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English homework help. Exam 2
Macroeconomic Theory
(Due date: May 14, 10 am)
This is a take home exam. Do not communicate with others and work on the exam by yourself.
This is an open book exam and you can study the background materials from your textbook and
lecture materials, but you must write your own answers by yourself.
Due date and time: May 14, 10 am. You must submit it through blackboard only. Please do
not submit it any other way. Blackboard will not accept the answer after the due date and time
so you must submit it by that time.
Multiple choices (1 point each)
1. What is ‘the’ main monetary policy tool available to the Federal Reserve (recall MP curve)?
a. reserve rate
b. discount rate
c. federal funds rate
d. printing money
e. mortgage rate
2. The federal funds rate is:
a. equal to the rate of inflation.
b. the interest rate at which banks borrow from the Federal Reserve.
c. the interest rate paid from one bank to another for overnight loans.
d. an interest rate that is some fixed amount above the prime lending rate.
e. the return to stock markets over the long term.
3. Which of the following is the Fisher equation?
a. d.
b. e.
c.
4. Consider the economy presented in Figure 12.2. If the stock market drops sharply, there is a loss
in consumer and investor confidence and the economy moves from __________. To prevent a
__________, the Fed __________, and the economy moves from __________.
a. point a to d; recession; lowers interest rates; point d to b
b. point c to b; bubble; raises interest rates; point b to c
c. point d to c; recession; lowers interest rates; point c to b
d. point a to d; recession; lowers interest rates; point d to c
e. Not enough information is given.
5. The Phillips curve we specified assumes that inflation expectations are:
a. Rational d. equal to zero
b. Adaptive e. None of these answers are correct.
c. always wrong
6. According to the Phillips curve, if current output equals potential output (with no inflation shock):
a. inflation is steady d. unemployment is negative
b. inflation fluctuates a lot e. the economy is booming
c. unemployment is zero
7. According to the Phillips curve, if current output is above potential output (with no inflation shock):
a. inflation falls d. inflation is constant
b. inflation rises e. tax rates rise
c. unemployment falls
8. According to the Phillips curve, if current output is below potential output (with no inflation shock):
a. inflation falls d. inflation is constant
b. inflation rises e. tax rates rise
c. unemployment falls
Figure 12.4: Phillips Curve
9. Consider the Phillips curve in Figure 12.4. At point b, the economy is ________, and at point a, the
economy is ________.
a. in recession; booming
b. in recession; in its steady state
c. in recession; in recession
d. booming; in recession
e. in its steady state; in recession
10. In the Phillips curve, ∆?? = ?̅?̃
? + ?̅, ?̅ measures:
a. a price shock
b. how sensitive inflation is to interest rates
c. how sensitive inflation is to demand conditions
d. how sensitive inflation is to aggregate supply conditions
e. how sensitive inflation is to price shocks
11. In the Phillips curve ∆?? = ?̅?̃
? + ?̅, ?̅measures:
a. a demand shock
b. an inflation shock
c. how sensitive inflation is to demand conditions
d. how sensitive inflation is to aggregate supply conditions
e. None of the above
Figure 12.5: Phillips Curve
12. Starting from any point in the Phillips curve in Figure 12.5, an unexpected increase in oil prices will
move the economy from (everything else is constant):
a. point a to b d. point a to c
b. point c to b e. Not enough information is given.
c. point b to c
Short answer questions
Please write clearly. If I cannot understand your writing, I cannot give you the credits for the
questions.
1. Your day as the chair of the FED: Suppose you are appointed as the chair of the US Federal
Reserve. “With the sole goal of stabilizing output”, explain how and why you would change the
interest rate in response to the following shocks. Show the effects on the economy in the short
run using the IS-MP diagram. Be sure to discuss what changes in the model specifically. Provide
detailed intuitive explanation in words as well. (You can assume that the economy, before the
shock, is at the benchmark point.) (12 points)
A. Firms become pessimistic about the state of the economy and hence decrease the investment.
(Note that this happens initially without any change in the interest rate).
B. Suppose some of Latin American economies succumb to a recession and significantly reduce
their demand for the U.S. goods.
2. Your day as the chair of the FED: Suppose you are appointed as the chair of the US Federal
Reserve. “With the sole goal of stabilizing inflation at a low level”, explain how and why you
would change the interest rate in response to the following shock. Show the effects on the
economy in the short run using the US IS-MP-and Philips curve diagrams. Provide detailed
intuitive explanation in words as well. In your analysis, be sure to discuss how FED can
stabilize the inflation at the level that they desire. (You can assume that the economy, before the
shocks, is at the benchmark point.) (10 points).
Suppose France experiences a boom and significantly increase their demand for the U.S. goods
English homework help

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