MiniExam4Review - Take out a separate sheet of paper for...

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Review Sheet for Mini Exam 4 Expect a couple of multiple choice questions from chapter 5 (open economy). A graphing question from chapter 5 is also a possibility. Expect multiple choice and open ended questions from chapter 7 (money market). You should be familiar with the equations and be able to derive the growth rate equations. Here are some practice problems: 1. Suppose real money demand is L = 0.8 Y – 100,000 ( r + π e ). If the nominal money supply is 12,000, real output is 15,000, the real interest rate is .02, and the expected inflation rate is .01, then the price level is__________? 2. If the nominal money supply doubles while real money demand is unchanged, what happens to the price level? If real money demand doubles while the nominal money supply is unchanged, what happens to the price level? ANSWERS: 1. 3, 2. It doubles; It falls by 1/2, 3. ended. I recommend that you go through the short run and long run effects of a shift in each curve.
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Unformatted text preview: Take out a separate sheet of paper for each of these and draw (using color if you prefer): 1. An increase in money supply (What could cause this change?) 2. An increase in money demand (What could cause this change?) 3. An increase in the investment curve. (What could cause this change?) 4. An increase in the savings curve. (What could cause this change?) This exam is not particularly long, but if you spend most of your time trying to decipher these graphs because you did not have a good handle on how they work, you can potentially waste a lot of time. You will be scored on the open ended questions based on your demonstration that you understand the concepts. You should know what money neutrality is as well as how to demonstrate it. You should know how the government seeks to affect the macroeconomy through both fiscal and monetary policy....
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