Demand and supply

1) The unemployment rate is the number of ?

2) The value of steel sold to an automobile producer is _ directly included in the GDP because _.

3) In the simplest Keynesian model of the determination of income, interest rates are assumed ?

4) An increase in the money supply will raise equilibrium GDP if the IS or IM curve?

5) The aggregate demand curve may be derived from the IS-LM analysis by shifting

6) Suppose that members of Congress and the President believe that the natural rate of unemployment is 2% but in fact it is 6%, and employing fiscal policy they increase AD each time unemployment rises above 2%. The underestimation of the natural rate combined with adaptive expectations will lead to?

7) Unanticipated inflation will hurt _ and help _.

8) Once monetary policy is dedicated to controlling the level of nominal GDP, then fiscal policy can be used to?

9) A major side-effect of a simulative fiscal policy is that it will ?

10) The conditions for joining the “Euro” single-currency block led a number of European countries to _ and consequently reduce their debt-GDP ratios.

11) The national debt must eventually be paid off to ?

12) Over a decade or longer, a government budget deficit ?

13) As an individual, you cannot participate in the financial markets to issue new stock or sell new bonds because?

14) The quantity equation makes the demand for money depend on ?

15) The quantity theory of money assumed?

16) Keynes’s “speculative motive” for holding money is?

17) If the level of interest rates increases, then the current value and price of a bond paying a fixed interest payment will?

18) The central issue in the stabilization policy debate is?

19) The increase of the real money supply by 10% by the Federal Reserve when the unemployment rate rises by 1% is an example of ?

20) Non-activists believe that the IS curve is ?

21) In the early 1970s monetary growth was relatively stable yet unemployment and prices were quite unstable. This suggests that ?

22) A policymaker would prefer that the lag in the effect of a policy be ?

23) Which of the following statements best describes the rational expectations hypothesis? Individuals will not enter into long-term agreements unless they are certain about the payments they will receive; it is likely that individuals will consistently make errors; it is reasonable to expect individuals to consistently underestimate the level of inflation; individuals will make random errors, independent of previous errors

24) Business cycles will occur if either of the two theories below characterizes the behavior of the economy deflation impotence or rigid nominal wages and/or the classical or the real balance theory and/or the classical or the Keynesian theories of aggregate demand.

25) If it is less costly for business firms to adjust the labor demanded as the price level changes than it is for households to adjust Ns, then in the short-run?

26) Switzerland has experienced the lowest rate of price increases in the post World War II period. Consequently, Lucas would predict?

27) According to the classical model, real wages should do what during recessions?

28) The structural deficit is?

29) The natural employment surplus _ be used to determine the effectiveness of discretionary fiscal policy actions because __.

30) The cyclical deficit is?

31) The 2001 recession was caused principally by ?

32) A government budget deficit is financed by a combination of ?

33) The ballooning of the U.S. foreign debt to 500 billion dollars by 1988 implied that ?

34) If the Federal Reserve intervenes in the foreign-exchange markets and buys foreign currencies? PROBLEM 1

(Weight 40 points) Derive the LM curve by one of the standard methods shown either in the Gordon Macroeconomics text or in the Soule IMS reference. Be sure to label all axis and curves on your graphs.Explain in writing to what market your derivation brings equilibrium and how it accomplishes this.


(Weight 40 points) Derive the IS curve by one of the standard methods shown in either the Gordon Macroeconomics text or in the Soule IMS reference. Be sure to label all axis and curves on your graphs.Explain in writing to what market your derivation brings equilibrium and how it accomplishes this.


(Weight 50 points)What are the principal differences between flexible and fixed exchange systems?

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