BU204_03_Johnson_Jennifer_Final exam

BU204_03_Johnson_Jennifer_Final exam - Unit9...

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Unit 9 [ BU204 | Macroeconomics ] Jennifer Johnson Kaplan University BU204- 03 Macroeconomics Anthony Brogna Unit 4 December 12, 2010 -------------------------------------------------------------------------------------------------------------------- - Questions: 1. Define any key terms that you feel are important in answering the following question as they are defined in the textbook and explain, in your own words what those definitions mean (5 points), and then thoroughly analyze each of the following changes in the market for loanable funds to answer the these questions Use the diagrams below, resizing them as necessary, to illustrate your analysis in explaining what happens to private savings , private investment spending , and the rate of interest if the following events occur. Assume the economy is closed (no transactions are made with foreign countries). a. The government reduces the size of its deficit to zero (10 points).
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Unit 9 [ BU204 | Macroeconomics ] Answer: As size of deficit is reduced, the private borrowing will remain unchanged. But the curve will shift inward, resulting in the decrease in the interenst rate. Also this will increase in private investments made in the economy. b. At any given interest rate, consumers decide to save more. Assume the budget balance is zero (10 points). Answer: In this case, the private saving increases, resulting in a decrease in aggregate consumption level. As a result, the supply of loan increases, resulting in decrease in interest rate and increase in private investment
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Unit 9 [ BU204 | Macroeconomics ] c. At any given interest rate, businesses become very optimistic about the future profitability of investment spending. Assume the budget balance is zero (10 points). Answer: In this case, the aggregate investment level of the economy will increaes, causing outward shift of aggregate supply curve, resulting in increase in rate of interest. Thus, private saving increases, but private investment decreases. 2. Define any key terms that you feel are important in answering the following question as they are defined in the textbook and explain, in your own words what those definitions mean (5 points), and then thoroughly analyze each situation to answer the following questions.
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Unit 9 [ BU204 | Macroeconomics ] Using aggregate demand, short-run aggregate supplies, and long-run aggregate supply curves, explain the process and causes by which each of the following economic events will move the economy from one long-run macroeconomic equilibrium to another . Use the diagrams below, resizing them as necessary, to illustrate your analysis. In each case, what are the short-run and long-run effects on the aggregate price level and aggregate output ? a. There is a decrease in households’ wealth due to a decline in the stock market (15 points
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BU204_03_Johnson_Jennifer_Final exam - Unit9...

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