According to Neoclassical economists the following is a means to stimulate economic growth?

government spending to increase demand

high taxes

low taxes

The Phillips curve illustrates a trade-off between ________ and ________.

the natural rate of unemployment rate; the actual unemployment rate

the natural rate of unemployment; inflation

unemployment; inflation

The theory of ________ assumes that individuals will use all information available to them to form the most accurate possible expectations about the future.

答案选项组

rational expectations

Keynesian economics

adaptive expectations

Which of the following more than likely caused housing prices to fall after the media reported about the subprime mortgage crisis?

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neoclassical theory

rational expectations

cyclical expectations

From a Keynesian view, during a recession, government investment in physical capital

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always generates positive returns to investment.

has no risk of crowding out private investment in physical capital.

helps increase the output and productivity of an economy.

Tax cuts that are explicitly temporary have less impact than permanent ones because

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temporary tax cuts are usually smaller than permanent ones.

temporary tax cuts always have less effect on the budget deficit than permanent ones do.

individuals and businesses do not change their behavior very much, since they do not expect the tax cuts to last.

10. If the marginal propensity to consume is 0.75 and investment spending decreases by $20 billion. Suppose all other aggregate expenditure components are autonomous, based on the Keynesian model, what will be the overall effect on GDP?

Select one:

a. GDP will decrease by $20 billion

b. GDP will increase by $15 billion

c. GDP will decrease by $80 billion

d. GDP will increase by $30 billion

e. GDP will decrease by $26.7 billion

11. One of the most serious effects of a banking panic (bank run) is that

Select one:

a. banks will not earn as much profit

b. banks will no longer be trusted by the public

c. people will not place their excess money in banking accounts

d. people may lose any accrued interest on their accounts

e. large withdrawals of cash lead to a severe decrease in reserves and ultimately in the money supply

12. Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years. To which problem in the construction of the CPI is this situation most relevant?

Select one:

a. substitution bias

b. introduction of new goods

c. unmeasured quality change

d. income bias

e. None of the above

13. The demand for money

Select one:

a. is the demand for bonds

b. is the demand for loans

c. increases whenever the price level falls

d. reflects the wealth or asset allocation problem that people face

e. shows the people always demand as much money as possible

14. A rightward shift of the economy's labor supply curve would result from a(n)

Select one:

a. cut in income tax rates or an increase in welfare benefits to the needy

b. cut in income tax rates or a cut in benefits to the needy

c. increase in income tax rates or a cut in benefits to the needy

d. increase in income tax rates or an increase in benefits to the needy

e. cut in income tax rates or a freeze on benefits to the needy

15. Investment from abroad (or foreign direct investment)

Select one:

a. is a way for poor countries to learn the state-of-the-art technologies developed and used in richer countries

b. is viewed by economists as a way to increase growth

c. noften requires removing restrictions that governments have imposed on foreign ownership of domestic capital

d. All of the above are correct

e. None of the above is correct

16. Countercyclical fiscal policy has a serious problem with

Select one:

a. the timing of its enactment and impact

b. the easy reversibility of policy

c. the tendency of the central bank to immediately counter government's action

d. the courts as it has been held to be unconstitutional

e. Presidential executive orders

17. When implementing monetary policy, the variable the Federal Reserve watches most closely is the

Select one:

a. required reserve ratio

b. federal funds rate (Fed funds rate)

c. long term bond rate

d. national debt

e. short-term corporate bond rate

18. If there is a surplus of the domestic currency at a fixed exchange rate,

Select one:

a. the currency will depreciate

b. the currency will appreciate

c. the country must switch to a floating exchange rate

d. the central bank must buy up that excess supply or the domestic currency will depreciate

e. the central bank must buy up that excess supply or the domestic currency will appreciate

19. If the central bank lowered the required reserve ratio,

Select one:

a. excess reserves would decrease

b. the money supply would decrease

c. the money supply would increase

d. banks would borrow more from the central bank

e. loans would earn more interest

Compare and contrast the use of government spending changes versus tax changes as a means of influencing the course of the economy. Is one or the other preferable in specific situations? Imagine for a moment that you have two roommates, who each have opposing viewpoints on nearly everything, including politics and economics. Taylor is adamant that the best way to manage the economy is through tax changes, while Morgan insists that it’s better to adjust the economy through government spending. What would a Neoclassical economist say? What would a Keynesian economist say? Which roommate do you agree with, and why? Find a news article to help support your opinion. Summarize the article and include the link to in your response.  Remember to cite your sources.

Assume the current ad spending for company Y is $4,000,000 with a sales of $34,000,000. Company X plans to spend additional $1,000,000 on advertising. It is estimated that the elasticity of ad is .25 for the initial sales increase. Furthermore, from historical data, it is learned that the carry-over effect of such ad is about 30% and the product profit contribution ratio is 35%.

