Copyright 2017 by the UBC Real Estate Division
|
|
- Adela Waters
- 6 years ago
- Views:
Transcription
1 DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate and current information, UBC, their affiliates, authors, editors and staff (collectively, the "UBC Group") makes no claims, representations, or warranties as to accuracy, completeness, usefulness or adequacy of any of the information contained herein. Under no circumstances shall the UBC Group be liable for any losses or damages whatsoever, whether in contract, tort or otherwise, from the use of, or reliance on, the information contained herein. Further, the general principles and conclusions presented in this text are subject to local, provincial, and federal laws and regulations, court cases, and any revisions of the same. This publication is sold for educational purposes only and is not intended to provide, and does not constitute, legal, accounting, or other professional advice. Professional advice should be consulted regarding every specific circumstance before acting on the information presented in these materials. Copyright: 2017 by the UBC Real Estate Division, Sauder School of Business, The University of British Columbia. Printed in Canada. ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced, transcribed, modified, distributed, republished, or used in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, web distribution, or used in any information storage and retrieval system without the prior written permission of the publisher.
2 LESSON 10 Economic Fluctuations: Effects of Fiscal and Monetary Policy Assigned Reading 1. Mankiw, N.G., et al Principles of Macroeconomics (6 th Canadian Edition). Toronto: Nelson Education Ltd. Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand Recommended Reading 1. Mankiw, N.G., et al Study Guide for use with the Principles of Macroeconomics, (6 th Canadian Edition). Toronto: Nelson Education Ltd. Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand Learning Objectives After studying this lesson, students should be able to: 1. explain the liquidity preference theory and its role in determining the money demand curve; 2. describe how equilibrium occurs in the money market; 3. analyze how monetary policy affects interest rates, aggregate demand, and output in a closed economy; 4. analyze how monetary policy affects interest rates, aggregate demand, and output in an open economy, with either a flexible or fixed exchange rate policy; 5. describe the role of government expenditures and the multiplier effect on aggregate demand; 6. provide examples of applications of the multiplier effect; 7. explain how government expenditure can crowd-out private investment; 8. analyze how fiscal policy affects interest rates, exchange rates, aggregate demand, and output in an open economy with flexible exchange rates; 9. analyze how fiscal policy affects interest rates, exchange rates, aggregate demand, and output when the central bank maintains fixed exchange rates; 10. discuss the debate over whether policymakers should try to stabilize the economy; and 11. define automatic stabilizers and explain how they affect aggregate demand. 10.1
3 Lesson 10 Instructor's Comments This lesson includes considerable detail and complexity as it covers the ways that monetary and fiscal policies pursued by the Bank of Canada and the government affect the economy in the short run. The key to this lesson is the effect foreign trade and capital flows have on these policies. The effects of monetary and fiscal policy depend on whether an economy is closed or open, and for the latter whether there is policy to let exchange rates float (flexible exchange rates) or keep them fixed. In the previous lesson, we found that when aggregate demand or short-run aggregate supply shifts, it causes fluctuations in output. As a result, policymakers sometimes try to offset these shifts by shifting aggregate demand with monetary and fiscal policy. This lesson introduces government fiscal policy and explains how tax and spending policies can affect aggregate demand in the short run. This lesson addresses the theory behind monetary and fiscal policy and some of the shortcomings of stabilization policy. The lesson concludes with a comparison of the short-run and long-run effects of fiscal and monetary policy on prices and output. In the past, one of the biggest debates in economics was over the relative importance of monetary and fiscal policy in influencing aggregate demand. In its extreme form, the Keynesian view argued that fiscal policy is the key to controlling aggregate demand. Monetarists responded that it was monetary policy that mattered, through its effect on investment. The reading for this lesson examines the empirical evidence and reports that both affect aggregate demand. It is possible to use both together, but since fiscal policy is determined by the Federal Government and monetary policy by the Bank of Canada, the objectives and outcomes may, on occasion, be conflicting. What this lesson emphasizes is how being an open economy affects these policies, and central to this is whether the Bank of Canada is pursuing a strategy of floating (flexible) exchange rates or not. The text demonstrates that with flexible exchange rates, fiscal policy has no affect on the equilibrium level of output. However, if the national policy is to keep exchange rates stable, then any change in government expenditures or tax rates must be followed by intervention by the Bank of Canada in foreign currency markets by either buying or selling dollars. In this case, fiscal policy does affect the quantity of output. In a closed economy, real estate is primarily affected by monetary policy. When the money supply increases, nominal interest rates fall and the supply of loanable funds is increased. Since loans for housing construction and mortgages compete with other forms of investment for the available funds, this form of "loose" monetary policy will lower the interest rate on mortgages. Consequently, the demand for mortgages will rise as home ownership becomes more affordable, bringing new households into the market and increasing residential construction. Some of these purchasers may have been delaying the decision to purchase housing, waiting for more favourable interest rates. In this case, a reduction in interest rates may lead to a very rapid increase in the demand for housing units and a subsequent increase in prices. As we learn in this lesson, in an open economy, the interest rate cannot deviate from the world rate. In this case, the relationship between monetary policy and real estate more closely resembles the effects of fiscal policy on real estate. Typically, fiscal policy affects real estate indirectly. While it is true that real estate can be the direct target of government spending or tax policies, through spending on social housing or policies to increase housing affordability through favourable tax treatment or programs for first time buyers, it is more often the case that real estate benefits from the increases in aggregate output triggered by fiscal policy, and by monetary policy in an open economy. When output is higher, households are richer and expenditures on real estate, as with all other goods, increase. In particular, the rise in incomes will mean that there are households who can now afford home ownership who could not previously. 10.2
