Macroeconomic quiz. Mathematics & Economics Assignment

Name_______________________________ __________________________
Quiz 10 (this quiz covers more material than normal and will be weighted more heavily)
Economics 407, Professor James Holmes Spring, 2020
1-2) The Obama stimulus in 2008-9 was apparently ineffective in expanding GDP.  This stimulus was primarily in tax cuts and increased subsidies. Explain using the IS-LM = AD theory how the resultant decrease in Taxes would affect real income, the interest rate, and the price of stocks, When MPS = MPI. Be sure to label all shift variables.  
  r0        r0
                                                                                                                                                                                                                Mi M   
Assets Liabilities
Cash: $720
Equities: $16,000
Loans/Debt: $0
Net Worth: $16,720
r0=5%.   
$160 = P0S.  
 Goods or Savings-Investment Market IS-LM
  r         r
  
                                               
                                                     I,S                                                                               Y                             P What are the causal and explain  variables?                  
                                                                                                                                     Y
Label all curves and variables, and explain the difference between a “shift" interest rate and the equilibrium interest rate, which you hopefully used in your analysis.                                                                                                                                        3-4) Assume the following data are for an economy;
demand deposits held by the public $2000
Yield on Moody's AAA 2.0%
Number of commercial banks 676
Legal reserve requirements 13%
Total reserves of commercial banks $240
Cash held by the public $552
Total Loans of  commercial banks $1780
Total Equity/capital of  commercial banks   $20
a)  What is the quantity of money in circulation?
b) What is the quantity of high powered money or the monetary base?
c) What are two potential problems for this economy?
5) The common assertion that an expansionary monetary policy, e.g. an open market operation that increases the quantity of money, will result in lower interest rates is not necessarily true.  Using the IS- LM model, derived the effect of an expansionary monetary policy on the LM curve when the opposite occurs.  Label all curves and variables correctly and state your assumptions.
Money Market                     r         IS-LM
  
                                               
                                                                                                                                                                   M Y
The following questions are based upon the following data from your practice midterm, with the amounts changed.
           Problem I      Problem II
    Year 1         Year 2                        Year 1         Year 2
Taxes, T: 400 400 400 300
Consumption, C: 882 468 ____ ___
Net Investment, I: ____ ___ 340 286
Government Spending 
   on Goods, G: 500 500 200 200
Interest Rate: 7.7% 6.8% 1.2% 8.2%
Cash Held by Public: 400 200 400 400
Demand Deposits: 600 300 600 600
Depreciation, D: 200 200 200 200
GDP: 1736 1048 1952 1966
Price Level, P: 2 2 2.5 2.5
Money Supply ____ ____ ____ ____
6) A. What causal variable changed in problem II?
B. Show how you calculate the missing values of consumption, investment, saving, the Money supply, and the deficit.
7-8) For problem II, show the values of and the effects upon the explained variables of the change in a causal variable (that changed) in the IS-LM theory using the following graphs.
r P
 
  Y
    r   r
 
r 
9) WSJ (4/15/16)  Phil Gramm and Michael Solon in “The Great Recession Blame Game” that is in course docs at UBL, argue that the Dodd-Frank Act was based upon the false claims that “Wall Street” greed or commercial banks being undercapitalized and making too many high risk loans in order to make more profit were to blame.  What evidence do they give and who/what do they ascribe the basic cause of the financial crisis caused by the defaults of sub-prime mortgages?
10)  a) What is debt monetization?
b) What is seigniorage?
c)  Your textbook includes what transactions in a country’s current account?