Download Previous Exam - Napa Valley College

EXAM 2 – v1
MACROECONOMICS
SPRING 2015
Last Name _________________________________ First Name _________________________
PRINT NEATLY
Extra credit.
1. Who releases the Consumer Confidence Index ______________________________________________
On the back of this page write down 2 of the questions on the survey.
2. Who first used the word stagflation?________________________________________ Year_______________
3. Fill in the table referring to New Deal programs. Source _____________________________________________
Initials Program—Initials stand
Name a specific project built/developed by this
City where
for…
organization.
project is located.
CCC
TVA
WPA
PWA
4. About the “Road to Rock Bottom” video. Answer the questions on the back of this page. Use complete sentences and
give a full explanation. (a) What was the bonus army and what was the bonus? (b) Should they have received the bonus?
Fully explain using (Keynesian) fiscal policy. (DON’T GUESS—if you’re wrong I will take off points.)
REQUIRED QUESTIONS (Write on the back of the pages if you need more room.)
1. Given an inflationary gap explain and show graphically how the self-correcting mechanism is supposed to work to
close the gap. Use the Macro AS/AD graph. Be thorough and complete. Label the steps.
Thorough and complete explanation (what happens, why does it
Graph—include all labels
happen, and why does that cause the curve to shift). Label the
steps.
2. Is there a problem with the self-correcting mechanism? Explain for both the recessionary/inflationary gaps.
Inflationary Gap
Recessionary Gap
3. Given a recessionary gap explain and show graphically how supply-side policy is supposed to work to close the gap.
Use the Macro AS/AD graph. Be thorough and complete. Include all labels.
Thorough and complete explanation (who does what and why
Graph—include all labels
does that cause the curve to shift)
4. Given an inflationary gap explain and show graphically how Keynesian fiscal policy is supposed to work to close
the gap. Use the Macro AS/AD graph. Be thorough and complete. Include all labels.
Thorough and complete explanation (who does what and why
Graph—include all labels
does that cause the curve to shift)
5. Draw the graph that illustrates stagflation. Define stagflation and explain what caused it in the 1970s.
definition of stagflation
graph illustrating stagflation—labels!
specific cause of stagflation in the 1970s
6. Explain the dilemma faced by (Keynesian) fiscal policy advocates in the case of the 1970s stagflation.
Choice
Benefit of the choice
Problem with the choice
1
2
7. Republicans usually favor a smaller government while Democrats usually see a large role for government. Given
these preferences, which (Keynesian) fiscal policy tools will each party prefer to use in the case of a recessionary gap.
Explain your thinking.
Party
Tool(s) of choice
Explain
8. Use the micro supply and demand graph to show what happens to the price given the following:
Market: Christmas Decorations
Event: December 26
Graph---include all 9 labels.
Explanation: NO POINTS without an explanation.
Which curve shifts and why?
Which way does it shift and why?
9. Use the micro supply and demand graph to show what happens to the price given the following:
Market: Beef
Event: The drought and extreme heat waves ruin crops of corn, alfalfa and other feed corps.
Graph---include all 9 labels.
Explanation: NO POINTS without an explanation.
Which curve shifts and why?
Which way does it shift and why?
10. Vocabulary. Fill in the blank or circle the correct response or answer the question.
Keynes rhymes with rains or beans. (Circle)
If you were looking for a job would you rather look during a weak or tight labor market? (Circle)
Some think ___________ is the “father” of Macroeconomics.
In supply-side policy, taxes are lowered so that households will increase their savings or spending. (Circle)
For expansionary policy, government would increase or decrease spending. (Circle)
For contractionary policy, government would increase or decrease taxes. (Circle)
Wages are sticky downward for at least 3 reasons? What are they?
Income is a flow or stock variable. (Circle) Cash in your pocket is a flow or stock variable (Circle) Rent is a flow or
stock variable. (Circle)
GDP is a flow or stock variable. (Circle) Gold is a flow or stock variable. (Circle)
Define the word fiscal (Just the word fiscal, not fiscal policy.)
In an inflationary gap we need to expand or contract the economy to get back to full employment. (Circle)
OPEC stands for _________________________________________________________________________________
Supply-side policy was first widely used in the U.S. under President __________________ while (Keynesian) fiscal
policy was first widely used in the U.S. under President ____________________
What kind of gap do we have for each of the following: (No gap, inflationary or recessionary)
Given the most recent unemployment rate of 5.5%
We have a tight labor market.
The economy suffers from a negative supply shock
The economy suffers from a positive demand shock
The unemployment rate is less than the natural rate.
The government is using contractionary policy to close it.
Which curve shifts which way in reference to the macro AS/AD curve.
Disposable income increases
Price of oil increases
Interest rates increase
The GDP deflator increases
Stock market values increase
Wages and salaries increase
The price of oil is an input or output price (Circle) Wages are an input or output price (Circle) The GDP deflator
represents input or output prices (Circle) Housing prices are input or output prices (Circle)