Economics homework help

Economics homework help.  
 
Short Essays:
 
Please select and answer seven ( 7) of the following essay type questions.
 

  1. Please explain with specific examples for each category: “Among risks the Fed is taking: that some programs won’t work, that officials won’t be able to unwind them, that politicians will grow accustomed to directing the central bank to fix problems its tools aren’t designed to solve, and that public discontent about the central bank’s choices will erode its authority over time. “ WSJ 04 28 2020
  2. What specific Macro-economic phenomenon is being described. Explain how this phenomenon impacts the balance sheet of the Federal reserve and of a commercial bank, “The Fed has a unique power, the ability to create money by crediting banks with funds they can lend. That helps it guide the cost of money, which is the interest rate”

WSJ 04 28 2020.
 

  1. Please describe four major initiatives that the Federal Reserve has undertaken, in order to address the impact of COVID-19 to the economy.

 
 

D. What does the “Bagehot’s Dictum,” refer to?  Please explain in the context of the effect of the current effect of the COVID-19 to the economy.
 

 

E. Suppose the economy is suffering in a recessionary period. Firms are facing increasing inventories and individual consumers are increasing their saving to prepare for hard times ahead. What is likely to happen to the economy and can it correct itself and grow toward full employment in the short run?  How is this different and how is it similar to the impact of the COVID-19 in the economy?
 

 

F. Describe the role of business inventory change in determining the equilibrium level of GDP and changes in the level of GDP.
 

 

G. Differentiate between an induced increase in consumption and an autonomous increase in consumption. How are they represented on a graph?
 

 

H. The expenditure schedule and the aggregate demand curve show much the same thing, with one crucial difference-the price level. How does the price level affect the two schedules?
 

 

I. Define the terms recessionary gap and inflationary gap. Why do they occur?  Please frame your answer within the context of the COVID-19 impact in the economy.
 

 

J. Why do booms and recessions tend to be transmitted across national borders?  Please frame your answer within the context of the COVID-19 impact in the economy.
 

 

K. The total expenditure schedule in Macroland begins with these initial levels (in billions of dollars): Income = 1,000; Consumption = 900; Investment = 200; Government = 300; Net Exports = −100. If the MPC = 0.75 and income increases in increments of 200, find the equilibrium level of income. If full employment requires an income level of 2,000, what (if anything) should the government do? Indicate both the direction of the spending change and the size of the spending change.
 

 

L. What is a multiplier? How does the multiplier effect occur? Please provide examples of at least three types of multipliers in an economy.  Please provide some examples within the context of the COVID-19 impact in the economy.
 

 
 

M. Distinguish between a movement along the aggregate supply curve and a shift of the entire aggregate supply curve. What factors cause each to occur?   Please include in your answer the COVID-19 impact in the economy.
 
 

 

N. What causes the aggregate supply curve to have an upward slope in the short run, but a vertical slope in the long run?
 

 

O. Using the concepts of aggregate demand and aggregate supply, explain how the economy reaches an equilibrium level of real GDP and price level.
 

 

P. Why is it possible that the economy will not self-correct out of a recessionary gap?  Please explain your answer within the context of the COVID-19 impact in the economy.
 
 

 

Q. What is meant by an economy’s self correcting mechanism? Explain the process through which self correcting mechanism reduces inflationary gap.
 

 

R. When price level is considered, the value of the multiplier will be less than that suggested by the oversimplified version of multiplier. Why?
 

 

S. Why is a period of stagflation part of the normal aftermath of a period of excessive aggregate demand?
 

 

T. Discuss some of the arguments that help explain why wages and prices rarely fall in a modern economy.
 
U. Define the following terms and explain their significance to the study of macroeconomics:

a. fiscal policy
b. transfer payments
c. effect of income taxes on the multiplier
d. supply-side tax cuts

 
 

 
  1. automatic stabilizer
V. Explain why a change in income tax rates causes the consumption schedule to change slope.
 