4 Economic Fluctuations: Effects of Fiscal and Monetary Policy Review and Discussion Questions 1. Suppose that the federal government reduces its expenditures. What happens to the aggregate demand curve? 2. Suppose that consumers become pessimistic about the future health of the economy, and so cut back on their consumption spending. What will happen to aggregate demand and to output? What would the Bank of Canada have to do if it wanted to keep output stable? 3. What effect would a balanced budget law have on automatic stabilizers? 4. Suppose a shift in aggregate demand puts the economy in recession. Either fiscal policy or monetary policy could be used to eliminate the recession. In terms of the short-run impact on output and prices, is there any difference between the two? 5. Suppose the government spends $2 billion dollars on a public works program that is intended to stimulate aggregate demand in a closed economy. If the crowding-out effect exceeds the multiplier effect, will the aggregate-demand curve shift to the right by more or less than $2 billion? Why? 6. Which is likely to have a greater impact on aggregate demand: a decrease in taxes with a flexible or fixed exchange rate? Why? 7. Suppose the economy is in a recession. Policymakers estimate that aggregate demand is $10 billion short of the amount necessary to generate the long-run natural level of output. That is, if aggregate demand were shifted to the right by $10 billion, the economy would be in long-run equilibrium. (a) (b) (c) (d) (e) If the federal government chooses to use fiscal policy to stabilize the economy, by how much should they increase government spending if the marginal propensity to consume (MPC) is 0.75, the economy is closed, and there is no crowding out? If the federal government chooses to use fiscal policy to stabilize the economy, by how much should they increase government spending if the marginal propensity to consume (MPC) is 0.75, the marginal propensity to import (MPI) in the open economy is 0.25, and there is no crowding out? If there is crowding out of investment spending in a closed economy, will the government need to spend more or less than the amount you found in (a) above? Why? If investment spending by firms in a closed economy is very sensitive to changes in the interest rate, is crowding out more of a problem or less of a problem? Why? If policymakers discover that the lag for fiscal policy in a closed economy is two years, should that make them more likely to employ fiscal policy as a stabilization tool or more likely to allow the economy to adjust on its own? Why? 10.3
5 Lesson You are watching a nightly network news broadcast. The business correspondent reports that the Bank of Canada raised interest rates by a quarter of a percent today to head off future inflation. The report then moves to interviews with prominent politicians. The response of the leader of the official opposition is negative. She says, "The Consumer Price Index has not increased, yet the Bank of Canada is restricting growth in the economy, supposedly to fight inflation. My constituents will want to know why they are going to have to pay more when they get a loan, and I don't have a good answer. I think this is an outrage and I think Parliament should have hearings on the Bank of Canada's policymaking powers." (a) (b) State the Bank of Canada's policy in terms of the money supply. Why might the Bank of Canada raise interest rates before the CPI starts to rise? 9. Explain how each of the following developments would affect the supply of money, the demand for money, and the interest rate. For each case, show what happens in a closed economy and in a small open economy. Illustrate your answers with diagrams. (a) (b) (c) (d) (e) The Bank of Canada's bond traders buy bonds in open-market operations. An increase in credit card availability reduces the cash people hold. Households decide to hold more money to use for holiday shopping. A wave of optimism boosts business investment and expands aggregate demand. An increase in oil prices shifts the short-run aggregate-supply curve to the left. 10. Suppose banks install automatic teller machines on every block and, by making cash readily available, reduce the amount of money people want to hold. (a) (b) Assume the Bank of Canada does not change the money supply. According to the theory of liquidity preference, what happens to the interest rate? What happens to aggregate demand? Assume a closed economy. If the Bank of Canada wants to stabilize aggregate demand, how should it respond? 11. For various reasons, fiscal policy changes automatically when output and employment fluctuate. (a) (b) (c) Explain why tax revenue changes when the economy goes into a recession. Explain why government spending changes when the economy goes into a recession. 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? 10.4
6 Economic Fluctuations: Effects of Fiscal and Monetary Policy ASSIGNMENT 10 CHAPTER 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand Marks: 1 mark per question. 1. According to the theory of liquidity preference there is a(n), at which the quantity of money demanded exactly balances the quantity of money supplied. (1) equilibrium interest rate (2) liquidity interest rate (3) world interest rate (4) domestic interest rate 2. Which of the following is NOT an effect of a monetary injection into a closed economy? (1) A reduction in the equilibrium interest rate. (2) A decrease in the quantity of goods and services demanded at a given price level. (3) An increase in the demand for money. (4) The aggregate-demand curve shifts to the right. 3. In a closed economy, if we assume that there is no crowding-out effect, an increase in government purchases of $10 billion will shift the aggregate demand curve to the by than $10 billion. (1) left, more (2) left, more or less (3) right, more (4) right, more or less THE NEXT THREE (3) QUESTIONS ARE BASED ON THE FOLLOWING DIAGRAM: Assignment 10 continued on the next page 10.5
