Download Final Exam Section 2 Study Questions. 1) State what happens to the

Final Exam Section 2 Study Questions.
1) State what happens to the money supply if the FED buys securities. Use the Phillips curve to show the
effect on the inflation rate and unemployment, in the long run and short run. Compare cases in which this
were an announced purchase as opposed to an unannounced purchase of securities.
2) What is the consumption function? What factor leads to a movement along the consumption
function? What factors shift the consumption function and explain how it works?
3) The following is Data, in $millions, for island LCG
RGDP=Y
($)
Cons ($)
Inv ($)
Govt. Exp
($)
Exports
($)
Imports
($)
200
260
100
100
50
70
400
420
100
100
50
90
600
580
100
100
50
110
800
740
100
100
50
130
1,000
900
100
100
50
150
1,200
1,060
100
100
50
170
1,400
1,220
100
100
50
190
1,600
1,380
100
100
50
210
1,800
1,540
100
100
50
230
a) Calculate Autonomous expenditure
b) Calculate marginal propensity to import.
c) Expenditure multiplier
d) Calculate the value of GDP if Government spending increases by $10 million.
4) What is the difference between induced and autonomous expenditure? Which components of
aggregate expenditure fall under which category?
5) “If aggregate planned expenditure exceeds real GDP, then aggregate expenditure and real
GDP will increase.” Explain whether the previous sentence is correct or incorrect.
6) Describe the relationship between aggregate planned expenditure, real GDP, and unplanned
inventory changes.
7) How can a nation and its producers determine whether or not it has a comparative advantage in
producing a particular good or service?
8) “The short-run Phillips curve shows the tradeoff between real GDP and inflation.” Is the
previous statement correct or incorrect? Briefly explain you answer.
9) “The short-run Phillips curve shifts leftward when the inflation rate rises.” Is the previous
statement correct or incorrect? State the factors that shift the short run Phillips curve.
10) “As the economy moves upward along its aggregate supply curve, the economy also moves
upward along its short-run Phillips curve.” Is the previous statement correct or incorrect?
Briefly explain your answer.
11) In the long run, what is the tradeoff between inflation and unemployment? Explain your
answer using Phillips curve analysis.
12) How does the natural rate hypothesis relate to the AS-AD model?
13) If the Fed reduces the inflation rate, in the short run what occurs? Does it matter if people
know and believe that the Fed will lower the inflation rate? Use diagrams to support your response.
14)
The table above has the domestic supply and domestic demand schedules for a product. What is the
equilibrium price with no trade? Over what range of prices will the country export the good? Over what
range will it import the good? Suppose the world price is $20. What is the quantity demanded, the
quantity supplied, and the amount of the good exported or imported
15)
The above figure shows the domestic supply of and domestic demand for an imported good. The world
price is $15 per unit.
a. At the world price of $15 per unit, what is the domestic consumption and domestic production?
b. At the world price of $15 per unit, what is the quantity imported?
c. If the government imposes a tariff of $5 per unit, what is the domestic consumption and domestic
production?
d. With the $5 per unit tariff, what is the quantity imported?
e. How much revenue does the government collect with a tariff of $5 per unit?
16) Briefly define a tariff and a quota. Do any of these methods restrict trade without harming domestic
consumers? Explain your answer.
17) Explain how governments restrict international trade and who benefits as well as who loses from the
restrictions.
18) Economics demonstrates that opening up unrestricted free international trade is beneficial to
all nations. However, are there any losers from such a policy change?
19)
The United States imports cheese from a variety of countries. The table above gives the
domestic supply of, and demand for, cheese in the United States. The world price of cheese is
$12 per pound, and trade is unrestricted.
a. How many pounds of cheese are consumed in the United States?
b. How many pounds of cheese are produced in the United States?
c. How many pounds of cheese are imported into the United States?
If a $3 per pound tariff is imposed,
d. How many pounds of cheese are consumed in the United States?
e. How many pounds of cheese are produced in the United States?
f. How many pounds of cheese are imported into the United States?
g. How much will the U.S. government collect in tariff revenue?
h. Who benefits from the tariff? Who loses?