ECON 214

 

Problem Set 3

 

Complete all questions listed below. Clearly label your answers.

 

 

 

1. Will increases in government spending financed by borrowing help promote a strong recovery from a severe recession. Why or why not?

    

2. Does fiscal policy have a strong impact on aggregate demand? Did the shift of the federal budget from deficit to surplus during the 1990s weaken aggregate demand? Did the government spending increases and large budget deficits of 2008–2011 strengthen aggregate demand? Discuss.

    

3. What is the current rate of unemployment? (See bls.gov and state the month you are reporting.) How rapidly has GDP grown during the past 3 years? (See bea.gov and state the annual growth rate for each year.) What do these figures indicate about the validity of the Keynesian view?

    

4. Are changes in discretionary and fiscal policy likely to be instituted in a manner that will reduce the ups and downs of the business cycle? Why or why not?

 

 

 

 

Problem Set 4

 

 

 

Complete all questions listed below. Clearly label your answers. 

 

 

 

 

 

 

 

1. What determines whether a financial asset is included in the M1 money supply? Why are interest-earning checkable deposits included in M1, whereas interest-earning savings accounts and Treasury bills are not?

    

2. Why are banks able to maintain reserves that are only a fraction of the demand and savings deposits of their customers? Is your money safe in a bank? Why or why not?

    

3. What is the Federal Funds Interest rate? if the Fed wants to use open market operations to lower the federal funds rate, what action should it take?

    

 

 

 

4.   Suppose that the reserve requirement is 10 percent and the balance sheet of the People’s National Bank looks like the accompanying example.

 

 

 

 

 

 

 

1. What are the required reserves of People’s National Bank? Does the bank have any excess reserves?

2. What is the maximum loan that the bank could extend?

3. Indicate how the bank’s balance sheet would be altered if it extended this loan (show the new t-account).

4. Suppose that the required reserves were 20 percent. If this were the case, would the bank be in a position to extend any additional loans? Explain.

 

 

 

 

 

 

 

 

 

 

 

 

Problem Set 5

 

Complete all questions listed below. Clearly label your answers.

 

 

 

1. What impact will an unanticipated increase in the money supply have on the real interest rate, real output, and employment in the short run? How will expansionary monetary policy affect these factors in the long run? Explain.

    

2. How rapidly has the money supply (M1) grown during the past twelve months? State the rate of growth (use http://www.federalreserve.gov/releases/h6/) and the most recent release, use the seasonally adjusted figures. Calculate the rate of growth across the year by taking the (new amount of M1- old amount of M1)/old amount of M1). Given the state of the economy, should monetary authorities increase or decrease the growth rate of money? Explain why.

    

3. Is stability in the general level of prices through time important? Why or why not? Should price stability be the goal of monetary policy? Explain your responses.

    

4. Compare and contrast the impact of an unexpected shift to a more expansionary monetary policy under rational and adaptive expectations. Are the implications of the two theories different in the short run? Are the long-run implications different? Explain.

 

 

 

 

Problem Set 6

 

 

 

Complete all questions listed below. Clearly label your answers. 

 

 

 

1. What impact do natural resources have on economic growth? Will it be possible for a country with few natural resources to grow rapidly? Why or why not.

    

2. Suppose you have just been appointed to a high level position in the economic analysis unit of the State Department. The secretary of state has asked you to prepare a memo describing the key policies and economic arrangements that a specific less developed country should follow in order to achieve rapid growth and higher income levels. During your research, you discover that multiple Christian aid organizations have been working in the country to assist the local population. Briefly describe your response (2–3 paragraphs). Be sure to indicate why each factor you mention is important if a nation is going to attain a high level of economic progress.

    

3. Using the most recent available rankings of Economic Freedom available at http://www.heritage.org/index/ranking, indicate five of the world’s economies that are the most free. Using textbook information, indicate how income levels and growth rates of freer economies compare with those that are less free.

    

4. Has the United States become more or less economically free during the past decade? What impact will this have on the future economic growth of the United States?