ECON 2120 Yan Hao Final Review
Refer to question E. How many more capitals are being purchased by the end of 2023? (Hint: what is net investment?)
$1000
Refer to question E. What is the investment in 2023?
$1200
There are 100 workers in Yan's badminton factory. The factory produces badminton rackets and string. Five workers are required to produce a racket. Two workers are required to produce a string reel. What is the marginal cost of producing a racket?
2.5 string reels.
Refer to graph C. Suppose the saving rate is 0.2 (or 20%). What is investment when capital per worker is 10?
20
Refer to graph B. Which of the following is a possible output level when capital equals 7?
21.8
Refer to graph B. What is the marginal product of the third capital? (Hint: increment of output when capital increases from 2 to 3.)
3
The reserve balances with Federal Reserve Banks during the pandemic is around...
3-4 trillion dollars.
Refer to graph C. How much more investment will be made when the saving rate raises to 0.7 (or 70%), when the capital per worker is still 10?
50
What was the total public debt as a percent of GDP in 2020?
It was over 130%.
How would the Fed selling bonds in OMO's affect the economy?
It will decrease money supply.
Refer to graph D. When an economy is at point B, how would capital stocks change in the next year?
It would be higher.
Refer to graph D. When an economy is at point C, how would capital stocks change in the next year?
It would be higher.
Refer to question E. How would capital stocks change from 2023 to 2024?
It would be higher.
Refer to graph D. When an economy is at point D, how would capital stocks change in the next year?
It would stay contant.
Which of the following is the best description of economic growth in the AD-AS model?
LRAS shifts to the right.
Which program takes the largest share of federal government outlays?
Mandatory programs.
The idea that the money supply does not affect real economic variables is known as...
Monetary neutrality.
According to the interest rate effect, all else equal, a lower price level leads to...
More savings and higher volume of investment.
The Fed conducted three rounds of LSAPs. The Fed was purchasing which of the following assets?
Mortgage-backed securities and Long-term treasury securities.
Which of the following best describes would would lead to a higher price level?
an increase in AD or a decrease in SRAS.
Suppose the left shift in AD generated a recessionary gap at a level of $100. You observed that households, on average, spend 80% on consumption for each additional dollar they received. How much money should the federal government spend to cover the recessionary gap? Spending multiplier = 1 / (1 - MPC)
$20
Refer to question E. What is the depreciation?
$200
Refer to question E. What would be the capitals owned by firm A in the beginning of 2024?
$2000
How would a decrease in SRAS caused by increased government regulation affect the equilibrium price level (Pe), equilibrium output (Ye), and the full employment level of output Yf in an economy?
(Pe) up, (Ye) down, (Yf) no change.
There are 100 workers in Yan's badminton factory. The factory produces badminton rackets and string. Five workers are required to produce a racket. Two workers are required to produce a string reel. Which of the following combination of rackets and string reels is a result of an efficient production (a combination on the PPF)?
A combo of 16 rackets and 10 string reels.
What impact would a relax in business regulation have in the short run?
A positive SRAS shock and lower inflation.
You observe an economy at point A (the equilibrium point of AD and SRAS, to the right of LRAS), what would happen in the long run?
A rise in unemployment rate and inflation.
Which of the following is considered a transfer payment when made by the government?
A social security payment to a retired person.
Which of the following is TRUE when the money supply becomes higher.
AD shifts to the right.
Which of the following is true when the relative value of the US dollar becomes lower compared to currencies of other nations?
AD shifts to the right.
How did Kennedy's tax cut in 1963 affect the US economy?
Aggregate demand deviated from long run equilibrium, and shifted to the right.
Refer to graph D. Suppose the economy is now at point D. Where could be the possible position of it if most of its capitals are destroyed by a severe natural disaster?
All of points A, B, and C.
When an economy is in steady state, which of the following can foster a further economic growth?
All of the following: - An improvement of institutions - an increase of human capital - a rise of saving rate - an improvement of technology
Which of the following best describes the shortcomings of fiscal policy?
All of the following: - It takes time to recognize and implement fiscal policy - It will reduce private investment - It could enlarge the budget deficit
If all nations are identical, without considering any shocks, which of the following is TRUE?
All of the following: - Real per capita GDP of all nations stop growing at the same point - Nations with more capitals are closer to the steady state - Nations with lower capitals can benefit from a higher marginal product of capital
Which of the following would most likely cause a right shift of AD?
An increase in consumer spending.
Which of the following, holding all other factors constant, will certainly cause the aggregate demand curve to shift to the left?
An increase in import.
Refer to graph G. You observe a left shift in the AD curve. What will happen if the government implements an expansionary fiscal policy?
An inflation.
Which of the following could cause an unanticipated increase in both the inflation rate and the unemployment rate?
An unanticipated increase in energy prices.
The government raising taxes is an example of...
Contractionary fiscal policy.
The Fed selling bonds in OMO's is an example of...
Contractionary monetary policy.
