final economic

Instructions:

· You have 1 week (7 days) to complete this assignment. Please submit this no later than 11:59pm on Sunday May 3, 2020. Please send me a scanned version of your exam illustrating your work, by e-mail, to [email protected] .

· This work is to be completed by yourself only – no collaborating with others.

· Each Multiple Choice question in Part I is worth 1 point for a total of 15 points.

· Each Short-Answer question in Part II is worth 5 points for a total of 15 points. Show all of your work in this section.

· The exam is worth 30 points and there is partial credit for your work in Part II.

PART I

1. Underground/illegal activities (the initial transaction) are not counted in GDP because

a.	some underground activities are illegal and the government doesn't want to place, for instance, drug dealers on an equal footing with small businesses.
b.	there are no written records of underground activities.
c.	this decision was made in the 1930s and no one has gotten around to changing it yet-there is such a thing as the "GDP-counting" lag.
d.	although it is possible to accurately measure underground activities, it is harder than measuring above-ground activities because with the latter, one doesn't have to dig as deep.

2. What is disposable income?

a.	Money that is earned through labor and then given away in taxes to the government.
b.	Money that is earned through labor and then disposed of because of inflation.
c.	Corporate profits that do not get distributed to workers, via dividend payments.
d.	Income that is left over after taxes.

3. Which of the following is not an approach to calculating gross domestic product?

a.	Value-Added Approach.
b.	Investment Approach.
c.	Expenditure Approach.
d.	Income Approach.
e.	All of the above are legitimate approaches to calculating GDP.

4. Personal consumption expenditures only include expenditures for durable and nondurable goods.

a. True

b. False

5. Which of the following is NOT considered when the government determines whether someone is unemployed?

a.	Whether the individual is 16 or older
b.	The wage the individual is paid
c.	Whether the individual has looked for work
d.	Whether the individual is currently employed

6. Suppose the civilian non-institutional population equals 150,000; there are 70,000 employed persons and 10,000 unemployed persons. How many people are not in the labor force?

a.	10,000
b.	60,000
c.	70,000
d.	80,000

7. Discouraged workers are not counted as unemployed because they are working.

a. True

b. False

8. When interest rates rise:

a.	the cost of investing rises, and businesses buy less equipment and structures.
b.	the return on investments rises also, and businesses eager to lock in future profits increase their investments.
c.	investment tax credits kick in to maintain a steady level of investment.
d.	businesses simply raise retail prices to reflect the increase in borrowing costs--there is no effect on level of investment.

9. Economic growth in an economy is best measured from one year to the next by comparing the change in

a.	the rate of inflation
b.	the rate of unemployment
c.	nominal GDP
d.	real GDP

10. When government spending is less than its revenue (taxes), it generates a budget:

a.	investment
b.	surplus
c.	deficit
d.	demand shock

11. The Federal Reserve has a lot of control over affecting the interest rates we all pay – they do this by primarily affecting:

a. Discount Rate

b. Prime Rate

c. Federal Funds Rate

d. Currency Exchange Rate

12. Contractionary Monetary Policy occurs when the Federal Reserve buys Government Bonds and Treasury Bills to increase the Money Supply.

a. True

b. False

13. The decrease in interest-related Consumption and Investment spending that occurs as a result of increased interest rates – because of increased government spending is what?

a.	The discount rate
b.	The prime rate
c.	Crowding in
d.	Crowding out

14. When the economy is suffering from a recession, the response from the government should be

a.	Expansionary Fiscal Policy and Contractionary Monetary Policy
b.	Contractionary Fiscal Policy and Contractionary Monetary Policy
c.	Expansionary Fiscal Policy and Expansionary Monetary Policy
d.	Contractionary Fiscal Policy and Expansionary Monetary Policy
e.	None of the above.

15. If the Reserve Requirement is 0.10, what is the simple deposit multiplier?

a.	1.0
b.	1.1
c.	10.0
d.	10.1

PART II

Each question is worth 5 points.

1. The table below has the most recent data available on the Price Level in the Boston Metro Area (not the entire United States).

a. What is the CPI?

b. Why is the CPI important?

c. List 2 major problems with the CPI:

i. #1

ii. #2

d. Calculate the Rate of Inflation or Deflation for the Boston Metro Area

i. Annual 2018 to Annual 2019

ii. March 2019 to March 2020

Data extracted on: April 24, 2020 (9:32:16 AM)

CPI for All Urban Consumers (CPI-U)

Series Id:     CUURS11ASA0,CUUSS11ASA0 Not Seasonally Adjusted Series Title:  All items in Boston-Cambridge-Newton, MA-NH, all urban consumers, not seasonally adjusted Area:          Boston-Cambridge-Newton, MA-NH Item:          All items Base Period:   1982-84=100
Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Annual	HALF1	HALF2
2010	237.266		237.986		238.083		236.132		236.474		238.103		237.446	237.683	237.209
2011	239.814		242.787		244.574		244.256		245.310		245.030		243.881	242.761	245.001
2012	245.891		247.166		246.582		246.326		249.488		249.929		247.733	246.583	248.883
2013	249.957		250.835		250.036		251.067		251.918		252.230		251.139	250.368	251.909
2014	253.123		254.982		255.209		255.296		255.878		256.262		255.184	254.619	255.750
2015	254.556		257.013		256.839		256.999		256.643		258.407		256.715	256.376	257.055
2016	257.215		258.587		260.809		260.800		262.606		261.675		260.496	259.188	261.803
2017	264.865		265.070		266.256		266.429		269.757		269.149		267.033	265.594	268.472
2018	272.229		274.591		274.668		275.402		278.663		277.632		275.815	274.148	277.483
2019	278.976		280.393		280.937		280.943		281.603		283.526		281.082	280.107	282.057
2020	285.181		285.544

2. Draw an Aggregate Demand and Aggregate Supply graph with an equilibrium GDP – starting point. You can ignore the Long Run curve.

a. Illustrate (draw) the effect of the Coronavirus on this graph.

i. Does the AD shift?

ii. Does the AS shift?

iii. Do both shift?

iv. Explain your rationale for any shifting that you drew on your graph.

b. Illustrate (draw) the effect of Fiscal Policy and Monetary Policy on this graph.

i. Does the AD shift?

ii. Does the AS shift?

iii. Do both shift?

iv. Explain your rationale for any shifting that you drew on your graph.

c. What is the current Fiscal Policy for the US?

i. Expansionary or Contractionary? Explain why you feel this is what they are pursuing.

d. What is the current Monetary Policy for the US?

i. Expansionary or Contractionary? Explain why you feel this is what they are pursuing.

3. Write a 1-page response to this question (11 point font).

a. Summarize your last 5 weeks of Macroeconomics. What did you feel was important and how will this help you as a Manager in the future?