1 4 6 10
1. For each of the following transactions, what is the initial effect (increase or decrease) on
M1? or M2?
a. You sell a few shares of stock and put the proceeds into your savings account.
Selling stocks does not affect M1 or M2, however M2 will
Large time deposits
Non-checkable savings deposits
Small time deposits
Institutional money market mutual funds
1. Using the data in the table, calculate each category of M. (3 points)
a. (1.1.4)You choose to shop at the local discount store rather than paying a higher price for
the same merchandise at the local department store.
i. People usually exploit opportunities to make themselves better off is the principle
3. The components of GDP in the accompanying table were produced by the Bureau of
a. Calculate consumer spending.
a. Consumer spending in 2007 was $1,082.8+ $2,833.0 + $5,794.4 = $9,710.2 (billions of
b. Calculate private inves
CONSUMPTION AND SAVING
FOCUS OF THE CHAPTER
Consumption is the largest component of aggregate demand.
The amount that we consume today depends not only on our current income, but
also on our wealth and our expectations of future income.
4. a. In an auction, potential buyers compete for a good by submitting bids. Adam Galinsky, a
social psychologist at Northwestern University, compared eBay auctions in which the same good
was sold. He found that, on average, the higher the number of bidde
4. In each of the following cases, in the short run, determine whether the events cause a shift of a
curve or a movement along a curve. Determine which curve is involved and the direction of the
a. As a result of an increase in the value of the do
The expenditures method of GDP calculation is the one most often used and easiest. From the
following list, please identify where it is counted (explain as necessary) consumption,
government spending, investment, or not counted. (12 points)
Ford Motor Co
Here is this week's problem set. Remember the four types: of unemployment
Frictional - when a worker voluntarily leaves one job to search for another or re-enters the labor force
Structural - when a worker is displaced from a job and requires
a. GDP will increase by $75 billion.
GDP= 1/(1-)*$25 billion
3*25 billion= $75 billion
b.GDP will decrease by $200 billion
5*-40 billion= -$200 billion
c.GDP will increase by $150 billion
GDP = 1/(1 0.6) x $60 billion
= 2.5 x $60 b
4. Answer the following questions about the (real) inflation tax, assuming that the price
level starts at 1.
a. Maria Moneybags keeps $1,000 in her sock drawer for a year. Over the year,
the inflation rate is 10%. What is the real inflation tax paid by Ma
1. Identify how inflation affects each group in the following scenarios. Are the members
helped or hurt? Please explain your reasoning. (1 point each)
a. Banks extend many fixed-rate loans.
In this scenario, banks are hurt. The inflated rates would resul