 

W. Why does the numerical value of the multiplier fall when an income tax is added to the income-expenditure model?
 

 

X. Why is the personal income tax considered to be one of the main features of our modern economy that helps ensure against a repeat performance of the Great Depression?
 

 

Y. How do transfer payments function as negative taxes?
 

 

Z. Explain how a “conservative” and a “liberal” might differ in the types of policies they advocate to counteract a recessionary gap.
 

 

AA. Explain some of the steps that a government would wish to adopt in an inflationary environment.
 

 

BB. What is the difference between tax cuts imposed on higher-income households compared with lower- and middle-income households? Discuss the implications for the multiplier and the effectiveness of the tax cuts for boosting GDP.
 

 

CC. What are the policies usually advocated by supply side economists? How do they justify these proposals?
 

 

DD. Discuss some of the general conclusions arrived at about supply-side tax initiatives.
 

 

EE. What would be the likely result of a recessionary gap? If this leads to a fall in the nominal wage what impact it would have on the aggregate supply curve and on recessionary gap?
 

 

FF. Describe the main explanations for the downward rigidity of wages in the modern macro-economy. Evaluate their probability of being correct and important.
 

 

GG. Using the aggregate demand/aggregate supply model, explain the difference in the employment prospects of the graduates of 2007 and 2009.
 
HH. Define the following terms and explain their importance to the study of macroeconomics:

a. money
b. M1
c. near money
d. bank run

 
 

 

 

II. What is a barter system? What are the drawbacks of this system?
 

 

JJ. Why are the following included in the broader definition of supply known as M2?

(a) money market deposit accounts
(b) money market mutual funds
(c) savings accounts

 
 

 

KK. What is fiat money? Why is fiat money important in the United States today?
 

 

LL. In what sense can it be said that money is a social invention? How does a barter system of trade compare to the invention of money?
 

 

MM. The banking system of the United States is a fractional reserve system. What dangers does this pose for the safety of the banking system?
 

 

NN. Bankers have a reputation for conservatism in politics, dress, and business affairs. Is there an economic rationale for this conservatism? Explain.
 

 

OO. Why are credit cards not considered part of the money supply?
 

 

PP. What may limit the size of the money supply expansion to an amount less than indicated by the oversimplified deposit creation formula?
 

 

QQ. Explain the “too big to fail” doctrine.
 

 

RR. What is the criticism leveled against deposit insurance by the FDIC?
 

 

SS. Discuss some of the government regulations designed to ensure depositors’ safety and to control the money supply.
 

 

TT. Explain why monetary policy is needed specifically with regard to the existence of excess reserves. Compare and contrast the effectiveness of monetary policy during the Great Depression and the Great Recession?
 

 

UU. Define the following terms and explain their importance to the study of macroeconomics.

a. central bank
b. Federal Open Market Committee
c. supply of money
d. monetary policy

 
 

 

VV. Why is the Chair of the Fed Reserve considered by many to be the most powerful person in the economic world?
 

 

WW. Explain how interest rates and bond prices are related to one another. Why is this important for monetary policy?
 

 

XX. Why do economists insist on emphasizing the difference between money and income? Why is this difference important in macroeconomics?
 

 

YY. Describe the origins of the Fed and the arguments about the independence of the Fed.
 

 

ZZ. How does a central bank influence the lending capacity of the banks?
 

 

AAA. Explain the concept of ‘lender of last resort’. What is discount rate?
 

 

BBB. What is the federal funds rate? What are the main determinants of the federal funds rate?
 

 

CCC. How does an open market purchase by the Fed affect the level of bank reserves and the interest rate? Illustrate the interest rate effect by drawing the appropriate graph.
 

 

DDD. Explain the linkages in the causal chain when the Fed conducts a contractionary monetary policy. What will be the ultimate effect on GDP?
 

