| Question | Draw the short-run Phillips curve and the long-run Phillips curve. Explain why they are different. |
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| Subject | business-economics |
Order the answer to: Draw the short-run Phillips curve and the long-run Phillips curv
Order the answer to: Draw the Phillips curve. Use the model of aggregate demand
| Question | Draw the Phillips curve. Use the model of aggregate demand and aggregate supply to show how policy can move the economy from a point on this curve with high inflation to a point with low inflation. |
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| Subject | business-economics |
Order the answer to: Some members of Congress have proposed a law that would
| Question | Some members of Congress have proposed a law that would make price stability the sole goal of monetary policy. Suppose such a law were passed. a. How would the Fed respond to an event that contracted aggregate demand? b. How would the Fed respond to an event that caused an adverse shift in short-run aggregate supply? In each case, is there another monetary policy that would lead to greater stability in output? |
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| Subject | business-economics |
Order the answer to: For various reasons, fiscal policy changes automatically when ou
| Question | For various reasons, fiscal policy changes automatically when output and employment fluctuate. a. Explain why tax revenue changes when the economy goes into a recession. b. Explain why government spending changes when the economy goes into a recession. c. If the government were to operate under a strict balanced-budget rule, what would it have to do in a recession? Would that make the recession more or less severe? |
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| Subject | business-economics |
Order the answer to: In which of the following circumstances is expansionary fiscal p
| Question | In which of the following circumstances is expansionary fiscal policy more likely to lead to a short-run increase in investment? Explain. a. When the investment accelerator is large or when it is small? b. When the interest sensitivity of investment is large or when it is small? |
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| Subject | business-economics |
Order the answer to: Suppose government spending increases. Would the effect on aggre
| Question | Suppose government spending increases. Would the effect on aggregate demand be larger if the Federal Reserve held the money supply constant in response or if the Fed were committed to maintaining a fixed interest rate? Explain. |
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| Subject | business-economics |
Order the answer to: An economy is operating with output $400 billion below its
| Question | An economy is operating with output $400 billion below its natural rate, and fiscal policymakers want to close this recessionary gap. The central bank agrees to adjust the money supply to hold the interest rate constant, so there is no crowding out. The marginal propensity to consume is 4?5, and the price level is completely fixed in the short run. In what direction and by how much would government spending need to change to close the recessionary gap? Explain your thinking. |
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| Subject | business-economics |
Order the answer to: Suppose the government reduces taxes by $20 billion, that there
| Question | Suppose the government reduces taxes by $20 billion, that there is no crowding out, and that the marginal propensity to consume is ¾. a. What is the initial effect of the tax reduction on aggregate demand? b. What additional effects follow this initial effect? What is the total effect of the tax cut on aggregate demand? c. How does the total effect of this $20 billion tax cut compare to the total effect of a $20 billion increase in government purchases? Why? d. Based on your answer to part (c), can you think of a way in which the government can increase aggregate demand without changing the government’s budget deficit? |
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| Subject | business-economics |
Order the answer to: Suppose economists observe that an increase in government spendi
| Question | Suppose economists observe that an increase in government spending of $10 billion raises the total demand for goods and services by $30 billion. a. If these economists ignore the possibility of crowding out, what would they estimate the marginal propensity to consume (MPC) to be? b. Now suppose the economists allow for crowding out. Would their new estimate of the MPC be larger or smaller than their initial one? |
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| Subject | business-economics |
Order the answer to: In the early 1980s, new legislation allowed banks to pay
| Question | In the early 1980s, new legislation allowed banks to pay interest on checking deposits, which they could not do previously. a. If we define money to include checking deposits, what effect did this legislation have on money demand? Explain. b. If the Federal Reserve had maintained a constant money supply in the face of this change, what would have happened to the interest rate? What would have happened to aggregate demand and aggregate output? c. If the Federal Reserve had maintained a constant market interest rate (the interest rate on nonmonetary assets) in the face of this change, what change in the money supply would have been necessary? What would have happened to aggregate demand and aggregate output? |
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| Subject | business-economics |
