PRINCIPLES OF MACRO
PRINCIPLES OF MACRO ECON 212
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This 9 page Class Notes was uploaded by Noah Pouros on Saturday September 26, 2015. The Class Notes belongs to ECON 212 at Clemson University taught by Scott Baier in Fall. Since its upload, it has received 229 views. For similar materials see /class/214221/econ-212-clemson-university in Economcs at Clemson University.
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Date Created: 09/26/15
Exam Time 830 to 1100 Tuesday May 3 100 Brackett Review Session 530 700 Monday May 2 100 Brackett Exam Structure 50 multiple choice questions Approximate breakdown of MC questions Unempoloyment and the Labor force 10 questions In ation and the Quantity Theory of Money 10 questions Aggregate Supply and Aggregate Demand 15 questions The Federal Reserve Bank and Tools of Monetary Policy 8 questions Applications of Supply and Demand and0r Fed policy Response 7 questions Chapters covered 10 ll 12 13 and 15 Important Concepts De nitions Unemployment Unemployment rate Labor Force Structural Unemployment Frictional Unemployment Cyclical Unemployment In ation Disin ation De ation Velocity of Money Quantity Theory of Money Nominal interest rate Real interest rate Business Fluctuations Recessions Solow Growth Curve LongRun Aggregate Supply Curve Open Market Operations Open Market Purchases Open Market Sale Federal Funds Rate Discount Rate Lender of Last Resort Make sure you know what factors shift the dynamic aggregate demand schedule Make sure you know what factors shift the dynamic aggregate supply schedule Make sure you know why the shortrun aggregate supply schedule is shaped like it is Make sure you know how shifts in the saving and investment diagram impact the interest rate and how this impacts velocity the aggregated demand schedule For reference below is the chart that I presented in class and I added a couple of categories in the bottom Shock All Duration Impact on Impact on Impact on Impact on of these I S the real velocity DAD represent Diagram interest rate An increase Temporary Saving The real Velocity Shifts back in income increases interest rates falls technology fall An increase Permanent Investment The real Velocity Shifts out in income increases interest rate increases technology rises Government Temporary National The real Velocity Shifts out Expenditures Savings falls interest rate increases r1ses Government Permanent No Change No Change No Change No Change Expenditures Taxes Temporary National The real Velocity Shifts out Savings falls interest rate increases rises Change in Temporary Investment The real Velocity Shifts out Business increases interest rate increases Confidence rises Change in Temporary Saving The real Velocity Shifts OUT Consumer decreases interest rates increases Confidence increases Make sure you know how these events will impact output growth and employment in the model where prices are fully exible and in the world where prices are slow to adjust Make sure you know the money multiplier that that we discussed in class Ml 1CDCDRDMB You should know how an increase Or decrease in CD or IUD in uences the shortrun growth rate of the money supply and how it shifts DAD schedule Practice Multiple Choice Questions 1 Which of the following is not a price index used by economists to measure in ation A Consumer Price Index CPI B Commodity Consumption Indicator CCI C GDP de ator D Producer Price Indexes PPI 2 Table Polish In ation This table shows actual in ation data for different periods of Polish history Which year can you identify as de ationary A 1990 B 1999 C 2003 D No year was de ationary 3 The quantity theory of money describes the relationship between A prices employment money and production B money velocity money real output and prices C GDP money consumption and savings D None of the answers is correct 4 In a small economy the money supply is 400000 and the velocity of money is 3 The current price level in the economy is 1 What is the level of real GDP in this economy A 12 million B 16 million C 400000 D 133333 Use the following to answer question 5 Table CPI Year CPI Value 1999 110 2000 115 2001 117 2002 115 5 Table CPI This table shows price level statistics for a country In which of the following years does this country experience de ation A 1999 B 2000 C 2001 D 2mm Th2 Salawgmwth curve 15 D pmdvcnvnymnmlmng mm Us m raunm m answerquzslmnX Figure Dyna Amt Demand 2 Figure Dymmlc Aggngam Demand Pmm E anthls dynamic aggregate mm curve xepxesems an m mmn m af 9 Th aggngam dzmmdcnrve shnws sum camhmanansaf umquot camm wnh a spcx ed m afspndmg gmwlh A emplaymzm mas and price lzvels a m man and real gmwlh rates 0 pmducunn shacks and zx ulz prices D mnmyvelncnymd mamysnpply m Faudymmw aggregate dzmmdcnrve wnh 39AM m39 mamv n n m man us 57 than real gmwlh ls 437 Use m mon m answexquzslmn n 11 Figure R251 Shanks me pmmethz accampnnymg dynamic aggngam mm mndzl amgmve m shackwl cause m ecammym mm m pm A W a X c Y D z 2 Whatm facmxs unmxease m dymmlc aggngam dzmmdcnw A dzcnased Impuns and 1mm taxes 3 hlghzxgvvemmz ts ndmg and Increased expuns C faster money growth rate and increased wealth D All of the answers are correct 13 The Fed has the most control over A the monetary base B Ml C M2 D money market mutual funds 14 Holding reserves is costly for banks because A it forces banks to pay for ATM machines B it leads to the risk of bank robberies C it leads to fewer pro ts D the Fed charges banks interest on required reserves 15 An increase in the reserve ratio indicates that banks A wish to become more liquid B wish to make more loans C wish to purchase real estate D wish to borrow in the federal funds market 16 The Federal Reserve39s major tools to control the money supply are I open market operations 11 discount rate lending and the term auction facility 111 required reserve ratio and payment of interest on reserves IV federal funds lending A I and 11 only B 111 and IV only C I H and 111 only D I II III and IV 17 When the Federal Reserve makes an open market purchase the reserves of the banking system will A increase B decrease C remain constant D become difficult to predict 18 What is the overnight lending rate from one bank to another A Federal Funds rate B Federal Reserve rate C money market rate D money multiplier rate 19 The main assets held by banks are A deposits B bond holdings C loans D None of the answers is correct 20 The Feds job in manipulating monetary policy is made harder by the fact that A monetary authorities do not have a good understanding of how monetary policy works B monetary policy is usually pulling the economy in the opposite direction from scal policy C the Fed has to operate in real time and information on recessions usually becomes available with a lag D monetary policy is hardly ever effective in in uencing business uctuations 21 What is a possible reason for the Fed39s inability to prevent a recession A The Fed has too much power over M1 and M2 and can ood the money supply B Much of the data about the economy is unknown when the Fed is making policy C Firms and individuals do not often understand the goals of the Fed D The Fed often performs complex and con icting maneuvers at the same time 22 An increase in the money supply can typically affect the economy with a lag of A 273 months B 4710 months C 6718 months D 10724 months 23 In the best case scenario the Federal Reserve is most successful at counteracting a negative A AD shock B SRAS shock C shock to the Solow growth curve D None of the answers is correct 24 Monetary policy works best to counteract A negative aggregate demand shocks B negative supply shocks C positive supply shocks D Solow growth shocks 25 When hit with a real negative economic shock the Fed must make its policy choice between A too low of a growth rate and too high of an unemployment rate B too low of a growth rate and too high of an in ation rate C too high of a growth rate and too low wages D too high of a growth rate and too low of a savings rate 26 How did the housing boom of 199772006 increase aggregate demand A It created more jobs and increased wages in the construction sector B Interest rates increased to keep pace with housing demand C More consumers saved so they could afford the higher housing prices D All of the answers are correct Answer Key for the multiple choice questions W gwer Nt HHHHHHon N pbwgtocgtwcw gtODgtODgtUOO l 18 19 20 22 23 25 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