7 Lesson Which of the following would cause the AD curve to shift from AD1 to AD3? (1) A contraction of the money supply when the exchange rate is flexible (2) An increase in government expenditures when the exchange rate is flexible (3) An expansion of the money supply when the exchange rate is fixed (4) An increase in government expenditures when the exchange rate is fixed 5. If the economy was at point B, a government policy to restore full employment would be: (1) a contraction of the money supply when the exchange rate is flexible. (2) an increase in government expenditures when the exchange rate is flexible. (3) an expansion of the money supply when the exchange rate is fixed. (4) an increase in government expenditures when the exchange rate is fixed. 6. If the economy represented in the diagram was a closed economy and if the economy was at point B, a government policy to restore full equilibrium would be: (1) an increase in the money supply. (2) the reduction in the size of the government deficit. (3) an open-market sale. (4) Both (1) and (3) are correct. 7. Consider the following graph. Assume a closed economy. If the current interest rate is R1: (1) the aggregate quantity of money people are holding is M1. (2) people will be selling bonds, which will drive the interest rate up. (3) people will be buying bonds, which will drive the interest rate up. (4) the quantity of money supplied is M Assignment 10 continued on the next page
8 Economic Fluctuations: Effects of Fiscal and Monetary Policy 8. When tax rates are cut, workers get to keep of each dollar they earn, so they have a incentive to work, and as a result, the curve shifts to the. (1) more, greater, aggregate supply, right (2) more, smaller, aggregate demand, right (3) less, smaller, aggregate supply, left (4) less, smaller, aggregate demand, left 9. In a small open economy with perfect capital mobility, if the Bank of Canada chooses to fix the value of the Canadian dollar, an expansionary monetary policy would cause the dollar to and thus require the Bank of Canada to Canadian dollars in the market for foreign currency exchange. (1) depreciate, purchase (2) appreciate, purchase (3) appreciate, sell (4) depreciate, sell 10. In an open economy, if the MPC is 0.8 and the MPI is 0.2, the value of the government expenditure multiplier is: (1) 1 (2) undefined (3) 5 (4) In a closed economy, if the MPC is 0.75, the multiplier is: (1) 0.25 (2) 4 (3) 5 (4) Canadian exports and imports make up a large and growing proportion of the Canadian economy, thus the is an increasingly important explanation of why Canada s aggregate-demand curve slopes downward. (1) wealth effect (2) interest-rate effect (3) real exchange-rate effect (4) theory of liquidity preference 13. In a small open economy with perfect capital mobility, a reduction in the size of the government deficit would shift the AD curve: (1) to the left regardless of whether the exchange rate is fixed or flexible. (2) to the right if the exchange rate was flexible. (3) to the left if the exchange rate was flexible. (4) to the left if the exchange rate was fixed. Assignment 10 continued on the next page 10.7
9 Lesson In a closed economy, if the quantity of money demanded is not equal to the quantity of money supplied: (1) the Bank of Canada will adjust the interest rate to the new equilibrium level. (2) there will be a chronic imbalance in the money market. (3) people will try to adjust their portfolios of assets and, as a result, drive the interest rate toward equilibrium. (4) banks will adjust their ratios of reserves to deposits and, as a result, drive the interest rate toward equilibrium. 15. Most of the lag problems associated with the use of monetary and fiscal policy: (1) have been solved in recent years due to better economic forecasting. (2) could be solved if recessions and inflationary cycles could be accurately forecasted. (3) are due to sticky wages. (4) are due to sticky prices. 16. Changes in fiscal policy that stimulate aggregate demand when the economy is going into a recession, without policymakers having to take any deliberate action, is best known as: (1) deficit reduction. (2) active stabilization policy. (3) crowding-out effect on investment. (4) automatic stabilizers. 17. In the long run, fiscal policy influences. In the short run, however, the primary effect of fiscal policy is on. (1) saving, investment, and growth; aggregate demand (2) aggregate demand; aggregate supply (3) aggregate supply; saving, investment, and growth (4) saving, investment, and growth; aggregate supply 18. If the government of Canada increases its purchases by $10 billion, the aggregate-demand for goods and services will: (1) rise by more than $10 billion. (2) rise by less than $10 billion. (3) rise by $10 billion. (4) Not enough information to answer 19. In a small open economy with perfect capital mobility, an expansionary monetary policy: (1) shifts aggregate supply to the right. (2) shifts aggregate demand to the right. (3) shifts aggregate demand to the right only if the exchange rate is flexible. (4) shifts aggregate demand to the right only if the exchange rate is fixed Assignment 10 continued on the next page
10 Economic Fluctuations: Effects of Fiscal and Monetary Policy 20. Which of the following is correct concerning how rational people allocate their wealth between money and other assets? (1) As the interest rate falls, people want to hold less money. (2) As the interest rate rises, people want to hold less money. (3) People will want to hold all of their wealth as money since it can be used to buy goods. (4) People will want to hold all of their assets in a form that yields a return. 20 Total Marks Planning Ahead Project 2 is due one week after Assignment 10. By now, you should be well-advanced into the work required for this project. End of Assignment
Solutions for BUSI 101: Review and Discussion Questions Lesson 10 Page 1 of 10
Solutions for BUSI 101: Review and Discussion Questions Lesson 10 Page 1 of 10 1. If Canada was a closed economy, the reduction in government expenditures would reduce aggregate demand and thus shift the
More informationTHE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND
21 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND LEARNING OBJECTIVES: By the end of this chapter, students should understand: the theory of liquidity preference as a short-run theory
More informationTHE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND
20 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND LEARNING OBJECTIVES: By the end of this chapter, students should understand: the theory of liquidity preference as a short-run theory
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand
The Influence of Monetary and Fiscal Policy on Aggregate Demand Chapter 34 Copyright 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand
The Influence of Monetary and Fiscal Policy on Aggregate Demand 34 Aggregate Demand Many factors influence aggregate demand besides monetary and fiscal policy. In particular, desired spending by households
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand
The Influence of Monetary and Fiscal Policy on Aggregate Demand Chapter 20 Copyright 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be
More informationThe fixed money supply is represented by a vertical supply curve.
