply (AS), respectively. For any assumption given below, you are to illustrate the economy with the appropriately shaped AD-AS curves and the new equilibrium points. In each case, draw the shift(s) in the AD-AS curves which result from the exogenous actions taken and indicate in the space provided whether each variable will increase (+), decrease (—), remains unchanged (0), or have ambiguous Sign (1’). Please number the curves so that the direction of each shift will be clear. Mark the original equilibrium by El and the final equilibrium by E2 or E}. Unmarked graphs will be discounted in credit 1. Government increases spending, Plice Level Short—R1111 _—l-__ GDP U11e1nplo§unent J"— A D 2 Price Level —’l"——- Interest Rate —+— Investnlent —"‘"—¢IZ—‘2 Re 31 GDP 2. Fed increases money supply. Price Level Sher t —R111 1 __'l-_W .--- (EDP I_T11e111plo3111e11t Price Level 4;;— Interest Rate # Investment —""—— Re 511 GDP 3- Fed increases discount rate Price Level ___. GDP LTne;1nplog-111€nt #— P1‘ice Level ——""'— Interest Rate —"f“‘—- Iln‘estnlent "" Re :11 GDP 4- Consumer confidence is rising and stock market indiccs are increasing. Price Level Short—Run + GDP Unemployment —— Price. Level __—i*— A D 2 Interest Rate ‘4'“— Inverstlnent —d:Z——Z—"’ Re 31 GDP 5- The government proposed tax cut is approved by congress. Prme Level Short—R1111 __'i,—7 _-r GDP I_T116111]_J10}’111611f —— Price Level 4‘51“— In‘92 . _ Intmest Rate 4"}‘—‘— Inve-Htment L52; \ Re 31 GDP 6— To stimulate the economy government cuts taxes and Fed lowers discount rate, Price Level Short—Run _, _-\L_ (3-1)]? Pi A D Unemployment "’ A532 3 PriceLeve-l #'f Interest Rate ‘?—“—‘ 0 Investment +6144; Re 31 GDP 7- OPEC increases oil prices. Fed decreases discount rate. Price Level AS: Shun-R1111 7 GDP Unempleyment 42— ADE Price Level ——‘-£"— Interest Rate ‘— Inveetment W Real GDP 8- OPEC decreases oil prices. Government increases spending. Price Level Short—R1111 A 5 . _—\«_ 1 {3:313 4-— Unemployment 99 2 Price Level Interest Rate —+— Invesm‘ient Léé—Q— Re :11 GDP 9— Answer this question using the following graph. Price Level ll] 12 Real GDP a. in the aboVe figure, suppose that the economy is at point A when the quantity of money increases. In the short run, the economy will move to point B . At the new equilibrium price has increased by I Q % and real GDP has increased by _2Q%. The nominal GDP has increased by E 9%. b. Now. suppose that the economy is at point A when foreign countries begin an expansion and buy more US.— made goods. In the short run, this change creates a movement to point 3 and an eventual increase in m. A shift in AD from ADO to AD]. will result in what kind of inflation A shift in AS from SASo to SASl will result in what kind of inflation 4;: a 1'; w Qt g a 21 W . 11. Answer the following questions by filling in the blanks. 1. The three macroeconomic markets are M , fiéM'tXSc . Points on AD represent equilibrium in M 3, Mg market(s). 2 3. Points in AS represent equilibrium in M market(s). 4. AD/As equilibrium represents equilibrium in M 'z g 53 market(s). 5 . If actual GDP is less than potential GDP, the policy maker should adopt a(n) olicy. 6. If actual GDP is more than potential GDP, the policy maker should adopt a(n) olicy. 7. List two ex ansiona fiscal olic , . P W p y . .5, (K. L. 8. List two contractionary fiscal policy M, l 35% Efiég . 9. List two expansionary monetary policy ’ ,MIO. List two contractionary monetary policy R J flak _ 11. List two events that will expand economy w hout any Fed or government policy: , , JmW 6w STE—ole . 12. List two events that will contract economy without any Fed or government policy: l I I, g 54 5 Z; fié W ' 13. Classical economist believe that government should not “fine tune” the economy. In the classical model, what is the chain of events that will result in full-employment if the economy was in recession. as a 9% $42st 14. Classical economist believe that government should not “fine tune” the economy. In the classical model, what is the chain of events that will result in full-employment if the economy had inflationary 5: gap. E W fl =32 S aégggdeg 15. What does crowding out mean? W42, When does crowding out happen? W 9"." w W péfigazw ‘ 16. What does crowding in mean? “Ha e a é : l! a I 4 I 4\ When does crowding inhappen‘PWl’lm Mew/.1; (AA: 6;, W 3 ' 17. What is the effect of expansionary fiscal policy on real interest rate? r What is its effect on D nominal interest rate? g f 18. What is the effect of expansionary monetary policy on real interest rate? r, What is its effect on a nominal interest rate? 4 z 19. What is the effect of expansionary monetary and fiscal policy on inflation? l . 20. What is the effect of expansionary fiscal policy 011 real GDP in the short-run? . 211 What is the effect of expansionary fiscal policy on nominal GDP in the short-run? 4 . 22. What is the effect of expansionary monetary policy on real GDP in the short-run? 12 . 23. What is the effect of expansionary monetary policy on nominal GDP in the short~run? 3k . 24. What is the effect of expansionary fiscal policy on employment in the short—run? l: . 25. What is the effect of expansionary fiscal policy on unemployment in the short—run? Elf . 26. What is the effect of contractionary fiscal policy on investment in the short-run? l 99 2 _ 4 27. What is the effect of expansionary fiscal policy on investment in the short-run? .——- (3:2 ? . 28. What is the effect of contractionary monetary policy on investment in the short-run? u.- 29. What is the effect of expansionary monetary policy on investment in the short-run? =E ‘ 30. An increase in government spending will result in what kind of inflation MM 5% «1. An increase in consumer confidence will result in what kind of inflation j e!” a | i A z (“W J 32. List two events that will result in cost—push inflation £24 ' g {£42, 2 E ,( figE’W as Q c a 4g 0,; (Ma-424 33. Phillips curve describe the relationship between W and. W 34. List two events that will result in Phillips curve trade-off between inflation and unemployment « 35. List two events that will result in stagflation a 1 ¢ ’ . 4% , ...
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This note was uploaded on 03/27/2008 for the course ECON 205 taught by Professor Kamrany during the Spring '07 term at USC.

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HW3_ans - University of Southern California Department of...

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