Please answer FRQS 1,2,3,4 with legible handwriting, incorrect graphs
FRQ's 2011B FRQ #3 (2008) 1. Assume that the economy of Meekland is in a long-run equilibrium with a balanced government budget. 1. Assume the United States economy is operating at full-employment output and the government has a balanced (a) Using a correctly labeled graph of aggregate supply and aggregate demand, show each of the budget. A drop in consumer confidence reduces consumption spending, causing the economy to enter into a following. (i) Long-run aggregate supply (ii) The output level, labeled YE, and the price level, labeled PLE recession. (a) Using a correctly labeled graph of the short-run Phillips curve, show the effect of the decrease in (b) Assume consumer confidence falls. Show on your graph in part (a) the short-run impact of the change in consumer confidence and label the new equilibrium price level and output Y1 and consumption spending. Label the initial position "A" and the new position "B". PLI, respectively. (c) Using a correctly labeled graph of the short-run and long-run Phillips curves, show the effect (b) What is the impact of the recession on the federal budget? Explain. of the fall in consumer confidence on inflation. Label the initial long-run equilibrium point A and (c) Assume that current real gross domestic product falls short of full-employment output by $500 billion and the new short-run equilibrium point B. (d) If the government and the central bank do not pursue any discretionary policy change, how the marginal propensity to consume is 0.8. does the fall in consumer confidence affect government transfer payments in Meekland? Explain. (i) Calculate the minimum increase in government spending that could bring about full employment. (e) Draw a correctly labeled graph of the loanable funds market in Meekland and show the effect of the change in government transfer payments you identified in part (d) on the real interest rate. (ii) Assume that instead of increasing government spending, the government decides to reduce personal (f) In the absence of any changes in fiscal and monetary policies, in the long run will the short- income taxes. Will the reduction in personal income taxes required to achieve full employment be run aggregate supply curve shift to the left, shift to the right, or remain unchanged as a result of the fall in consumer confidence? Explain. larger than or smaller than the government spending change you calculated in part (c)(i) ? Explain FRQ #2 (2016 #2) 2. The following is the balance sheet of First Superior Bank. FRQ #4 (2007 #2) In recent years the Federal Reserve has made targeting the federal funds rate a main Assets Liabilities and Equity Reserves $200 Demand deposits $2,000 focus of its monetary policy. Loans $1.800 Equity (net worth) a) Define the federal funds rate. b) If the Federal Reserve wants to lower the federal funds rate, what open- Assume that the required reserve ratio is 10 percent. market operation would be appropriate? (a) What is the dollar value of new loans that First Superior Bank can make? Explain. c) Assume that the open-market operation in part (b) is equal to $10 million. If (b) Mr. Smith deposits $100 of cash in a demand deposit account in First Superior Bank. Calculate the the required reserve ratio is 0.2, calculate the maximum charge in loans maximum amount of new loans that First Superior Bank can now make. (c) As a result of Mr. Smith's $100 cash deposit, calculate the maximum change over time in each of the throughout the banking system. d) Indicate the effect of the open-market operation in part (b) on the nominal following in the banking system. ( Loans interest rate. e) Assume that the Federal Reserve's actions result in inflation. What would be (ii) Demand deposits the impact of the open-market operation on the real rate of interest? Explain. (d) As a result of Mr. Smith's $100 cash deposit, calculate the maximum change over time in the money supply. (e) Provide one reason why the actual change in money supply can be smaller than the maximum change you identified in part (d)