Developing countries will catch up to developed countries because the developed countries have already made new discoveries and have documented mistakes to avoid in the development process. This idea is known as...
Convergence.
Firm A owns $1000 worth of capital. Its current depreciation rate is 10%. Holding the depreciation rate constant, how would depreciation change if it owns $2000 worth of capital?
Depreciation becomes higher.
Firm A owns $1000 worth of capital. Its current depreciation rate is 10%. With current capital stocks, how would depreciation change if the depreciation rate becomes higher? How would the slope of depreciation line change?
Depreciation becomes higher; The line is steeper.
When the FOMC raised or lowered its policy rate, it also raised or lowered the...
Discount rate.
Assuming that an economy is in a recession with less than full employment, the goal of ____________ conducted by the Fed is to shift AD to the right so that the economy returns to full employment without waiting for long-run adjustments.
Expansionary monetary policy
Refer to graph H. Which of the following is TRUE when the level of production is at (Yo).
Firms produce too less. They will hire more workers and produce more in the future.
Which of the following statements is TRUE when marginal propensity to consume becomes larger?
For each dollar received by households, the spend more on consumption.
Refer to graph A. Which of the following stands for a recovery from recession?
From point A to point C
Which of the following is TRUE regarding the AD/AS model when a natural disaster has a long run impact to an economy.
Full-employment output falls.
You observed that people become less willing to spend on consumption. Which of the following is TRUE?
Government has to spend more on government purchases to cover the recessionary gap.
Refer to graph F. You observe the economy is at point A. It is overheated. Which of the following is true?
Government will implement a contractionary fiscal policy.
According to the wealth effect, all else equal, a lower price level leads to...
Higher real-wealth values and a higher quantity of AD.
In ample-reserves framework, which of the following tools would Fed use to guide the FFR?
IOR rate and ON RRP rate.
In ample-reserves framework, what would the FOMC do to raise the FFR?
Increase IOR rate and ON RRP rate
When the overall price level rises,
Inflation rate is positive.
Which of the following becomes the primary tool in the ample-reserves framework?
Interest on reserves.
Refer to graph D. Suppose the economy is now at point D. How would net investment change when saving rate becomes higher?
It becomes positive.
What are the shortcomings of an expansionary fiscal policy?
It can cause a budget defecit?
In Keynesian cross model, when the government raises its level of government purchases, which of the following statements is true?
It causes a greater increase in the real output.
Refer to graph D. When an economy is at point B, which of the following is TRUE regarding net investment?
Net investment is positive.
Refer to graph D. When an economy is at point C, which of the following is TRUE regarding net investment?
Net investment is positive.
Refer to graph D. When an economy is at point D, which of the following is TRUE regarding net investment?
Net investment is zero.
Which of the following would cause a rise in the overall price level?
None of them.
Refer to graph D. Suppose the economy is now at point D. Where could be the possible position of its new steady state when depreciation rate becomes lower?
On the right side of point D.
Refer to graph D. Suppose the economy is now at point D. Where could be the possible position of its new steady state when saving rate becomes higher?
On the right side of point D.
Prior to the 2007-2009 Financial Crisis, which of the following was the primary tool when the Fed implements monetary policy?
Open market operations.
From a long run perspective, how do firms respond to a rise of the overall price level?
Output stays constant.
Refer to Graph A. Which point represents an inefficient production?
Point A
Refer to graph A. Which of the following combination of consumption and investment goods reflects full-employment output?
Point B and point C
Refer to graph D. Which of the following points is the steady state point?
Point D
What is the impact of expansionary monetary policy on real GDP and the price level in the short run?
Real GDP will rise, and the price level will rise.
Which of the following is TRUE if you observe a decrease of input prices?
SRAS shifts to the right.
The federal funds rate is a...
Short-term nominal interest rate.
Suppose consumption broadly increases across the entire economy. Which of the following is TRUE regarding aggregate demand?
The AD curve shifts outward.
Which of the following agencies take the responsibility of decision making of monetary policy?
The Federal Open Market Commette.
The wealth effect can help explain
The negative slope of the AD curve
Which variable is on the vertical axis in the AD/AS model?
The overall price level.
Which of the following best describes the influence of an expansionary fiscal policy?
Unemployment rate falls.
Refer to graph G. You observe a left shift in the AD curve. In the long run, without government intervention, which of the following is TRUE?
Unemployment rate will be lower.
Starting at the long-run equilibrium point, what will be the long run impact of a negative AD shock on nominal wages and the level of unemployment rate to the economy?
Wages fall, u stays constant.
Refer to question E. Is investment greater than depreciation?
Yes
Refer to graph D. Suppose the economy is now at point D. What is net investment now?
Zero.
In a given year, a country takes in $1.1 billion in taxes but spends $2.3 billion. With certainty we can say that the government debt...
increased by more than $1.1 billion.
After receiving some bad news regarding the economic environment, consumers believe that their future income would be lower. This causes a(n)
left shift of AD.