 

EEE. In 2007, as stock prices in general were falling, many investors began switching their funds into purchasing bonds. Surveys suggest that many of these investors did not understand the basic relationship between bond prices and interest rates. Using a numerical example, illustrate how an increase in the demand for bonds would affect the interest rate paid on bonds.
 

 

FFF. Explain the relationship between interest rates and (1) investments in housing, and (2) business investments.
 

 

GGG. Why does the economy’s aggregate demand curve have a negative slope?
 

 
 
 
 
 
 
 
 
 
Please answer all of the multiple choice questions:
 

Multiple choice questions:
 
1. The difference between disposable income and consumption spending is

  a. transfer payments.
  b. personal taxes.
  c. net exports.
  d. personal investment.
  e. personal saving.

 
 

 

2. Historical data depicted on a scatter diagram show that consumer spending and disposable income

  a. converge as income grows.
  b. generally move together.
  c. diverge as income grows.
  d. show no clear relationship.

 
 

 

3. If real disposable income is $300 billion and real consumer expenditures are $250 billion, it can be assumed that

  a. the government is spending the difference.
  b. the difference is being invested.
  c. households are saving the difference.
 
 
d. transfer payments make up the difference.

 
 

 

4. The relationship between consumer spending and disposable income is called the

  a. conjunction function.
  b. consumption function.
  c. aggregate demand function.
  d. marginal spending function.

 
 

 
 

5. The Marginal Propensity to Consume (MPC) is defined as the change in

  a. C over the change in DI.
  b. income over the change in disposable income.
  c. DI over the change in C.
  d. total income over the change in net income.

 
 

 

6. The nation’s disposable income increases by $400 billion and, as a result, consumer spending increases by $320 billion. Therefore, the MPC equals

  a. 0.16.
  b. 0.20.
  c. 0.60.
  d. 0.80.
  e. 0.96.

 
 

 
 

Figure 8-1

 
 

7. Based on the scatter diagram in Figure 8-1, approximately how much will consumption increase after a permanent tax cut of $400 billion?

  a. $100 billion
  b. $150 billion
  c. $250 billion
  d. $350 billion

 
 

 
 
 

8. If income in Austria decreases by 30 million euros and consumption decreases by 24 euros, then the MPC equals

  a. 0.90.
  b. 0.80.
  c. 0.60
  d. −0.60.

 
 

 

9. To predict the effects of a tax cut on consumption spending, economists must have some estimate of the

  a. income effect.
  b. substitution effect.
  c. relative price effect.
  d. marginal propensity to consume.

 
 

 
 

10. A movement from one point to an another point on the same consumption function could be caused due to

  a. changes in wealth.
  b. an increase in the general price level.
  c. decrease in the real interest rates.
  d. changes in disposable income.

 
 

 
 

Figure 8-2

 
 

11. In Figure 8-2, which of the following moves can be explained by a decrease in the price level?

  a. A to B
  b. A to C
  c. A to D
  d. A to E

 
 

 
 
 

Figure 9-1

 
 

12. In Figure 9-1, at $7,000 billion real GDP,

  a. inventories are increasing.
  b. spending falls short of output.
  c. spending exceeds output.
  d. Both a and b are correct.

 
 

 
 

  1. Government stabilization policy
  a. cannot influence investment spending.
  b. can stimulate aggregate demand and thereby induce businesses to invest, but the amount is not totally predictable.
  c. can stimulate aggregate demand, but investment spending will not be affected.
  d. can stimulate aggregate demand, but only in the long run.

 
 

  1. The Japanese economy has been consistently weak throughout the 1990s. This has caused a slight deflation, illustrating the
  a. negligible cost of eliminating inflation.
  b. very slow operation of the economy’s self-correcting mechanism.
  c. tendency of inflation to accelerate during recessions.
  d. rapidity with which inflation can be stopped.

 
 

15. When money wages rise, the most significant effect on the aggregate supply curve is that it

  a. shifts outward.
  b. shifts inward.
  c. becomes flatter.
  d. becomes steeper.