Chapter 20 The Influence of Monetary and Fiscal Policy on Aggregate Demand OUTLINE: 1. The theory of liquidity preference. 2. How monetary policy affects aggregate demand. 3. How fiscal policy affects
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand P R I N C I P L E S O F. N. Gregory Mankiw. Introduction
C H A P T E R 34 The Influence of Monetary and Fiscal Policy on Aggregate Demand P R I N C I P L E S O F Economics N. Gregory Mankiw Introduction This chapter focuses on the short-run effects of fiscal
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand. Premium PowerPoint Slides by Ron Cronovich
C H A P T E R 34 The Influence of Monetary and Fiscal Policy on Aggregate Demand Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2009 South-Western, a part
More informationBUSI 101 Capital Markets and Real Estate
BUSI 101 Capital Markets and Real Estate PURPOSE AND SCOPE The Capital Markets and Real Estate course (BUSI 101) is intended to acquaint the student with the basic principles of macroeconomics and to give
More informationTHE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND
34 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND Questions for Review 1. The theory of liquidity preference is Keynes's theory of how the interest rate is determined. According to the
More informationLesson 12 The Influence of Monetary and Fiscal Policy on Aggregate Demand
Lesson 12 The Influence of Monetary and Fiscal Policy on Aggregate Demand Henan University of Technology Sino-British College Transfer Abroad Undergraduate Programme 0 In this lesson, look for the answers
More informationECON 1002 E. Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work.
It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS. This means: Complete the midterm in 2.5 hour(s). Work on your own. Keep your notes and textbook closed. Attempt every question.
More informationMacroeconomics Mankiw 6th Edition
N. Gregory Mankiw Lecture notes, ECON 1150 Macroeconomics Mankiw 6th Edition 21 & 22 The Influence of Monetary and Fiscal Policy on Aggregate Demand Premium PowerPoint Slides by Ron Cronovich 2012 UPDATE
More informationMacroeconomics Sixth Edition
N. Gregory Mankiw Principles of Macroeconomics Sixth Edition 21 The Influence of Monetary and Fiscal Policy on Aggregate Demand Premium PowerPoint Slides by Ron Cronovich 2012 UPDATE In this chapter, look
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand. Lecture
The Influence of Monetary and Fiscal Policy on Aggregate Demand Lecture 10 28.4.2015 Previous Lecture Short Run Economic Fluctuations Short Run vs. Long Run The classical dichotomy and monetary neutrality
More informationIn this chapter, look for the answers to these questions
In this chapter, look for the answers to these questions How does the interest-rate effect help explain the slope of the aggregate-demand curve? How can the central bank use monetary policy to shift the
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand
Chapter 32 The Influence of Monetary and Fiscal Policy on Aggregate Demand Test B 1. Of the effects that help explain why the U.S. aggregate demand curve slopes downward the a. wealth effect is most important
More informationCopyright 2016 by the UBC Real Estate Division
DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate
More informationDISCLAIMER: Copyright: 2014
DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate
More informationThe influence of Monetary And Fiscal Policy on Aggregate Demand
Lecture 11 The influence of Monetary And Fiscal Policy on Aggregate Demand Prof. Samuel Moon Jung Introduction Earlier chapters covered: the long-run effects of fiscal policy on interest rates, investment,
More informationUniversity of Toronto July 27, 2012 ECO 209Y L0101 MACROECONOMIC THEORY. Term Test #3
Department of Economics Prof. Gustavo Indart University of Toronto July 27, 2012 SOLUTIONS ECO 209Y L0101 MACROECONOMIC THEORY Term Test #3 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total
More informationArchimedean Upper Conservatory Economics, October 2016
Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The marginal propensity to consume is equal to: A. the proportion of consumer spending as a function of
More informationMacroeconomics. The Influence of Monetary and Fiscal Policy on Aggregate Demand. Introduction
C H A P T E R 21 The Influence of Monetary and Fiscal Policy on Aggregate Demand P R I N C I P L E S O F Macroeconomics N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2010 South-Western,
More informationECO 209Y MACROECONOMIC THEORY AND POLICY. Term Test #2. December 13, 2017
