🗊Презентация Economics exam

ECON 102 Tutorial: Week 25 Shane Murphy www.lancaster.ac.uk/postgrad/murphys4/econ15 s.murphy5@lancaster.ac.uk

Today’s Outline We’ll review the exam from Friday

Which of the following reasons can explain why people have preferences for holding money? It yields a high rate of return. It yields a low rate of return. It facilitates transaction activities and provides liquidity services. none of the above.

A rise in the central bank refinance rate will: Increase the money supply. Reduce the money supply. Increase the cost of lending, Statements (b) and (c) are correct.

In the IS-LM model, a decrease in net exports (NX) will: Shift the IS curve to the right. Lower the interest rate. Increase the level of output. Shift the LM curve to the left.

Suppose the demand for money is given by: MD=100-8r, where r denotes the interest rate. The money supply (MS) is fixed at 60. What is the equilibrium interest rate? r=5. r=6. r=7. r=8.

In the IS-LM model: a simultaneous increase in government spending and lower money supply will: Lower the level of output. Increase the level of output. Lead to either an increase or decrease in the level of output. Lower the interest rate.

The “Crowding Out” effect following a rise in government expenditures (for example) is associated with: A lower interest rate. A higher Interest rate. Higher level of investments. None of the above.

From Week 20: Crowding-out effect the tendency of an increase in government expenditure to increase the rate of interest, and reduce consumption and investment by the private sector

In a liquidity trap: Monetary policy is effective in stabilizing the economy. Fiscal Policy is effective in stabilizing the economy. Money demand is inelastic with respect to interest rate changes. Statements (b) and (c) are correct.

Note from Roy on Q7: Recall that the LM curve in the liquidity trap is completely horizontal as the public are willing to hold any amount of money at the prevailing rate of interest (see also page 664-665 in the book). As explained in class, fiscal policy or positive changes to the IS curve (such as government spending (G)) can help boost the economy and allow it to escape the liquidity trap. Notes on the other option choices: Solution (a) is incorrect as monetary policy, or changes in the money supply, are ineffective in stabilizing the economy, hence the term a “liquidity trap”. LM curve is completely horizontal. Solution (c) and therefore (d) are incorrect because money demand is perfectly elastic with respect to interest rate changes. Many indeed answered (d) but (c) is incorrect in case of a liquidity trap.

The IS curve depicts: A positive relationship between output and prices A negative relationship between output and interest rates. A positive relationship between output and interest rates. A negative relationship between money demand and interest rates.

Week 19: The IS Curve

If the demand for money becomes less responsive to changes in the rate of interest then: The LM curve becomes flatter. The IS curve becomes flatter. The LM curve becomes steeper. The IS curve becomes steeper.

From Week 20:

Assume consumption expenditures=2500, investment=2500, government purchases=1000, net exports=0. What is the gross domestic product (Y) and national savings (S)? Y=6000, S=2500. Y=6000, S=2000. Y=5000, S=1000. none of the above.

For an economy with a consumption function of: C=0.75 (Y-T), where Y denotes output and T denotes taxes, what is the value of the marginal propensity to consume (MPC) and the income-expenditure multiplier (IEM) . MPC=0.75, IEM=6. MPC=0.75, IEM=3. MPC=0.75, IEM=5. MPC=0.75, IEM=4.

For an economy characterized by: C=1800+0.6(Y-T), I=900, G=1500, NX=100, T=1500 and Y*=9000, what is the output gap? 9000. 8500. 500. 400.

A central bank can _____________ in order to prevent an increase in the equilibrium interest rate. Increase the money supply. Reduce the money supply. Keep the money supply unchanged. Central bank has no power to control the equilibrium interest rate.

A fall in the interest rate, increases liquidity preference, as it encourages investment expenditure reduces liquidity preference, as it discourages investment expenditure reduces liquidity preference, as it encourages investment expenditure increases liquidity preference, as it discourages investment expenditure

A rise in real income, increases liquidity preference, as it reduces saving decreases liquidity preference, as it increases saving decreases liquidity preference, as it reduces saving increases liquidity preference, as it increases saving

A Keynesian ‘fixed price’ macroeconomic model assumes: inflation is ‘always a monetary phenomenon’ monetary expansion raises bond prices only inflation is ‘demand pull’ ‘cost push’ inflation is only possible in a recession

To derive aggregate demand from ISLM, it is necessary to relax the assumption of money illusion economic recession fixed prices government intervention

The aggregate supply curve is drawn under the assumption that prices are constant employment is constant real wages are constant money wages are constant

The exogenous force that drives the original Phillips curve is the business cycle monetary policy trade unions inflation

The exogenous force that drives the price-expectations augmented Phillips curve is the business cycle monetary policy trade unions inflation

Keynesian cost-push inflation occurs when trade unions go on strike when money supply exceeds money demand as full employment is approached with a deficit in the trade balance

Classical demand-pull inflation occurs when trade unions go on strike when money supply exceeds money demand as full employment is approached with a deficit in the trade balance

Monetarism argues for a stable relationship between real balances and the transactions demand for money inflation and unemployment nominal money supply and nominal income government expenditure and the general level of prices

Within the UK account of international payments, the ‘balance for official financing’ shows the level of official currency transactions that are necessary to achieve a surplus on capital account a capital account equilibrium a fixed exchange rate target sovereign debt equilibrium

With increased saving and a fall in the rate of interest, there is relatively greater incentive to long-term real capital investment relatively greater incentive to short-term real capital investment a tendency for the prices of consumer goods to rise a tendency for the prices of consumer goods to fall

Last Class! Good luck on the Final Exam. Have a great summer.