1. Given an economy with the initial condition of 0% inflation and 15% unemployment.

a. Illustrate the initial condition using the Aggregate spending model (a.k.a.

Aggregate Demand and Aggregate Supply graph). What gap are we

experiencing? Draw the graph, label it carefully.

500 words essay on the question - "Using the extended ISLM model, explain how higher government spending will impact private investment when the LM curve is vertical, compared to when it is horizontal. What are the implications of fiscal policy in these two extreme cases? "

Show the impact of expansionary fiscal policy on a graph and in words in the AD-AS model.

If the government continues to increase government spending even after the natural rate of employment is reached, what happens in the AD-AS model. Eventually, what is the price level and employment level.

The retail store Macy's is closing a bunch of stores. How does the store closures affect employees? How do these factors affect wages and spending? How do these factors affect the demand curve? Will these factors cause the curve to move or shift? Explain.

1. If the multiplier is 5 and a change in fiscal policy leads to a $500 million decrease in total spending, we can conclude that:

            A) Government spending decreased by $500 million.

            B) Taxes increased by $500 million.

            C) Taxes decreased by $100 million.

            D) Government spending decreased by $100 million.

2. Which of the following shifts, ceteris paribus, will cause an increase in both unemployment and inflation?

            A) An increase in aggregate demand.             C)   An increase in aggregate supply.

            B) A decrease in aggregate demand.             D)   A decrease in aggregate supply.

3. Given that autonomous consumption equals $1000, income equals $20,000, and the MPC equals 0.90, the level of:

            A) Saving equals $4,000.                                C)   Consumption equals $17,000.

            B) Consumption equals $19,000.                    D)   Consumption equals $16,000.

4. Assume the MPC is 0.80. The change in GDP because of an increase in Government spending of $150 billion would be:

            A) $75 billion.              B) $150 billion.            C) $600 billion.            D) $750 billion.

5. How might macroeconomic equilibrium be affected by the following events. Describe in words or draw a well labeled diagram.

            a) a stock market crash                                                b) the election of a new president

            c) severe food crop failures in Canada d) a spike in oil prices

Complete the following table:

a) What is the equilibrium level of GDP?

b) What is the equilibrium price level?

c) If full employment occurs at real GDP = $230 billion, what kind of GDP gap exists?

d) How large is that gap?

e) Which macro problem exists here?

Graph #3

Economic Impact: The U.S. Government cuts defense spending.

Question 37 (1 point)

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What change will occur in the graph of the economy due to this impact?

Question 37 options:

Question 38 (1 point)

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What is the “state” of the economy caused by the cut in defense spending?

Question 38 options:

Question 39 (1 point)

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What does the graph show happening to the short run price level immediately following the cut in defense spending, ceteris paribus?

Question 39 options:

Question 40 (1 point)

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Select the correct series of steps through which the economy will self-regulate after the cut in defense spending:

Question 40 options:

Question 41 (1 point)

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Monetary policy advocates would recommend which of the following actions to alleviate the economic state?

Question 41 options:

6) Each year since winning control of the House of Representatives in the 2010 election, Conservative wing of Republicans have argued that we need to immediately initiate sharp reductions in government spending and entitlement programs and rapidly move towards a balanced budget, (although they have never actually produced a budget proposal in which tax revenues would match government spending plus entitlement transfers). Many Democrats, while arguing that tax rate increases on high income earners need to be part of the any deficit reduction program, have agreed that we need to initiate budget deficit reduction now. However, under the current Trump Administration, the tax reform implemented in 2018 was just the reverse of what democratic party views on taxes. Citizens for Tax Justice (CTJ) have made an estimate of how much these tax reform approved by by the GOP led Congress would impact the existing budget deficit crisis already. According to their estimate, this reform would yield tax revenues of only $1.1 trillion. The Office of Management and Budget (OMB) estimated that the federal government would raise an estimated $2.5 trillion and spend $5 trillion in 2018. Another estimate by independent research organizations and government agencies predict that the federal budget deficit might increase by $1 trillion in 2018-2019 budget year. Given this reality, would result which of the following outcomes?

A) What is the argument against attempting to balance the Federal Government budget rapidly at the present time via either deep cuts in Federal Government spending or sharp increases in federal income tax rates? 4pts

B) Does this argument imply that budget deficits don’t matter in the long run? If not, why might the impact of large deficits predicted in the long run under current tax and spending programs be different than the impact today? Explain. 4pts

1. A widely popular brand of car tyres have consistently given more mileage to the consumers over time which have led to an increase in their prices. However, the inflation rate computed using CPI jumps up considerably because of this. What kind of drawback does the CPI have in this case?

a. New Product Bias

b. Outlet Bias

c. Substitution Bias

d. Quality Bias

2. Which one of the following is a major cost of inflation?

a. Shoeleather Costs.

b. Tax distortions.

c. Menu Costs.

d. All of the other options.

3. Unexpected inflation leads to:

a. Transfer of wealth from creditors to debtors.

b. Transfer of wealth from creditors to creditors.

c. None of the other options are true.

d. Transfer of wealth from debtors to creditors.

4. Which of the following sequences explains the Wealth Effect the best?

a. Price level rises, consumers feel wealthier, consumption spending falls, output demand falls.

b. Price level rises, consumers feel poorer, consumption spending rises, output demanded rises.

c. Price level falls, consumers feel poorer, consumption spending falls, output demanded falls.

d. Price level rises, consumers feel poorer, consumption spending falls, output demanded falls.

5. The Quantity Theory of Money is given by the equation:

a. MV = PY

b. MY=VP

c. MP=VY

d. M/V = P/Y

6. The fundamental equation of the national income accounting identity is given by:

a. Y = C + I + G + X – M

b. Y = C +I + NX

c. Y = C + I + G + M – X

d. Y = C + G + X – M

7. Which of the following can cause a shift of the AD curve?

a. Change in consumption

b. All of them.

c. Change in output.

d. Change in Price