1.Suppose that in the first quarter of the year, real GDP is $3,000 billion and aggregate demand is $2.800 billion. (Chpt. 9 Appendix)

a. Are inventories accumulating or being depleted?

b. What is the value of the change in inventory holdings?

c. Will businesses produce $3 trillion worth of output in the second quarter of the year?

d. Is $3 trillion the equilibrium level of output?

2.In the country of Midland, autonomous consumption expenditure is $60 million, and the marginal propensity to consume is 0.6. Investment is $110 million, government expenditure is $70 million, and there are no income taxes. Investment and government expenditure are constantthey do not vary with income. The nation does not trade with the rest of the world. (Chpt. 9 Appendix)

a. Draw the aggregate expenditure curve.

b. What is the autonomous aggregate expenditure?

c. What is the size of the multiplier in Midland's economy?

d. What is aggregate planned expenditure and what is happening to inventories when real GDP is $800 million?

e. What is the economy's equilibrium aggregate expenditure?

3.In 1939, with the U.S. economy not yet fully recovered from the Great Depression, President Roosevelt proclaimed that Thanksgiving would fall a week earlier than usual so that the shopping period before Christmas would be longer. Explain what President Roosevelt might have been trying to achieve, using the model of aggregate demand and aggregate supply. (Chpt. 9)

4.Suppose an economy has no income taxes or imports. How is the size of the expenditure multiplier related to the marginal propensity to consume? What is the multiplier if the MPC equals 0.25? If the MPC equals 0.50? If the MPC equals 0.90? (Chpt. 11)

5.If the Aggregate Expenditure (AE) shortfall is $700 billion and the MPC is 0.95 (Chpt. 11)

a.How large is the desired fiscal stimulus?

b.How large an income tax cut would be needed?

c.Alternatively, how much more government spending would achieve the target?

6.For each of the following events, what is its effect on prices and output in the short run? (Chpt. 11)

a. Prices of houses fall

b. Businesses become more optimistic

c. The government undertakes expansionary fiscal policy

d. Energy prices risee. The labour force increasesf. Taxes are increased

7.Recall that money serves three functions in the economy. What are those functions? How does inflation affect the ability of money to serve each of these functions? (Chpt. 13)

8.The economy of Baruchville contains 2000 $1 bills. (Chpt. 13)

a. If people hold all money as currency, what is the quantity of money?

b. If people hold all money as demand deposits and banks maintain 100% reserves, what is the quantity of money?

c. If people hold equal amounts of currency and demand deposits and banks maintain 100% reserves, what is the quantity of money?

d. If people hold all money as demand deposits and banks maintain a reserve ratio of 10%, what is the quantity of money?

e. If people hold equal amounts of currency and demand deposits and banks maintain a reserve ratio of 10%, what is the quantity of money?

9.Beleaguered State Bank (BSB) holds $250 million in deposits and maintains a reserve ratio of 10%. (Chpt. 13)

a. Show a T-account for BSB.

b. Now suppose that BSB's largest depositor withdraws $10 million in cash from her account. If BSB decides to restore its reserve ratio by reducing the amount of loans outstanding, show its new T-account.

c. Explain what effect BSB's action will have on other banks.

d. Why might it be difficult for BSB to take the action described in part (b)? Discuss another way for BSB to return to its original reserve ratio.