ECN 204 Lecture Notes - Lecture 4: Leaky Bucket, Money Supply, Frictional Unemployment

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13 Dec 2015

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Deficit budget: if government revenue is less than expenditure, which leads to borrowing --> debt. Canada it is the central bank of canada; in charge of money supply and interest rates. Gdp: is the market value of all final goods and services produced in an economy in one year. 2) only goods and services transacted through the market are included: barter transactions are excluded (there is no record of these transactions i. e. exchanging service for service : no money exchange ; 4) only final goods are included to avoid double counting . Intermediate goods are excluded (final goods are goods used as they are, intermediate i. e. cotton used to make t-shirts) Logical exclusions are represented with pink highlight: purely financial transactions are excluded ( buying shares for. Fix: per capita gdp = gdp / size of population. 8) even the per capita gdp ignores distribution of income ( some people are paid more than others , inequality)

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Gross domestic product, GDP, is calculated using the following equation, where C is consumption, I is investment, G is government spending, EX is exports, and IM is imports (EX - IM is referred to as net exports): GDP = C + I + G + EX - IM
Why is the value of imports subtracted from the sum of C, I, G, and EX in calculating GDP?
A. GDP is a measure of a nation's standard of living. Because imports can lead to an increase in U.S. unemployment, they do not improve a nation's standard of living.
B. GDP measures the value of output produced within a country. Some of the expenditures in C, I, and G derive from goods produced outside the United States.
C. GDP is a measure of the federal government's budget situation. When imports exceed exports, the government is running a budget deficit.

And suppose you put $5,000 in a bank account for one year. The money earns 6% interest and the inflation rate is 4%. Which of the following statements is true?
I. You earn $200 in interest.
II. Your purchasing power increases by $100.
III. You have $5,300 in the bank at the end of the year.
A. I only
B. II only
C. I and III only
D. II and III only
E. I, II, and III

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Regarding the following statistics, explain which phase or turning point of the business cycles, this economy is going through and define the characteristics of this stage . How would the central bank and the government interfere during this period ?

- Economic growth = 4.4 % Unemployment rate = 3.9 % Level of inflation = 12.9 %

- Deficit in net exports. Balanced national savings . Savings more than Investments . ( 30pts )

( M > X ) ( T = G ) ( S > I )

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48. In order to be classified officially as unemployed, a personmust
a. Be out of work and available for work, need not be activelylooking for work
b. Be out of work, actively looking for work, and currentlyavailable for work
c. Only be out of work
d. Have been out of work for over 3 months

49. If exports rise and imports fall, (ceteris paribus)
a. Aggregate expenditure falls
b. Aggregate expenditure rises
c. Aggregate expenditure remains the same
d. Net exports are irrelevant when considering aggregateexpenditure

50. Over the past 25 years, the U.S. has had a net trade____________; which means
the U.S. has exported _________ it has imported.
a..Deficit; less than
b. Balance; the same amount as
c. Deficit; more than
d. Surplus; more than

43. If our economy was experiencing inflation, which of thefollowing would move us
back toward macro equilibrium?
a. Lower Taxes
b. Increase Investment
c. Reduce Net Exports
d. Increase Consumer Spending

42. If our economy slumped into a recession, which of the followingwould help move us back toward macro equilibrium?:
a. Reduce Taxes
b. Reduce Investment
c. Reduce Net Exports
d. Reduce Government Purchases

34. Economists consider that we are at full employment whenthe
a. Officially reported unemployment rate is at the naturalunemployment rate, about 5%
b. Natural unemployment rate is equal to 10 %.
c. Officially reported unemployment rate is zero.
d. Natural unemployment rate is equal to 0 percent.

35. Beginning at macro equilibrium, inflation occurs becauseaggregate
a. supply increases more rapidly than aggregate demand.
b. supply and aggregate demand increase at the same rate.
d. supply and aggregate demand decrease at the same rate.
c. demand increases more rapidly than aggregate supply.

36. If the U.S. government decreases significantly its expenditureon defense, then, ceteris paribus, the aggregate
a. demand curve shifts rightward.
b. demand curve shifts leftward.
c. supply curve shifts rightward.
d. supply curve shifts leftward.

37. According to Keynesian economics, which of the following ismost likely to raise the unemployment rate?
a. Aggregate demand increases.
b. Aggregate demand decreases.
c. Aggregate supply increases.
d. None of the above is likely to raise the unemploymentrate.

38. If a government has a budget deficit, it must
a. raise the real interest rate.
b. borrow in the financial market.
c. decrease taxes.
d. Increase spending

39. The U.S. gross public debt is approximately ________________which is
approximately ______________ % of U.S. GDP.

40. Under the U.S. Constitution, the ultimate power for determiningfiscal policy is:
e. The President
f. The Congress
g. The Council of Economic Advisors
h. The State governments

32. The Marginal Propensity to Consume (MPC) is:
e. The rate at which consumption changes over time
f. The percentage of an additional dollar of disposable income thatwill go toward additional consumption
g. The average percentage of total income one consumes
h. The average percentage of total income one saves

ECN 204 Lecture Notes - Lecture 4: Leaky Bucket, Money Supply, Frictional Unemployment

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