ECO 300 QUIZZES #6-10, SPRING 2004 [4.26.2004]

Answers are at bottom of document.

Quiz #6 - Writing / Eco 300 / Thurs., March 25, 2004

Correct the grammatical or spelling errors in the following three sentences.

1. The Fed's interest-rate cuts in 2001-2002 lead to economic recovery.

2. Fiscal policy effects the economy, but so far the Bush tax cuts have had little affect.

3. The Wall Street Journal's editorial writers agree with most economists on one thing, they agree that free trade raises world GDP.

Sentences #4 and #5 have no spelling or grammatical errors, but are too wordy. Improve them.

4. Due to the fact that the Fed cut interest rates eleven times, the recession ended quickly.

5. The fact of the matter is the deficit is nearly $500 billion.

E.C. (extra credit):  According to a new report, what government program is on pace to go bankrupt in 2019?

***

1. Of the four policy-mix options (tight/loose fiscal/monetary...), which one would policymakers use if they want to stimulate the economy while leaving interest rates unchanged?

2.&3.Draw, and carefully label, an IS-LM diagram to show the effect of a loose-fiscal-tight-monetary policy on the interest rate.

4. Actual deficit = _______________ deficit + cyclical deficit

5. Give one reason why the cyclical deficit goes up during a recession.

E.C. Gas prices are now over $2 a gallon, which is higher than ever before. Still, economists say it's misleading to say that gas prices are at a record high. Explain why.

1. The "__________________" of international macroeconomics is that a country cannot simultaneously have perfect international capital mobility, fixed exchange rates, and independent monetary policy.

2. The U.S. has two of those things, but not the third. Which one doesn't the U.S. have?

3. If the dollar's value rises in terms of foreign currency, then the dollar has __ __ preciated.
[two letters]

4. Current account balance = ________________________ + net investment income + net transfers
[two words or two letters]

5. Current account balance + Capital account balance = ____________________________ (BOP)
[three words]

***

1. The "real-money-supply effect," by which a lower price level means a higher real money supply, which means lower interest rates and higher investment spending, causes the _____ curve to slope downward.
[2 letters]

2. Fixed nominal wages, which mean that a higher price level causes the real wage to fall, are the usual explanation for why the ____ curve slopes upward.
[2 letters]

3. The aggregate supply curve is vertical if prices are perfectly __________________.

4. In the short-run AS-AD model, expansionary fiscal or monetary policy will cause real GDP and the price level to _____________________.

5. If firms are maximizing profit, then the marginal product of labor = the ______________ .
[2 words]

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Quiz #10 / Eco 300 / Thurs., April 22, 2004

1. The long-run aggregate supply (LRAS) curve shifts out virtually every year because ____________________________________ grows by about 3-4% virtually every year.
[2 or 3 words]

2. According to the short-run Phillips curve, an increase in real GDP relative to potential GDP, or a decrease in the unemployment rate relative to the natural rate of unemployment, will cause a higher rate of _______________________.

3. In the Phillips curve equilibrium, the output ratio (Y/Y_N) is 100%, the economy is at the point where the short-run Phillips (SP) curve intersects the long-run Phillips (LP) curve, and the actual inflation rate equals the ________________________ inflation rate.

4. A __________________________ is a marked reduction in the inflation rate, typically achieved through the deliberate efforts of policymakers (e.g., tight monetary policy).

5. Cost-push inflation is also called _____________-side inflation, as it's driven by changes in input prices and firms' and workers' expectations of inflation.
(Hint: with this kind of inflation, the short-run AS curve shifts.)

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SOLUTIONS TO QUIZZES #6-10

Quiz #6
1. The Fed's interest-rate cuts in 2001-2002 led to economic recovery.
2. Fiscal policy affects the economy, but so far the Bush tax cuts have had little effect.
3. The Wall Street Journal's editorial writers agree with most economists on one thing: they agree that free trade raises world GDP.
4. Because the Fed cut interest rates eleven times, the recession ended quickly.
5. The deficit is nearly $500 billion.
E.C. Medicare.

Quiz #10
1. potential GDP, or natural real GDP
2. inflation
3. expected (underlying is an equally good answer)
4. disinflation
5. supply