With an AS-AD diagram and explain the effects on the price level and real GDP of:
economic pessimism of households for the coming year
higher prices due to tariffs on imported material and components for manufacturing
increased wages across the economy
high immigration of unskilled labor
Explain the effects on real output and the price level of an increase in expected inflation.
Show and explain with AS-AD the effect of an increase in the money supply Ms when the economy is at
full employment at Yfull.
If T > G in the government budget explain the change that must happen to either the money supply Ms
or government bonds B. Explain the effects on the economy of these two changes.
Explain how rB is similar to G in the government budget. What happens to rB when B increases with B
> 0.
If there is unemployment below the Yfull level explain how a government deficit might create more hiring.
Explain the two ways a government can run a deficit? Explain how the economy reacts to both including
a side effect on the economy.
What other government policy could
Defend your opinion on whether the government should balance its budget.
Text problems
2.
.The statutes of the recently established European Central Bank ECB state that its primary
objective is to maintain price stability. How does this charter differ from that of the Fed? What
significance does it have for monetary policy?
3. Do you think the Fed should be given a clearer legislative mandate concerning macroeconomic
goals? If so, what should it be?
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