16. To predict the effects of a tax cut on consumption spending, economists must have some estimate of the

  a. income effect.
  b. substitution effect.
  c. relative price effect.
  d. marginal propensity to consume.

 
 

 
 

17. The principal way in which an economy self-corrects from an inflationary gap is through

  a. deflation, which increases purchasing power.
  b. inflation, which reduces purchasing power.
  c. disinflation, which maintains purchasing power.
  d. price level decreases, which stimulate production.

 
 

 

18. When the inflationary gap is finally eliminated, a long-run equilibrium is established with a ____ price level and with GDP ____ potential GDP.

  a. higher; equal to
  b. higher; greater than
  c. lower; equal to
  d. lower; greater than

 
 

19. An inflationary gap exists when consumers

  a. are saving more than businesses are investing.
  b. and businesses are purchasing less than the economy is capable of producing.
  c. and businesses are demanding more than the economy is capable of producing.
  d. and businesses are demanding less than the full employment level of output.

 
 

  1. The typical result of an adverse supply shock is
  a. falling output accompanied by accelerating inflation.
  b. falling output accompanied by decelerating inflation.
  c. rising output accompanied by accelerating inflation.
  d. rising output accompanied by decelerating inflation.

 
 

21. The case for government stabilization policy is made more compelling if the

  a. self-correcting mechanism works very slowly.
  b. self-correcting mechanism works too fast.
  c. value of the multiplier is very small.
  d. aggregate supply curve is very flat.

 
 

22. As the U.S. labor force grows and the nation’s capital stock is augmented by investment, the

  a. price level will rise.
  b. aggregate supply curve shifts inward.
  c. aggregate supply curve shifts outward.
  d. aggregate supply curve becomes steeper.

 
 

 

 

23. A decrease in the price of resources will cause the aggregate supply curve to

  a. shift outward.
  b. shift inward.
  c. become flatter.
  d. become steeper.

 
 

 

  1. Aggregate supply is defined as
  a. how much the economy can produce at zero unemployment.
  b. an amount of output the economy will produce at full employment.
  c. the relationship between the expenditures schedule and the leakages schedule.
  d. the relationship between the price level and the quantity of real GDP supplied.

 
 

25. Fiscal policy consists of

  a. taxes and interest rates.
  b. government purchases and defense spending.
  c. the money supply and taxes.
  d. taxes and government spending.

 
 

 

26. The government’s fiscal policy is its plan to influence aggregate demand by changing

  a. the money supply.
  b. minimum wage levels.
  c. sales taxes.
  d. taxation and spending.

 
 

 

27. Historically, the government has used fiscal policy to affect the economy through

  a. central planning.
  b. indicative planning.
  c. aggregate demand.
  d. aggregate supply.

 
 

 

28. The use of spending and taxes by the government to influence aggregate demand is known as

  a. monetary policy.
  b. governmental policy.
  c. administrative policy.
  d. fiscal policy.
  e. federal policy.

 
 

 

29. The oversimplified formula for the multiplier is misleading because it ignores the effects of

  a. price-level changes.
  b. the foreign sector.
  c. variable taxes.
  d. All of the above are correct.

 
 

 

  1. An automatic stabilizer is a feature of the economy that
  a. makes prices “sticky.”
  b. reduces its sensitivity to shocks.
  c. maximizes its volatility.
  d. automatically reduces recessionary trends.

 

  1. How does an increase in government transfer payments affect aggregate demand?
    a. It has the same effect as a tax increase, which lowers AD with a larger multiplier than a spending decrease.
    b. It has the same effect as a tax cut, which increases AD but with a smaller multiplier than a change in spending.
    c. It has the same effect as a spending increase, which increases AD with a larger multiplier than a tax cut.
    d. It has the same effect as a spending decrease, which increases AD with a larger multiplier than a spending decrease.