ECO 209Y MACROECONOMIC THEORY AND POLICY Term Test #2 December 13, 2017 U of T E-MAIL: @MAIL.UTORONTO.CA SURNAME (LAST NAME): GIVEN NAME (FIRST NAME): UTORID (e.g., LIHAO118): INSTRUCTIONS: The total time
More informationTHE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND. Chapter 34
1 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND Chapter 34 Importance of economic policy Economic policy refers to the actions of the government that have a direct impact on the macroeconomic
More informationChapter 10 Aggregate Demand I
Chapter 10 In this chapter, We focus on the short run, and temporarily set aside the question of whether the economy has the resources to produce the output demanded. We examine the determination of r
More informationCopyright 2017 by the UBC Real Estate Division
DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate
More informationEcon 102 Exam 2 Name ID Section Number
Econ 102 Exam 2 Name ID Section Number 1. In a closed economy government spending was $30 billion, consumption was $70 billion, taxes were $20 billion, and GDP was $110 billion this year. Investment spending
More informationUNIVERSITY OF TORONTO Faculty of Arts and Science. August Examination 2013 ECO 209Y. Duration: 2 hours
UNIVERSITY OF TORONTO Faculty of Arts and Science August Examination 2013 ECO 209Y Duration: 2 hours Examination Aids allowed: Non-programmable calculators only LAST NAME FIRST NAME STUDENT NUMBER DO NOT
More informationHomework 4 of ETP Economics
Homework 4 of ETP Economics Winter Term 2014 Due: May 28 1.When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an a.
More informationSOLUTION ECO 202Y - L5101 MACROECONOMIC THEORY. Term Test #1 LAST NAME FIRST NAME STUDENT NUMBER. University of Toronto June 18, 2002 INSTRUCTIONS:
Department of Economics Prof. Gustavo Indart University of Toronto June 18, 2002 SOLUTION ECO 202Y - L5101 MACROECONOMIC THEORY Term Test #1 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total
More informationTest 3: April 4, Multiple Choice 30 points (1 each) Select the best answer for each question. Answer the questions on the Scantron sheet.
Test 3: April 4, 2002 Multiple Choice 30 points (1 each) Select the best answer for each question. Answer the questions on the Scantron sheet. 1. Suzanne, a Canadian resident, purchases stock in a Thai
More information= C + I + G + NX = Y 80r
Economics 285 Chris Georges Help With ractice roblems 5 Chapter 12: 1. Questions For Review numbers 1,4 (p. 362). 1. We want to explain why an increase in the general price level () would cause equilibrium
More informationDisposable income (in billions)
Section 4 version 2 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. An increase in the MPC: A. increases the multiplier. B. shifts the autonomous investment
More informationAggregate Demand and Aggregate Supply
Aggregate Demand and Aggregate Supply Chapter 19 Copyright 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department,
More informationDisclaimer: This resource package is for studying purposes only EDUCATION
Disclaimer: This resource package is for studying purposes only EDUCATION Ch 26: Aggregate Demand and Aggregate Supply Aggregate Supply Purpose of aggregate supply: aggregate demand model is to explain
More informationEcon 102 Discussion Section 8 (Chapter 12, 13) March 20, 2015
Econ 102 Discussion Section 8 (Chapter 12, 13) March 20, 2015 The Multiplier and Shifting the Aggregate Expenditures Function The multiplier effect describes how changes in autonomous expenditures lead
More informationMACROECONOMICS. Aggregate Demand I: Building the IS-LM Model. N. Gregory Mankiw. PowerPoint Slides by Ron Cronovich
11 : Building the IS-LM Model MACROECONOMICS N. Gregory Mankiw PowerPoint Slides by Ron Cronovich 2013 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN: the IS curve and its relation
More informationEconomics 1012A: Introduction to Macroeconomics FALL 2007 Dr. R. E. Mueller Third Midterm Examination November 15, 2007
Economics 1012A: Introduction to Macroeconomics FALL 2007 Dr. R. E. Mueller Third Midterm Examination November 15, 2007 Answer all of the following questions by selecting the most appropriate answer on
More informationECON 3312 Macroeconomics Exam 2 Spring 2017 Prof. Crowder
ECON 3312 Macroeconomics Exam 2 Spring 2017 Prof. Crowder Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Suppose the economy is currently
More informationUniversity of Toronto June 8, 2012 ECO 209Y L0101 MACROECONOMIC THEORY. Term Test #1
Department of Economics Prof. Gustavo Indart University of Toronto June 8, 2012 SOLUTIONS ECO 209Y L0101 MACROECONOMIC THEORY Term Test #1 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total
More informationECON 1000 B. Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work.
