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Transcript
1. Explain the slopes of the aggregate demand, short-run aggregate supply and long-run aggregate supply curves. 2. Draw an aggregate demand, aggregate supply diagram showing an economy in short-run equilibrium with an inflationary gap. Show the changes in the SAS curve, the inflation rate and income levels which will occur as the economy moves into long-run equilibrium. Explain why these changes will occur. 3. Using aggregate demand and aggregate supply diagrams explain how in some situations rising prices are associated with a decline in unemployment and in other cases with a rise in unemployment. 4. Using an aggregate demand and aggregate supply diagram, show the impact of an increase in government spending on income and prices. 5. Using an aggregate demand and aggregate supply diagram, explain the impact of an increase in oil prices on the price level and income. 6. Discuss the role of expected future income in shifting the consumption function. What impact does entry into a recession have on the consumption function? What impact does the beginning of a strong expansion have on the consumption function? 7. Discuss the impact of interest rates and expected future profits on the investment function. 8. Explain how net exports behave as gross domestic product increases. 9. i)Explain how a change in government spending or tax rates can eliminate a recessionary gap and discuss the advantages and disadvantages of each method of altering income. 10. Draw an Aggregate Expenditure diagram showing an economy at full employment and then clearly indicate the impact of a decrease in exports on equilibrium income. 11. Given: Ye = 1000 Yfull = 1300 MPC = .80 MPM = .20 Draw a an Aggregate Expenditure diagram representing the income level described above. Calculate the size of the change in government spending required to raise income to the full employment level, assuming that the price level will not change. (Show your work.) 12. Show the impact of the change in government spending calculated in (b) on the Aggregate Expenditure diagram drawn above. Be sure to label the diagram clearly. 13. Using an aggregate expenditure diagram and an aggregate demand aggregate supply diagram show the impact of an increase in exports on equilibrium income and on prices. 14. Is a nation better off to have a large multiplier or a small multiplier? 15. Discuss the role of automatic stabilizers in smoothing the business cycle. What impact to they have on the government's budget deficit during a recession? 16. Assume a nation is suffering from a severe recession. Draw an aggregate expenditure diagram and a aggregate supply aggregate demand diagram which describe the situation of that nation. Discuss the appropriate change in fiscal policy which would end the recession. Indicate the impact of that change in income and prices in your diagrams. (Clearly label the change.) Explain why the change in fiscal policy would cause the level of income and prices to change. 17. List and explain the three functions of money. 18. In the 18th century all money was convertible into gold, and the value of gold was believed to give value to money. What makes money valuable today? Explain your answer. 19. Explain the differences between M1, M2, and M2+. 20. Explain the immediate impact of a large purchase of government treasury bills by the Bank of Canada on the interest rate paid by those bills. 21. Assume that the Bank of Canada has determined that the money supply should rise $14 million. Given that the banks wish to hold reserves equal to 10% of deposits and that the public wishes to hold 5% of its deposits in the bank as cash, describe the open market operation and give the monetary value of the initial transaction which the Bank of Canada must undertake in order to achieve the desired expansion of the money supply. 22. Describe an expansionary open market operation by the Bank of Canada and discuss how it can cause real output to rise. Use all diagrams appropriate to your answer. 23. Using the appropriate diagrams show the impact that an expansionary monetary policy will have on equilibrium income, interest rates, the price level and investment. 24. Before Keynesian economic theory was accepted, governments believed that annually balanced budgets were important. Discuss the impact of a government policy of attempting to maintain an annually balanced budget on income, employment and inflation. 25. Two goals of macroeconomic policy are low rates of inflation and low levels of unemployment. Explain why governments may have difficulty achieving both these goals. Use diagrams as appropriate in your answer. 26. a) Draw an aggregate demand, aggregate supply diagram, showing an economy in long-run equilibrium. b) Assume that exports fall substantially. Show the impact that this change will have on income and the price level. Also show any inflationary or recessionary gaps that may occur. Label the change carefully. Explain your answer. c) Briefly discuss the impact of the changes on the rate of inflation and unemployment. d) Describe the adjustment process that will occur in the long-run if government takes no action. e) Describe an appropriate fiscal policy intended to return the economy to full employment. 27. Assume that the real GDP of Canada is below potential. a) Describe the Open Market operation that the Bank of Canada should undertake and use a diagram of the supply and demand for bonds in the explanation. b) Explain the impact of this open market operation on the price and the interest rate of bonds. c) Explain how the open market operation will move the economy back to potential GDP. 28. Discuss three serious short comings of GDP as a measure of economic well being. 2. Population Population 15 years and older Employed Unemployed 15,000 10,000 4,500 500 Using the information in the preceding table, answer the following questions: a. The labour force is __________, the unemployment rate is ________ and the participation rate is __________. b. Are these figures more consistent with an economy in a recession, or an economy working past potential? Explain your answer. 3. a. Complete the following table with 2005 as the base year: YEAR 2008 2009 2010 COST OF BASKET $1000 $1040 $1144 PRICE INDEX RATE OF INFLATION Not app. b. Briefly describe the type of monetary policy you would likely introduce if you were the Governor of the Bank of Canada in 2010 and briefly explain why. 4. List and briefly explain three curve slopes down. reasons why the aggregate demand 5. Draw a simple circular flow diagram and explain the impact of an increase in imports on the level of income in the economy. 6. Draw and Aggregate Demand function and a) indicate the impact of the multiplier on its slope b) indicate the impact of the multiplier on the size of the shift an increase in investment causes in the AD function. 7. Explain what automatic stabilizers are and how they can reduce the swings of a business cycle. 8. List and explain the three functions of money.