Sample Questions

Question 1

• Labor-hours is the input NOT the output

• Convert to the quantity of outputs, assuming the labor-hours is 60

• Country A has CA in wheat

• Country B has CA in fish

Question 3

• In a inflationary gap, the following occurs

  • An initial positive demand shock (real estate market booms)

  • AD shifts to the right, and so the aggregate price level and aggregate output increase, which leads to higher inflation in the short-run and reduces unemployment

  • Eventually, an increase in nominal wages in the long run decreases the SRAS and moves the economy back to potential output

  

• Contractionary Fiscal Policy

  • Use contractionary fiscal policy to decrease aggregate demand in order to get the economy back to its potential output

    • Decrease government spending (direct impact)

    • Increase taxes

    • Decrease in government transfers

  • Graph

  

Question 4

• Crowding-out effect

  • When the government borrows funds in the financial markets, it competes with private firms and "crowds out" private spending by raising interests rates and reducing long-run economic growth

Question 5

• 

• 

• MPC + MPS = 1

Question 6

Government Spending	Money Multiplier
Taxes	Tax Multiplier

• When raising government spending and the taxes by the same amount, the impact of government spending will be greater than that of taxes

Question 7

Question 9

• Expansionary monetary policy → r↓

  

• Expansionary Fiscal Policy → Spend more money → Crowding-out effect → r↑

  

• Expansionary policy will shift AD to the right, increase the GDP, therefore unemployment will decrease

Question 10

• Sell securities = Shrink money supply = decrease total loans by banks

Question 11

• If the reserve ratio is low, more money circulate, so Fed will have more effect on rGDP

Question 12

• Labor productivity↑ → AS↑ → Price Level↓ & rGDP↑

  

Question 14

• Phillips curve

  • x-axis: unemployment rate

  • y-axis: inflation rate

• Short-run Phillips curve

  

• Long-run Phillips curve

  

• In short-run

  • High inflation rate, low unemployment rate

  • Low inflation rate, high unemployment rate

Question 16

Question 17

• The equation of exchange

  • MV = PY

  • Expenditure = nominal GDP

  • M: money supply

  • V: velocity of circulation

  • P: price level

  • Y: real GDP

• Velocity of circulation

  • the average number of times each dollar is spent on final goods and services

Question 18

Question 19

• Supply of money ↑ = Value of money ↓ = Exports ↑

Question 20

• 

• Inflation rate > 0: inflation

• Inflation rate < 0: deflation