 

Figure 11-1

 
 

32. In Figure 11-1, the slope of the expenditures schedule is .75 and the government wishes to achieve full employment. It should

  a. cut spending by 1,000.
  b. increase spending by 1,000.
  c. cut taxes by 1,000.
  d. increase spending by 250.
  e. cut taxes by 250.

 
 

 

33. A bank run involves a large flow of money

  a. into bank depositors’ accounts.
  b. into checking and savings accounts.
  c. out of depositors’ accounts.
  d. out of individuals’ cash reserves into money market funds.

 
 

 

34. Barter is a system of

  a. trade without the use of money.
  b. trading one good for another.
  c. the double coincidence of wants.
  d. All of the above are correct.

 
 

 

  1. Fiat money is
  a. always backed by gold or silver.
  b. useful in buying Italian cars.
  c. only backed by government decree.
  d. not as liquid as precious metals.

 
 

37. With the invention of banking, one important aspect of money was that

  a. banks have some discretion over the money supply.
  b. banks have complete control over the money supply.
  c. governments lost all control over the money supply.
  d. individuals have no discretion over the money supply.

 
 

38. One intention of deposit insurance is to reduce the danger of

  a. excess lending.
  b. excess profits.
  c. risky lending.
  d. bank runs.
  e. All of the above are correct.

 
 

 
39. Which of the following would be a liability to a bank?

  a. cash in the vault
  b. a loan to a new business
  c. a checking account of a professor
  d. All of the above are correct.

 
 

 
40. The central bank of the United States is known as the

  a. Internal Revenue Service.
  b. Federal Reserve System.
  c. Federal Deposit Insurance Corporation.
  d. Department of Commerce.

 
 

41. Technically, the Federal Reserve district banks are corporations whose stockholders are the

  a. state governments in each district.
  b. citizens of the United States.
  c. Departments of Treasury and Commerce.
  d. member banks.

 
 

 
42. Which of the following observations is true?

  a. State governments are the shareholders of the Fed.
  b. The Fed chairman is appointed for a ten year term.
  c. FOMC decisions largely determine short-term interest rates.
  d. Member banks proportionately share all of Federal Reserve’s profits.

 
 

 

 

  1. If the Federal Open Market Committee decides to expand the money supply, then it will
  a. raise the discount rate to member banks.
  b. issue directions to purchase government securities, thus putting more reserves in member banks.
  c. issue directions to sell government securities, thus taking reserves from member banks.
  d. order new Federal Reserve notes delivered to member banks.

 
 

44. Which of the following statements is correct?

  a. from the bank’s point of view, ​loans to customers are assets of the bank
  b. from the bank’s point of view, ​loans to customers are liabilities of the bank
  c. ​from the customer’s point of view, loans to customers are assets of the customer
  d. ​from the customer’s point of view, loans to customers are liabilities of the customer
  e. ​a and b only
  f. ​a and d only

 
 

45. If the banking system has $5 million in excess reserves, and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

  a. $25 million
  b. $20 million
  c. $5 million
  d. $2.5 million

 
 

 

 

46. The required reserve ratio is 10 percent, but banks actually keep 20 percent on reserve. The actual money multiplier will be

  a. 10.
  b. 9.
  c. 5.
  d. 2.
  e. 1.

 
 

47. If the Fed buys more bonds from the public, and increases the price it is willing to pay for the bonds, what will happen to interest rates?

  a. They will rise.
  b. They will fall.
  c. They will remain unchanged.
  d. The relationship between bond prices and interest rates is unclear.

 
 

 

 

48. If the Fed decides to buy T-bills, it increases the demand for T-bills. How will this affect the price of T-bills and the interest rate?

  a. T-bill prices fall and interest rates fall.
  b. T-bill prices rise and interest rates rise.
  c. T-bill prices rise and interest rates fall.
  d. T-bill prices fall and interest rates rise.

 
 

 
 

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