Name:____________________________ University of California at Berkeley, Extension Applied Economics for Business Exam 2 - Macroeconomics NOTE: I can only give you points for what I can read so please write neatly and clearly!!! Please do not use any additional sheets; you have two hours to finish the exam; each question is worth 7 points (1 point for writing your name!); and most questions need a graph. 1. List and explain at least two functions of the central bank and discuss what kind of relationship should the central bank have with the government and why. 2. Graph and explain the impact of expansionary monetary policy, using the ‘open market operations’ option, on interest rates, various components of GDP, GDP itself, aggregate demand, and inflation. What was one of the goals behind expansionary monetary policy? Was this a “good” policy? 3. Explain what is fiscal policy, and in the case of the U.S., how it relates to what economist call the “crowding out” effect. 4. List and explain different types of “unemployment.” 5. First, show an economy in a recession. Then, discuss and illustrate at least two ways a country can get out of a recession. 6. Explain the relationship, as generally observed, between inflation and stock market performance. 7. First, explain the Phillips curve. Then explain how long-term growth can challenge the Phillips model; including discussing at least three factors that can contribute to long term growth. BONUS: First, discuss both a positive and a negative consequence of depreciating currency and discuss any involved tradeoff. Second, discuss and show how and why budget deficits and trade deficits sometimes called the “twin deficits?” (5 points).
