Why are banks holding so many excess reserves and why is the money multiplier less than one? (500 - 650 word explanation please!)

As of March 2020, the average unemployment rate in Europe (6.6%) is higher than in the U.S. (3.5%).

A. Explain one difference between the European and U.S. economies that is consistent with more structural unemployment in Europe.

B. Explain one difference between the European and U.S. economies that is consistent with more frictional unemployment in Europe.

Briefly explain the economic philosophy behind the New Deal and give an example.

1. Consider the Solow growth model with population growth and growth in the efficiency of labor. Suppose that 2 countries A and B have the same production function given by Yt = Ktα(LtEt)1−α, the same rate of growth of E (g), the same depreciation rate of physical capital (δ) and the same saving rate s. The initial level of E, E0, is lower in country A than in country B.

   1. (a) Compare the steady-state levels of output per effective worker of these two coun- tries.

   2. (b) Assume now that at time 0 both countries are above the steady state and that k0A = k0B (i.e., the level of capital per effective worker at time 0 is the same in both countries) and continue to assume that the initial level of E is higher in country B than in country A. Draw log of output per capita for these two countries as a function of time (have time on the x-axis) starting in period 0 and show how they both converge to their respective balanced growth paths.

   3. (c) Do these countries converge to each other in output per capita? Defend your answer.

What is reciprocal arbitrage?

1. Discuss the differences calculating GDP using the expenditure approach and income approach. Be specific, do not just write the formula.

Q.2 AD-AS model analysis for an increase in oil price

• Start with an initial AD-AS model with full employment equilibrium. Please label all the axes and the curves. Label the equilibrium as “1”.

• Let’s say that there is an oil shock (the price of oil has increased). What happens to which curve? Make sure to show the changes in the above AD-AS model. Therefore, what happens to the equilibrium and the economic condition? Explain all the changes in writing as well.

• What do we call this economic status? Explain how this economic situation is not the same as the recession in general.

Suppose the country is currently experiencing a recession. What type of fiscal policy can the government use to fight off recession?

1. Explain with (2-3 sentences) whether each of the following would cause the value of the multiplier to be larger or smaller.

   1. An increase in real GDP increases imports

   2. An increase in real GDP increases interest rates

   3. An increase in real GDP increases MPC

   4. An increase in real GDP causes the average tax rate paid by households to decrease

   5. An increase in real GDP increases the price level

Suppose the economy is initially in long-run equilibrium and there is a positive demand shock. Using the AD-AS diagram clearly describe the effects of the demand shock in the short run and how the economy will adjust through the self-correcting mechanism in the long run

Katanya Lyon operates the “Lyon King” hamburger stand at her local weekend market. She sells only two types of burgers: the MegaMeat burger with the works, and the PowerVeg burgers. Katanya employs the following family members:

• Sister Tankaya prepares bread rolls (including toasting and buttering). She gets cranky a lot because the toaster often overheats and the rolls get burnt and have to be thrown away;

• Brother Donnie, who is in charge of grilling (either meat patties or veggie patties; as well as grilling onion and frying eggs). Donnie only grills meat patties and veggie patties in different batches; he will never allow both meat patties and veggie patties to sit on the grill at the same time. Donnie believes that “mixed-grilling” is disrespectful to all the vegetarians out there. In contrast with Tankaya, Donnie is very relaxed, even when the grill breaks down (which happens twice a month on average).

• Mother Bonnie, who performs cutting and assembling activities (cutting lettuce and tomatoes, putting together the patties, eggs and the salad ingredients);

• Katanya looks after cash receipts herself.

  Katanya has a simple operation with only three major pieces of equipment: two toasters and one (very expensive) BeefEater Barbeque SL4000 Unit. Three suppliers provide all the main ingredients: the local butcher “Butch-a-Way” provides the meat patties and eggs, a vegetable supplier “All-Vegged-Out” supplies the salad ingredients; and “We-Bake” bakery supplies the bread rolls.

  Further, Katanya believes in specialisation; each employee focuses only on his/her own process. In particular, Katanya does not trust Donnie with the money, and she would never contemplate getting involved in the grilling process herself. In addition to cutting and assembling, Bonnie (who is good at haggling) is also in charge of negotiating deals with the suppliers. By purchasing in bulk she often manages to get large discounts.

  Required: **Make sure that your answers are specific to the case!**

  (a) Identify examples of the following potential constraints in Katanya’s operation:

  • Demand/market constraint

  • Supply constraint

  • Material constraint

  • Capacity constraint

  • Logistical constraint

  • Managerial constraint

  • Behavioural constraint

    (b) Briefly explain how the concepts behind TOC can help Katanya to better manage time, cost and quality in her hamburger business.

When considering the merits of employment resulting from a project, which of the following questions is most important?

Government spending programs that create jobs are often popular because

When the government funds a project that will create jobs, the funds for the project

Imagine that you are the Surgeon General of the United States, who formulates national health policy. (A former Surgeon General, C. Everett Koop, formulated the crusade against tobacco smoking a generation ago). Describe what you believe is the primary health problem in the United States today. Justify your choice with as many facts (minimum 3) as you can find. Describe the steps you believe should be taken by a) government,b) private companies, c) organizations, and d) individuals to eradicate this health problem.