Practice Exam 3 for ECON 2500 with Elaine Peterson
Use
separate sheets of paper as needed to answer. Please be sure to put your name
on your answer sheets and the part of the exam you are answering and the number
of the question you are answering. Note there are 5 parts and the number of
points for each part is noted below.
Part I: (25 points) Please explain
the following briefly:
1. What 3 kinds of timing problems might we face in using proactive Keynesian
fiscal policy?
2. Why does the Fed worry about inflation more when the stock market is rising
in value rapidly?
3. Why is the Employment Act of 1946 important?
4. How can the actual budget be in deficit at the same time that the structural
budget is in balance?
5. Why is state and local finance (fiscal policy) generally
considered more procyclical than federal finance
(fiscal policy)?
Part II: (15 Points) Use separate clearly labeled diagrams
for each of the following:
1. Using a graph explain "crowding out".
2. How would a decrease in the money supply be likely to affect the AD and AS
model?
3. What would be the effect of purchases of government securities by the FOMC
on interest rates in the short run (to anyone except Rational Expectations
Theorists).
Part III: (20 Points) Please
explain each of the following briefly:
1. Who’s the current chairman of the Fed?
2. Is
3. What are the functions of money?
4. How many Federal Reserve Banks are there?
5. What is the monetary equation (explain any abbreviations)?
Part IV: (20 Points) Choose
the best answer.
1. If the economy is to have built-in stability, when real GDP falls,
A) tax revenues and government transfer payments
both should fall
B) tax revenues and government transfer payments both should rise
C) tax revenues should fall and government transfer payments should rise
D) tax revenues should rise and government transfer payments should fall
E) the federal budget should be balanced each year
2.
Use the following table to answer about the money supply, given the following
hypothetical data for the economy.
|
Item |
Billions of dollars |
|
Checkable deposits |
1000 |
|
Small time deposits |
300 |
|
Currency |
100 |
|
Large time deposits |
1200 |
|
Noncheckable savings deposits |
900 |
|
Money market deposit accounts |
250 |
|
Money market mutual funds |
555 |
The
size of the M1 money supply in billions of dollars is:
A)
1100
B)
1400
C)
2400
D)
1350
E)
1905
3. Based on the following information and assuming a
required reserve ratio of 20%. If the Fed bought $20 of government
securities from the bank with the balance sheet below and considering
the maximum amount the bank could lend what’s the maximum expansion of
the money supply?
|
Bank Assets |
Bank Liabilities |
|
Total
Reserves 260 |
Demand
Deposits 1000 |
|
Loans
700 |
Savings
Deposits 100 |
|
Government
Securities 140 |
|
A)
$80 B)
$600 C)
$1000 D)
$100 E)$400
4. The notion that the government's fiscal policies
can stabilize the economy began to gain acceptance:
A) Under the Reagan administration in the 1980s
B) During the depression of the 1930s
C) During the stagflation era of the 1970s
D) During the turbulent 1960s
E) During the early founding of
Part V: (20 Points) Explain the following
thoroughly.
1. Compare and contrast the basic tools of fiscal policy and monetary policy.