It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS. This means: Complete the midterm in hour(s). Work on your own. Keep your notes and textbook closed. Attempt every question.
More informationThe Aggregate Expenditures Model. A continuing look at Macroeconomics
The Aggregate Expenditures Model A continuing look at Macroeconomics The first macroeconomic model The Aggregate Expenditures Model What determines the demand for real domestic output (GDP) and how an
More informationUse the following to answer question 15: AE0 AE1. Real expenditures. Real income. Page 3
Chapter 10 1. An example of an autonomous consumption policy is a policy that A) lowers tax rates to stimulate additional consumer spending. B) makes credit more widely available to consumers in order
More informationLuiggi Donayre Summer 2009 Department of Economics Economics 104 Washington University Session 2. Exam 3
Luiggi Donayre Summer 2009 Department of Economics Economics 104 Washington University Session 2 Exam 3 Name (Print Clearly!) This is a 115 point exam. There are 25 multiple choice questions worth 2 points
More informationLecture 7. Fiscal Policy
Lecture 7 Fiscal Policy The role of government spending and taxes Fiscal policy: government spending and tax policy AD = C + II + G What if G changes? What is the effect on Y? How large is (government)
More informationmacro macroeconomics Aggregate Demand I N. Gregory Mankiw CHAPTER TEN PowerPoint Slides by Ron Cronovich fifth edition
macro CHAPTER TEN Aggregate Demand I macroeconomics fifth edition N. Gregory Mankiw PowerPoint Slides by Ron Cronovich 2002 Worth Publishers, all rights reserved In this chapter you will learn the IS curve,
More informationECO 2013: Macroeconomics Valencia Community College
ECO 2013: Macroeconomics Valencia Community College Exam 3 Fall 2008 1. The most important determinant of consumer spending is: A. the level of household debt. B. consumer expectations. C. the stock of
More informationPrinciples of Macroeconomics December 17th, 2005 name: Final Exam (100 points)
EC132.02 Serge Kasyanenko Principles of Macroeconomics December 17th, 2005 name: Final Exam (100 points) This is a closed-book exam - you may not use your notes and textbooks. Calculators are not allowed.
More informationLESSON 5. Inflation: Causes and Measurement
LESSON 5 Inflation: Causes and Measurement Assigned Reading 1. Mankiw, N. Gregory, et al. 2011. Principles of Macroeconomics (5 th Canadian Edition). Toronto: Thomson Nelson. Chapter 6: Measuring the Cost
More informationCopyright 2015 by the UBC Real Estate Division
DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate
More informationEcon 102 Exam 2 Name ID Section Number
Econ 102 Exam 2 Name ID Section Number 1. Suppose investment spending increases by $50 billion and as a result the equilibrium income increases by $200 billion. The investment multiplier is: A) 10. B)
More informationECON 1010 Principles of Macroeconomics Solutions to Exam #3. Section A: Multiple Choice Questions. (30 points; 2 pts each)
ECON 1010 Principles of Macroeconomics Solutions to Exam #3 Section A: Multiple Choice Questions. (30 points; 2 pts each) #1. In an open economy where government spending was $30 billion, consumption was
More informationThe Goods Market and the Aggregate Expenditures Model
The Goods Market and the Aggregate Expenditures Model Chapter 8 The Historical Development of Modern Macroeconomics The Great Depression of the 1930s led to the development of macroeconomics and aggregate
More informationChapter 9 The IS LM FE Model: A General Framework for Macroeconomic Analysis
Chapter 9 The IS LM FE Model: A General Framework for Macroeconomic Analysis The main goal of Chapter 8 was to describe business cycles by presenting the business cycle facts. This and the following three
More informationUniversity of Toronto June 6, 2014 ECO 209Y L0101 MACROECONOMIC THEORY. Term Test #1
Department of Economics Prof. Gustavo Indart University of Toronto June 6, 2014 ECO 209Y L0101 MACROECONOMIC THEORY SOLUTIONS Term Test #1 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total
More informationGehrke: Macroeconomics Winter term 2012/13. Exercises
Gehrke: 320.120 Macroeconomics Winter term 2012/13 Questions #1 (National accounts) Exercises 1.1 What are the differences between the nominal gross domestic product and the real net national income? 1.2
More information7. Refer to the above graph. It depicts an economy in the: A. Immediate short run B. Short run C. Immediate long run D. Long run
CHAPTER 29 1. When the price level decreases: A. The demand for money falls and the interest rate falls B. Holders of financial assets with fixed money values decrease their spending C. Holders of financial
