Intermediate Microeconomics question

1. Suppose that we are currently in a period of recession and there is a recessionary gap of $10 billion. What kind of policy should the Congress use? What kind of policy should the Fed use? What might happen if both Congress and the Fed uses the policies at the same time without consulation with one another?

2.

On the attached graph, the green-dotted lines represent SRAS, LRAS, and AD for 2019 and the solid lines represent SRAS, LRAS, and AD for 2018. Based on the position of those lines from 2018 to 2019, what conclusions can you draw about the state of the economy from 2018 to 2019? Explain it in a way that your grandmother can understand it (assuming that your grandmother is not an economist!) Be as thorough as possible in your explanation.

Suppose that the U.S. economy is going through expansion. If the Congress then enacts expansionary fiscal policy, what would happen in the economy? What can the Federal Reserve System do to counter some of negative effects of the expansionary fiscal policy? In addition to your explanation, make sure you draw some graphs to illustrate your reasoning.

The Federal Open Market Committee (FOMC) holds eight regularly scheduled meetings during the year and also holds other meetings as needed. Policy statements and minutes of those meetings are posted on the Web site of the Federal Reserve's Board of Governors, at www.federalreserve.gov/monetarypolicy/fomccalendars.htm1. Locate the June 2017 statement and read it carefully. Identify three or four macroeconomic policy terms from this statement that are covered in this chapter. In this statement, how does the Federal Reserve characterize the state of the economy at the time, and what policy actions did the Fed announce?

1: http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

Suppose that the GDP of the country of Zambia is growing at 1% each year. Also suppose that Zambia has a constant velocity of money and it decides to print money at a much faster rate increasing its money supply by 20%. Using the quantity theory of money, what happens to the price level in Zambia as a result of the printing of money? In other words, will they have inflation? If so, how much? Explain.

Watch the video "200 Years that Changed the World" at gapminder.org or on YouTube. What variables are measured on the x- and y-axes? Which of these variables is typically used to measure the rate of economic growth? According to the graph and video, what happens as countries grow richer? In general, what has happened over the past 200 years? What is significant about the year 1950 or so?

Based on your understanding from chapter 34, why do we need money? What purpose does it serve? If we decided to use chickens as money, would it work? Why? Why not?

The Federal Reserve can change the interest rate by changing money supply. Explain why increased or decreased interest rate affects the aggregate demand. Be thorough in your explanation.

If the Congress wants to increase the AD by $5 billion, how much should they increase the government spending? (by $5B?; less than $5B?; more than $5B?) Explain uing your understanding of multiplier effect and the subsequent crowding out effect.

The hypothetical information in the following table shows what the situation will be in 2021 if the federal government does not use fiscal policy:

Year	Potential GDP	Real GDP	Price Level
2020	$18.0 trillion	$18.0 trillion	120.3
2021	$18.4 trillion	$18.0 trillion	122.7

If Congress and the president want to keep real GDP at its potential level in 2021, they should use (1) ,

which would mean (2) .

If Congress and the president are successful in keeping real GDP at its potential level in 2021, state whether each of the following will be higher, lower, or the same as it would have been if they had taken no action:

Real GDP will be (3) .

Potential real GDP will be (4) .

The inflation rate will be (5) .

13. Suppose you deposit $1,100 cash into your checking account. By how much will the total money supply increase as a result when the required reserve ratio is 0.50?

The change in the money supply is: $ (enter your result rounded to the nearest dollar).

3.

3.

3.

15.

(1)

smaller than

the same as

greater than

Using the information below compute the M1 money supply.

Category	Amount
Currency and coin held by the public	$300
Checking account balances	$1,800
Traveler's checks	$10
Savings account balances	$2,000
Small denomination time deposits	$5,000
Money market deposit accounts in banks	$1,000
Noninstitutional money market fund shares	$2,000

The M1 money supply is equal to: $

16. The number of jobs available in the U.S. economy is largely determined by the number of workers private firms choose to hire. In 2016, firms employed 124 million people. The Federal Reserve is part of the federal government and hires relatively few people, about 22,000 in 2016. Even if the Fed doubled or tripled its work force, it would have little impact on employment levels, yet economists strongly link actions of the Fed to the level of total employment in the economy.

Carefully explain how the Fed is able to affect the level of total employment in the economy. Be sure to include all relevant actions the Fed can take in affecting total employment.