Exam 2 - Spring 2001

Exam 2 - Spring 2001 - Spring 2001 Dr. Applegate Economics...

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Unformatted text preview: Spring 2001 Dr. Applegate Economics 2203 Macroeconomics Exam No. 2 Student # Section (circle one) 9:30-10:20 W 10:3 0-1130“ :Mmu,wv"/J Part I. Circle the best answer (4 points each) 1. Say’s Law {8.0.39 says that supply creates its own demand. is necessary for the economy to be self regulating. depends on flexible interest rates. all of the above. 2. The basic conclusion of Keynesian economics is that far... b. ® d. A / 4b. @ a. 7 the economy is self regulating. there is no need for fiscal policy to bring the economy out of a recession. the economy can be in equilibrium at less than full employment. None of the above. If the MPC is equal to 0.9 and the MPM is equal to 0.2 an increase of $10 billion in disposable income in the economy will result in consumers spending $9 billion. consumers will spend a total of $9 billion where $2 billion will be spent on foreign made goods and services. The multiplier is equal to 3.33. All of the above. 4. If the Fed sets the reserve requirement at 15 percent, this means that the deposit multiplier is equal to 1.5. that if total bank reserves (or, initial deposit) increase (5) by $100 billion. the maximum total amount 'of money created will be about $667 billion. all of the above. 1 none of the above. 5. Even if there is no crowding out, fiscal policy my not be a good tool of economic policy because @7 The Fed doesn’t always know What to do. because of lags, by the time the policy is felt in the economy, it may be the wrong policy. the economy is not self regulating. All of the above. Part 11. Short Answer (5 points each) What causes economic growth? « nonunion} Mira/trim g: yt “W V Vfifim Wféfl / 0 What is the marginal propensity to consume? How is it related to the multiplier? at WOW iii/1M profiling w WW EM W ‘ dd? {7 ..¢€ $5,905th smegma? Mei/LIX Wt) id Qfiwtfizflwwtfi t a w, gv’fimi‘w W W: ml W4? W WM When we say that money is created, what exactly is being created? What characteristic of the banking system makes money creation possible? " “‘90 Web; ‘6’ (it? Winds awe. Wrote?! , MM {tom/1% Dara/LL43; m mgr/ow pf fl What would be a supply side fiscal policy? In terms of the aggregate demand- aggregate supply model, tell in words what this policy is supposed to do. y/ in? wt to WWW +0 ML; W J 5M5 W J f V'I‘QM‘, Wt Vwa a What 3"? J‘W‘fi”! W >5” if“ m" WM- 03 mews?» warraflmeé? » / 0 Why didn’t Keynes belieVe that the economy is self regulating? V 3 M 4: alum WM Mtg/ea MW: at» We da WWW-at Patti. "61:, Wining Wtflifl WW; citaiflvfi d“ e/ “’W /' twat] 7% 7* wot a W gift-av W M be; 6 \6 V («1/ ff mam/09¢ (,5 a méyaw mega/75 @5wa '} was; What are the three functions of money? Vii 5:” f " ’ «/O . mm W a/b em MWth Part III. Longer Answer and Analysis 1. Use the aggregate demand-aggregate supply model to show an economy in a recessionary gap. Show and explain (i.e. “tell the story”) what will happen in the e economy is self regulating. (15 points) 61% {B (A pk Mb . Watieéé‘YWW 3490* WW mum to ,mwy WW l3. a! we w CD’WWE' WW1” m 6'3 “+5 tie ,,,Lg;g/ lam of CC: 0/“ CM W?“-§W?’t wheeze?” ‘ «We am We W . @599» at [WWW Wm WM?! W75 1&th dA ‘ ' wwm/ my? 2"? éfifi 7L UM“ MM, mafia-mic Wm rigid Q EA «"tfl,.(§i«@‘h£flll 2. Some argue that fiscal policy is ineffective or only partially effective because of the “crowding out effect”. Explain what the “crowding out effect” is. List the two effects that result in crowding out and how they work. If there is complete crowding out, what will be the effect of an increase in federal government spending on aggregate demand? (20 points) 6 “C WAR/ta W U 1/) ll) WM pri W ““ gtwegitxrgagwwf mMEN mt“ firm/w £2! h r W514 Mg”? «m? g? a?“ .131»: ‘1 ' : .A a “ g , it, i “i r lad : . {Kg/ii) a» W W W Wow 8 Midway? Wié tr ms Law at ma. MWWV 3. Draw a Laffer Curve. Explain what it means. What is the relationship between the Laffer Curve and supply side fiscal policy? (15 points) a m M W WW 730! W” 3‘1 fiiif't. Mumm Mlfl/Zfl?wg a, j {41% Viriiéfttw w; j/ VIM M flag I“ p m WW mic/#75611 W wow W W WWW “m 0" WWW mes, wb W- W >6 Maw/mu (/3 “tall ’00fo , HM-.. Lia/V MOMMA} My VW, We W W mat-Mt Lula/J, ...
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Exam 2 - Spring 2001 - Spring 2001 Dr. Applegate Economics...

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