More informationLong Run vs. Short Run
Long Run vs. Short Run Long Run: A period long enough for nominal wages and other input prices to change in response to a change in the nation s price level. The Basic Model of Economic Fluctuations Two
More informationFiscal Policy. Fiscal Policy
Fiscal Policy Fiscal policy was introduced earlier with the calculation of multipliers. AE multipliers imply fiscal policy is effective o because price is held constant along AE o SRAS s slope = 0 Aggregate
More informationLecture 22. Aggregate demand and aggregate supply
Lecture 22 Aggregate demand and aggregate supply By the end of this lecture, you should understand: three key facts about short-run economic fluctuations how the economy in the short run differs from the
More informationRetake Exam in Macroeconomics, IB and IBP
Copenhagen Business School, Department of Economics, Birthe Larsen Question A Retake Exam in Macroeconomics, IB and IBP Answers 4hoursclosedbookexam 14th of August 2009 All questions, A,B,C and D are weighted
More informationAggregate Demand and Economic Fluctuations
Outline Macroeconomic Theory and Policy Chapter 9 Aggregate Demand and Economic Fluctuations Section 1 Business Cycle Section 2 Macroeconomic Modeling and Aggregate Demand Section 3 Keynesian Model Aggregate
More informationA Macroeconomic Theory of the Open Economy. Chapter 30
A Macroeconomic Theory of the Open Economy Chapter 30 Key Macroeconomic Variables in an Open Economy The important macroeconomic variables of an open economy include: net exports net foreign investment
More informationName: Student # : Section: RYERSON UNIVERSITY Department of Economics
Name: Student # : Section: RYERSON UNIVERSITY Department of Economics ECN 204 (Section-7) TERM TEST 2 November, 2004 Instructor: Sharif F. Khan Time Limit: 50 minutes Total Pages Including the Cover Sheet:
More informationTextbook Media Press. CH 27 Taylor: Principles of Economics 3e 1
CH 27 Taylor: Principles of Economics 3e 1 The Building Blocks of Keynesian Analysis Keynesian economics is based on two main ideas: a) aggregate demand is more likely than aggregate supply to be the primary
More informationPrinciples of Macroeconomics December 15th, 2005 name: Final Exam (100 points)
EC132.01 Serge Kasyanenko Principles of Macroeconomics December 15th, 2005 name: Final Exam (100 points) This is a closed-book exam - you may not use your notes and textbooks. Calculators are not allowed.
More informationLecture 4: 16/07/2012
Ljubljana Summer school, July 2012 Macroeconomics Professor: Lorenzo Burlon Exercise List 2 Lecture 4: 16/07/2012 1. The Fisher effect (a) represents the relation between unemployment and GDP growth. (b)
More informationPrinciples of Macroeconomics
Principles of Macroeconomics 978-1-63545-094-1 To learn more about all our offerings Visit Knewton.com Source Author(s) (Text or Video) Title(s) Link (where applicable) OpenStax Senior Contributing Authors:
More informationConsumption expenditure The five most important variables that determine the level of consumption are:
The aggregate expenditure model: A macroeconomic model that focuses on the relationship between total spending and real GDP, assuming the price level is constant. Macroeconomic equilibrium: AE = GDP Consumption
More informationEastern Mediterranean University Faculty of Business and Economics Department of Economics Spring Semester
Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2015-16 Spring Semester Duration: 90 minutes ECON102 - Introduction to Economics II Final Exam Type A 2 June 2016
More informationLecture 12: Economic Fluctuations. Rob Godby University of Wyoming
Lecture 12: Economic Fluctuations Rob Godby University of Wyoming Short-Run Economic Fluctuations Economic activity fluctuates from year to year. In some years, the production of goods and services rises.
More informationAssignment 2 Deadline: July 2, 2005
ECON 1010C Principles of Macroeconomics Instructor: Sharif F. Khan Department of Economics Atkinson College York University Summer 2005 Assignment 2 Deadline: July 2, 2005 Part A Multiple-Choice Questions
More informationGarden City High School Course: AP Macroeconomics
Garden City High School Course: AP Macroeconomics Instructional Philosophy The Advanced Placement Macroeconomics curriculum is a full year program designed to provide both an overview of economics. Economics
More informationOVERVIEW. 1. This chapter presents a graphical approach to the determination of income. Two different graphical approaches are provided.
