Economics test.

Lecture finale: Try these problems without notes

First, a review:

1. Suppose there is a stock market crash, and therefore the country’s wealth is greatly reduced.

This will lower autonomous consumption. Show the short-run and long-run effects on our

model. Then state the impact on the price level and on unemployment in the short run and also

on both of those things in the long run.

2. If you are in charge of the Fed, you might want to react to this. State one specific policy you

might follow to try to help the economy.

3. Go back to the initial equilibrium, and show what your chosen policy would do in both the short

run and in the long run. State the impact on the price level and on unemployment in the short

run and also on both of those things in the long run.

4. Next, start from the initial equilibrium, then assume both the change in question 1 and your

intervention from question 2+3 BOTH happen. Show the combined impact of both changes in

the short run and in the long run. Assume your adjustment is perfect in the short run (so you

don’t make it too big or too small). State the impact in the short run on r, Y, P, C, I,

Unemployment and Pe.

Next, a new problem:

5. Start in the initial equilibrium and show the effect of an increase in technology. State the impact

on P and on unemployment.

6. Again, if you are in charge of the Fed, state one specific policy change you might follow to try to

help the economy.

7. Finally, starting from the initial equilibrium, assume the change from question 5 is happening

and your intervention is also happening. Show the combined impact of both changes in the

short run and in the long run. Again, you can assume your adjustment is perfectly sized. State

the impact in the short run on r, Y, P, C, I, Unemployment and Pe.