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QUESTION 1
1.Consider Figure 13.2. The aggregate demand curve __________ displays a relatively aggressive monetary policy, while the curve __________ displays a monetary policy completely unresponsive to changes in inflation.
AD2; AD1 | ||
AD2; AD3 | ||
AD3; AD4 | ||
AD1; AD3 | ||
None of the above |
2 points
QUESTION 2
1.On the aggregate supply curve, an increase in inflation causes __________, while a price shock causes __________.
an upward movement along the curve; the curve to shift. | ||
downward movement along the curve; the curve to shift. | ||
the curve to shift; movement along the curve. | ||
downward movement along the curve; upward movement along the curve. | ||
Not enough information is given. |
2 points
QUESTION 3
1.The adjustment process back to the steady state in the short-run model hinges on the:
rate of unemployment. | ||
immediate reaction to a change in the inflation rate. | ||
consumer’s response to inflation shocks. | ||
government’s response to inflation shocks. | ||
slow adjustment of inflation reflected in the aggregate supply curve. |
2 points
QUESTION 4
1.Consider the government’s intertemporal budget constraint:
Term A is __________, and term B is __________.
the present value of government spending; the initial debt | ||
the total annual spending; the deficit | ||
the initial period’s spending; the initial debt | ||
the present value of government spending and taxes; the present value of government spending | ||
None of the above is correct. |
2 points
QUESTION 5
1.The economic meaning of the intertemporal budget constraint is that:
the government’s budget never has to balance. | ||
the government’s budget must balance period by period. | ||
the present discounted value of the government’s budget must balance. | ||
the government can always push its debt on future generations. | ||
every generation faces the same tax schedule. |
2 points
QUESTION 6
1.An implication of the intertemporal budget constraint is that:
the government can borrow only as much as it can credibly pay back. | ||
the government can borrow as much as it wants. | ||
the government must always have a balanced budget. | ||
the government must balance its budget over the business cycle. | ||
all generations pay the same amount of taxes. |
2 points
QUESTION 7
1.Consider the IS–MP model in Figure 14.2 above. Starting from the long-run equilibrium, the burst of the housing bubble and the appropriate Fed response, WITHOUT a financial friction, can be shown as a movement from point ________ to point ________, and the economy is in ________.
c; e; its long-run equilibrium | ||
d; b; its long-run equilibrium | ||
b; a; an expansion | ||
a; d; a recession | ||
a; d; an expansion |
2 points
QUESTION 8
1.Consider the IS–MP model in Figure 14.2 above. Starting from the long-run equilibrium, the burst of the housing bubble and the appropriate Fed response, with a large, positive financial friction, can be shown as a movement from point ________ to point ________, and the economy is in ________.
d; b; its long-run equilibrium | ||
b; a; an expansion | ||
d; f ; a recession | ||
d; c; its long-run equilibrium | ||
e; f ; a recession |
2 points
QUESTION 9
1.Consider Figure 14.4 above. Throughout the first three-fourths or so of 2009 the:
real interest rate on 10-year bonds was lower than the nominal interest rate | ||
10-year-bonds’ nominal interest rate was higher than the real interest rate | ||
inflation rate was negative | ||
real interest rate was negative | ||
inflation rate was higher than the nominal interest rate |
2 points
QUESTION 10
1.Consider Figure 14.4 above. For most of 2008 the:
real interest rate was negative | ||
10-year-bonds’ nominal interest rate was less than the real interest rate | ||
real interest rate was zero | ||
real interest rate was positive | ||
None of these answers are correct. |
2 points
QUESTION 11
1.Why the aggregate supply curve (AS curve of Ch. 13) is upward sloping?
QUESTION 12
1.What is the most pressing fiscal problem for the twenty-first century? What could be done to correct it?
QUESTION 13
SECTION 1
Because deflation is so costly, some have argued that setting an inflation target at 2 percent is too low and it should be set higher, to 3 percent, especially in the economic environment of 2007–2010.
a.Consider the impact of such an increase in the inflation target using the AD/AS framework in the short and long run. Begin your analysis in the long-run equilibrium.
b.How would you change your answer if expectations are rational and the FED is credible?
SECTION 2
Your uncle is pleased to hear you are taking macroeconomics; the whole financial crisis of 2008-2009 puzzled him. He was not happy about “bailing” out the banks. He is pretty good with graphs, so do not be afraid to use the IS-MP framework to explain the following:
a.How does the rapid decline of the housing market and the subprime implosion affect the macroeconomy?
b.Why the monetary policy was not being effective to stimulate the economy?
c.And why, pray tell, would we bail out the banks? Aren’t there potential long-run problems with doing this?
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Explanation & Answer
Attached.
Hello client
should I answer the questions on a different word document and just mark the answer as A,B,C
or D Please clarify.Thanks
Attached.
1
Test 3 Intermediate Macroeconomics
Student’s Name
Institutional Affiliation
Course Number and Name
Instructor’s Name
Assignment Due Date
2
Test 3 Intermediate Macroeconomics
PART I
1. B
2. A
3. E
4. C
5. E
6. C
7. C
8. A
9. D
10. E
PART 2
1. Why the aggregate supply curve (AS curve of Ch. 13) is upward sloping
The aggregate supply curve slopes upward because the firms and the workers have not
predicated future changes in the price of goods accurately. The firms have maintained a steady
supply of the commodity, and they have not taken into consideration the future fall in prices due
to the fluctuation of the commodity into the market.
2. What is the most pressing fiscal problem for the twenty-first cen...