exam2 - ECONOMICS 205: PRINCIPLES OF MACROECONOMICS SPRING...

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ECONOMICS 205: PRINCIPLES OF MACROECONOMICS SPRING 2005 MARK MOORE EXAM 2 I. The Money Supply (5 points) 1. Suppose there is a bank panic in the economy, so that people lose confidence in the banking system and decide to hold more of their money in the form of currency as opposed to checking accounts. What effect does this have on the money supply? Explain. (5 points) 2. Suppose the central bank wanted to counteract the effect on the money supply you found in part a. What would it do? How would this policy affect the central bank balance sheet? Explain. II. Monetary Policy Consider an economy that begins with output equal to potential GDP. Now suppose there is a fall in consumer confidence, so that consumption falls for any given level of income. (10 points) 3. In an AD-AS diagram, show the short-run effect of the fall in consumer confidence. Make sure to explain why any curve or curves shift. What is the short-run effect on output and the price level? (10 points) 4.
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This note was uploaded on 04/07/2008 for the course ECON 205 taught by Professor Kamrany during the Spring '07 term at USC.

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exam2 - ECONOMICS 205: PRINCIPLES OF MACROECONOMICS SPRING...

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