24 KEYNESIAN CROSS OVERVIEW 1. This chapter presents a graphical approach to the determination of income. Two different graphical approaches are provided. 2. Initially, both the consumption function and
More informationChapter 11 Aggregate Demand I: Building the IS -LM Model
Chapter 11 Aggregate Demand I: Building the IS -LM Model Modified by Yun Wang Eco 3203 Intermediate Macroeconomics Florida International University Summer 2017 2016 Worth Publishers, all rights reserved
More informationECO 209Y MACROECONOMIC THEORY AND POLICY
Department of Economics Prof. Gustavo Indart University of Toronto October 22, 2010 ECO 209Y MACROECONOMIC THEORY AND POLICY Term Test #1 LAST NAME FIRST NAME STUDENT NUMBER Circle your section of the
More informationVII. Short-Run Economic Fluctuations
Macroeconomic Theory Lecture Notes VII. Short-Run Economic Fluctuations University of Miami December 1, 2017 1 Outline Business Cycle Facts IS-LM Model AD-AS Model 2 Outline Business Cycle Facts IS-LM
More informationPrint last name: Given name: Student number: Section number
Department of Economics University of Toronto at Mississauga ECO202Y5Y Macroeconomic Theory and Policy December 2002 Test Two Instructor: X. Gu Date: Friday, December 6, 2002 Time allowed: Two hours Aids
More informationUniversity of Toronto July 21, 2010 ECO 209Y L0101 MACROECONOMIC THEORY. Term Test #2
Department of Economics Prof. Gustavo Indart University of Toronto July 21, 2010 SOLUTIONS ECO 209Y L0101 MACROECONOMIC THEORY Term Test #2 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total
More informationExam #3 Section # 11, 12 or 13 December 2012
Economics 211 Macroeconomic Principles Exam #3 Section # 11, 12 or 13 December 2012 Name The value of this exam is 102 points plus 10 points for the Bonus Question. Instructor: Brian B. Young Please show
More informationAssumptions of the Classical Model
Meridian Notes By Tim Qi, Amy Young, Willy Zhang Economics AP Unit 4: Keynes, the Multiplier, and Fiscal Policy Covers Ch 11-13 Classical and Keynesian Macro Analysis The Classic Model the old economic
More informationUNIVERSITY OF TORONTO Faculty of Arts and Science. August Examination 2006 ECO 209Y
UNIVERSITY OF TORONTO Faculty of Arts and Science August Examination 2006 ECO 209Y Duration: 2 hours Examination Aids allowed: Non-programmable calculators only INSTRUCTIONS: Students are required to answer
More informationFETP/MPP8/Macroeconomics/Riedel. General Equilibrium in the Short Run II The IS-LM model
FETP/MPP8/Macroeconomics/iedel General Equilibrium in the Short un II The -LM model The -LM Model Like the AA-DD model, the -LM model is a general equilibrium model, which derives the conditions for simultaneous
More informationECO 209Y MACROECONOMIC THEORY AND POLICY
Department of Economics Prof. Gustavo Indart University of Toronto December 4, 2013 ECO 209Y MACROECONOMIC THEORY AND POLICY Term Test #2 LAST NAME FIRST NAME STUDENT NUMBER Indicate your section of the
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Final Exam Practice Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In an economy with no government or foreign sector, it is always true
More informationECO 209Y - L5101 MACROECONOMIC THEORY. Term Test #2
Department of Economics Prof. Gustavo Indart University of Toronto July 19, 2005 SOLUTIONS ECO 209Y - L5101 MACROECONOMIC THEORY Term Test #2 LAST NAME FIRST NAME INSTRUCTIONS: STUDENT NUMBER 1. The total
More informationArchimedean Upper Conservatory Economics, November 2016 Quiz, Unit VI, Stabilization Policies
Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The federal budget tends to move toward _ as the economy. A. deficit; contracts B. deficit; expands C.
More information13. CHAPTER: Aggregate Supply
TOBB-ETU, Economics Department Macroeconomics I (IKT 233) Ozan Eksi Practice Questions with Answers (for Final) 13. CHAPTER: Aggregate Supply 1-) What can you expect when there s an oil shock? (c) a-)
More information13. CHAPTER: Aggregate Supply
TOBB-ETU, Economics Department Macroeconomics I (IKT 233) 2017/18 Fall-Ozan Eksi Practice Questions with Answers (for Final) 13. CHAPTER: Aggregate Supply 1-) What can you expect when there s an oil shock?
More informationEQ: What are the Assumptions of Keynesian Economic Theory?
EQ: How is Keynesian Theory Different from Classical Theory? Classical Theory Supply-Focused (SRAS) Say s Law Economy is self-regulating Laissez-Faire Wages can go up or down Businesses will borrow & invest
More informationMidterm Examination Number 1 February 19, 1996
Economics 200 Macroeconomic Theory Midterm Examination Number 1 February 19, 1996 You have 1 hour to complete this exam. Answer any four questions you wish. 1. Suppose that an increase in consumer confidence
More informationLearning Objectives. 1. Describe how the government budget surplus is related to national income.
Learning Objectives 1of 28 1. Describe how the government budget surplus is related to national income. 2. Explain how net exports are related to national income. 3. Distinguish between the marginal propensity
More informationGovernment Budget and Fiscal Policy CHAPTER
Government Budget and Fiscal Policy 11 CHAPTER The National Budget The national budget is the annual statement of the government s expenditures and tax revenues. Fiscal policy is the use of the national
More informationUnit 3: Aggregate Demand and Supply and Fiscal Policy
Unit 3: Aggregate Demand and Supply and Fiscal Policy 1 Aggregate Demand 2 What is Aggregate Demand? Aggregate means added all together. When we use aggregates we combine all prices and all quantities.
More informationAnswers and Explanations
Answers and Explanations 1. The correct answer is (E). A change in the composition of output causes a movement along the production possibilities curve. A shift in the curve is caused by changes in technology,
More informationAggregate Supply and Aggregate Demand
Aggregate Supply and Aggregate Demand ECO 301: Money and Banking 1 1.1 Goals Goals Specific Goals Be able to explain GDP fluctuations when the price level is also flexible. Explain how real GDP and the
More informationECO 209Y L0101 MACROECONOMIC THEORY. Term Test #2
Department of Economics Prof. Gustavo Indart University of Toronto June 25, 2012 ECO 209Y L0101 MACROECONOMIC THEORY Term Test #2 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total time for
More information