ECON 2030 : ECONpracticeEXAM3 1

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azuremammoth471

15 Mar 2019

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Suppose the u. s. economy is operating at full employment. Everything else held constant, this purchase will cause _______ in the net exports of the united states and _________ in u. s. gdp: increase, increase, increase, decrease, increase, no change, decrease, increase, decrease, decrease, decrease, no change. Suppose in 2008 david"s desk company purchased ,000 of new machinery of desks. Everything else held constant, david"s total equipment investment and equipment. Suppose further that his inventory at the beginning of 2008 was. Two weeks ago, to augment his income, morty applied for a position as a greeter at the local wal-mart. At present he is waiting on a response and has not applied for any other jobs. According to the bls household survey, morty would be classified as __________: not in labor force, employed, unemployed, not in working-age population, suppose the u. s. economy is operating at full employment. Suppose further that businesses expect the aggregate price level to increase in the future.

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3. Suppose that a typical taxpayer has a marginal personal income tax rate of 20 percent. The nominal interest rate is 4 percent, and the expected inflation rate is 1 percent.

a. What is the real after-tax rate of interest?

b. Suppose that the expected inflation rate increases by 2 percentage points to 3 percent, and the nominal interest rate increases by the same amount. What happens to the real aftertax rate of return?

c. If the inflation rate increases as in part b, by how much would the nominal interest rate have to increase to keep the real after-tax interest rate at the same level as in part a? Can you generalize your answer using an algebraic formula?

lilacrabbit506

Using the graph and definitions below of the supply of loanable funds, SLF, and the demand for loanable funds, DLF, discuss the following:

a. What is meant by the equilibrium nominal rate of interest?

b. Illustrate and discuss how an autonomous increase in the expected rate of inflation will change the equilibrium nominal interest rate. Express your discussion in terms of the effect on the supply and demand for loanable funds. Consider an initial real rate of interest of 3 percent and an expected inflation rate of 3 percent. If the expected rate of inflation rises to 4 percent with the real interest rate constant, what would the resulting nominal interest rate become in equilibrium using the Fisher relationship? Assume that investors believe the rise in the expected rate of inflation will remain at the higher level indefinitely.

c. Starting from an equilibrium position as in a, discuss the effects of a tightening monetary policy if the markets believe that a Fed tightening will lower future (next period) inflation. How might a recession occur under this scenario? HINTS: Recall the Fisher relationship where (1+i) = (1+r)(1+pe), where i is the nominal interest rate, r is the required real rate of return before taxes, and pe is the expected rate of inflation.

viridiancoyote769

11.Suppose that for a given year money growth is 10 percent, real GDP growth is 8 percent, and velocity is constant. According to the growth version of the quantity equation, the inflation rate would be
Select one:
a. -2 percent.
b. 1.25 percent.
c. 2 percent.
d. 18 percent.

12.An inflation rate greater than 50 percent per month is known as
Select one:
a. disinflation.
b. stagflation.
c. deflation.
d. hyperinflation.

13.If nominal wages increase by 5 percent while real wages fall by 1 percent, the inflation rate must be
Select one:
a. 1 percent.
b. 4 percent.
c. 5 percent.
d. 6 percent.

14.When the expected rate of inflation is added to the real interest rate, the result is called the
Select one:
a. preferred rate.
b. nominal interest rate.
c. adjustment rate.
d. differential rate.

15.When a government has a budget deficit and has reduced its spending, what other step can be taken to generate more revenue, besides issuing government bonds?
Select one:
a. reduce unemployment
b. raise interest rates
c. increasing exports
d. raise taxes

limeduck526

ECON 2030 : ECONpracticeEXAM3 1

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