Download Final Exam Study Guide Review Chapter 13 Question 1 Explain why

Final Exam Study Guide Review
Chapter 13
Question 1
Explain why aggregate demand (AD) is a downward-sloping function of the price level. (You
should talk about how changes in the price level affect C, I, and NX).
What variables shift the AD curve? What causes a movement along the AD curve?
Question 2
Explain three reasons why the short-run aggregate supply (SRAS) curve slopes upward.
(Another way to think about this is—according to Keynesians—why are prices “sticky” in the
short-run?)
#1.
#2.
#3.
In the classical AD – AS model, what is the main variable that shifts SRAS?
Question 3
Consider the simple (static) model. Assume we start at an initial long-run general equilibrium.
Draw an AD-SRAS-LRAS graph showing the effects of each of the following in the long-run.
a) an increase in the expected future price level
b) an increase in consumption (C)
Question 4
Explain the three differences in assumptions between the static (simple) and dynamic (complete)
AD-SRAS-LRAS models.
#1.
#2.
#3.
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Why do we assume that the LRAS shifts to the right each year?
Question 5
Consider the complete (dynamic) model. Draw an AD-SRAS-LRAS graph showing the effect of
an expansionary fiscal policy.
When would this be helpful?
Who would implement the fiscal policy?
What fiscal policy tools are available?
Chapter 14
Question 1
Write the definition for each of the following terms:
a) money
b) four functions of money
c) liquidity
d) commodity money
e) fiat money
f) M1 nominal money supply
g) M2 nominal money supply
h) reserves (total, required, and excess)
i) the simple money multiplier
Question 2
Assume a required reserve ratio for all banks of 0.10 (= 10 %). Suppose James deposits $ 5000
into his checking account at FirstMerit. This bank makes the maximum loan it can grant to
Abby. In round 2, Abby deposits the entire amount into her bank, the Second National Bank. In
round 3, what is the maximum loan that the Second National Bank can give to Tom?
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Question 3
Assume a required reserve ratio of 0.40 (= 40 %) for all banks. Josie makes a $ 2000 deposit
into her local bank. If all banks loan out all their excess reserves and the public holds no
currency, what is the ultimate final change in the value of deposits in this economy? (Use your
simple money multiplier equation.)
Question 4
Draw a graph showing the relationship between the quantity of money demanded (MD) and the
nominal interest rate (i).
Why does the money demand curve slope downward?
What variables will cause the money demand curve to shift?
Chapter 15
Question 1
Fill in the following chart using what you know about the Federal Reserve.
Tools of the Federal Reserve
Intermediate Targets of the Policy Goals
Federal Reserve
Reserve
1.
1.
1.
2.
2.
2.
3.
of
the
Federal
3.
4.
Question 2
Explain why the Federal Reserve cannot target both the short-term nominal interest rate and the
nominal money supply simultaneously.
Question 3
3
Explain the difference between the federal funds interest rate and the discount window interest
rate.
Question 4
Explain how an open market sale would slow down the economy.
Chapter 16
Question 1
List the tools used to implement fiscal policy
#1.
#2.
Question 2
Define discretionary policy and automatic stabilizers.
Question 3
How does the federal deficit change over the business cycle (i.e., when we go into a recession)?
Question 4
What are the four categories of government spending?
#1.
#2.
#3.
#4.
Question 5
Explain the implications of an increase in G on private investment (I). What is this called?
Question 6
Draw a dynamic AD-LRAS-SRAS model showing the effect of an increase in the personal
income tax (↑ t).
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Is this an expansionary fiscal policy or a contractionary fiscal policy?
If the government were to pursue the fiscal policy above, the reason would be because the point
of short-run equilibrium where the SRAS and the AD curves intersect lies ___________ the
LRAS curve. (Choices are: on top of; to the right of; to the left of)
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