2004_PRELIM1_MAKE-UP_ANS - ESSAY #1 1. Cyclical, Structural...

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Sheet1 Page 1 1. C 2. change in business inventories 3. B 4. C 5. D 6. H 7. B 8. D 9. B 10. Depreciation 12. C 13. C 14. B 15. D 16. A 17. C 18. B 19. $ 17, 100, i.e. $ 9,000 + $ 8,100 20. C PART II 1. You can stimulate the economy through fiscal policy even when keeping a balanced budged. The effect will be smaller tha n 2. Investment expenditure is composed of expenditures in i) Plant and equipment ii) Residential Construction iii) Planned changes in business inventories. The difference between desired and actual investment comes from unplanned changes in inventories. 3. Slowing growth in the economy accompanied by a general rise in prices. The U.S. experienced stagflation in the 1970s pa r 4. If the current interest rate is below its equilibrium level there is excess demand for money, i.e. there is more demand for mo n 5. The new policy will create a surplus of $100. The equilibrium income will decrease by $600.
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Unformatted text preview: ESSAY #1 1. Cyclical, Structural and Frictional Unemployment 2. Structural unemployment 3. Since this refers to structural unemployment it cannot be fought by standard expansionary policies, rather in order to reduce ESSAY #2 1. The Fed rises interest rates by means of a contractionary monetary policy. The three instruments that the Fed use for such p i) Sell of government securities through open-market operations. ii) Increase the required reserve ratio iii) Increase the discount rate By increasing the interest rates in the economy, the Fed induces a fall in private investment, which in turns reduces aggregate Sheet1 Page 2 this will reduce the demand for money until demand equals supply. in this case raising the skills of American workers. In other words the Fed can do nothing to solve this problem....
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This note was uploaded on 04/03/2008 for the course ECON 1120 taught by Professor Wissink during the Spring '05 term at Cornell University (Engineering School).

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2004_PRELIM1_MAKE-UP_ANS - ESSAY #1 1. Cyclical, Structural...

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