Does it make sense to spend the additional $1,000,000 ? Why or why not? (5 points)

Since 30% carry-over effect is just an estimate and is subject to error. The management wants to do a sensitivity analysis. What should the minimum carry-over effect be to justify (break-even) the $1,000,000 additional spending? (5 points)

1. Research the importance and levels of investment spending in the US.

2. Explain the Interest Rate effect on business borrowing and levels of employment.

3. Collect official data on the Investment level in the US. See Instructions in the important document.

Victor is spending HKD300,000 per year and is quite satisfied with the present living lifestyle and standard. He is now 38 and plans to retire at age 60. He believes he can live up to age 85. He wants to keep 80% of the current living lifestyle and standard after retirement. Victor would like all the money for retirement to be ready when he retires. He also would like the retirement money for spending in a year to be ready at the beginning of every year. He plans to start saving for the retirement reserve with an equity unit trust fund of 10% annual rate of return. Average expected annual rate of return during his retirement period is 6%. Assume the average long term inflation is 4% p.a.

a. What is the required annual expenditure at the time when Victor retires at age 60?

b. What is the total amount of money required for 25 years after Victor’s retirement? (at the beginning of age 60)

c. How much should Victor save at the beginning of each month from now on until the age of 60 in order to meet the required amount at (c)?

Victor is spending HKD300,000 per year and is quite satisfied with the present living lifestyle and standard. He is now 38 and plans to retire at age 60. He believes he can live up to age 85. He wants to keep 80% of the current living lifestyle and standard after retirement.

Victor would like all the money for retirement to be ready when he retires. He also would like the retirement money for spending in a year to be ready at the beginning of every year. He plans to start saving for the retirement reserve with an equity unit trust fund of 10% annual rate of return. Average expected annual rate of return during his retirement period is 6%. Assume the average long term inflation is 4% p.a.

a. What is the required annual expenditure at the time when Victor retires at age 60?

b. What is the total amount of money required for 25 years after Victor’s retirement? (at the beginning of age 60)

c. How much should Victor save at the beginning of each month from now on until the age of 60 in order to meet the required amount at (c)?

Topic 8 Spending and Output in the Short Run

8.1 Explain the errors of the following arguments made by an economicsstudent:

a) “The textbook said that a higher interest rate lowers investment, but that doesn’t make sense. I know that if I can get a higher interest rate, I am certainly going to invest more in my savings account.”

b) “The newspaper said that the recent recession was caused by a decline in investment. This can’t be true. If there had just been a decline in investment, the only firms hurt would have been construction firms and other firms selling investment goods. In fact, many firms experienced falling sales during that recession, including department stores and firms selling consumer electronic products.”

8.2 Company A in country X is considering the investment in a project with the following (estimated) cost and benefit. The project has a life of 3 years and has zero value after the third year.

a) Suppose in year 0 Company A could borrow or lend at an annual interest rate of 4%. Explain clearly with calculation whether Company A will invest in this project.

b) Based on your answer in part (a) explain how an increase in interest rate to 5% will affect Company A’s investment decision.

c) There is a concern about the unemployment problem in country X and the lack of investment demand is regarded as one of the major reasons of unemployment. Suppose other firms in country X will be affected in the same way as Company A as described in part (a) and (b) above. Use the Keynesian model to explain the process of how a change in interest rate may help to solve the unemployment problem.

8.3 Consider the following Keynesian model: Consumption:

C = 200 + 0.7Yd

Lump-sum tax: T0 = 50

Proportional Tax Rate: t = 0.2

Government Expenditure: G = 435

Planned Investment: I = 300

Exports: X = 100

Imports: M = 0.06Y

Yd: Disposable Income

Numbers are in billion dollars.

a) Each row corresponds to one possible output level. Fill in the remaining columns of the table given the equations given above.

b) What is the equilibrium output level of this economy?

c) What is the level of unplanned investment at the output level of 1500 and at the level of 15 2500? If it is not in equilibrium, describe how the economy would adjust to the equilibrium in each case.

d) What is the change of equilibrium output when government expenditure increases to 560? Explain your steps. What kind of policy is it?

e) If investment decreased to 175 billion dollars under policy uncertainty, how does it change the equilibrium output level? Is the change in equilibrium output larger than the change in investment? Why?

f) What factors would affect the size of expenditure multiplier? Briefly explain

In one city, the probability that a person will pass his or her driving test on the first attempt is 0.68. Eleven people are selected at random from among those taking their driving test for the first time.

1. What is the probability that among these 11 people, exactly 7 people will pass their driving test for the first time?

a. 0.0144
b. 0.7437
c. 0.2326
d. 0.4890

2. What is the probability that among these 11 people, at least 7 people will pass their driving test for the first time?

a. 0.0144
  b. 0.7437
  c. 0.2326
  d. 0.4890

3. What is the probability that among these 11 people, at most 7 people will pass their driving test for the first time?

a. 0.5510
  b. 0.7437
  c. 0.2326
  d. 0.4890

4. What is the probability that among these 11 people, more than 7 people will pass their driving test for the first time?

a. 0.5110
  b. 0.7437
  c. 0.0308
  d. 0.4890

5. What is the probability that among these 11 people, the number passing the test is between 2 and 4 inclusive?

a. 0.5510
b. 0.7437
c. 0.0308
  d. 0.4890