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Draw demand and supply curves for skilled and unskilled workers, marking the initial equilibrium in each market.
What will happen to the equilibrium level of wages and employment? If wages do not adjust, how does your answer change? In which case will unemployment exist?
What is the effect of the increased labor supply on the product market? Illustrate your answer diagrammatically. Draw a diagram to explain your answer.
If cyclical unemployment increases, what would you expect to happen to inflation? If cyclical unemployment falls, what would be the effect on inflation?
What inferences can you draw from the following two facts, assuming that both hold simultaneously? The labor supply curve is relatively inelastic.
Any cyclical unemployment? What does it mean for the labor market not to clear? What gives rise to cyclical unemployment?
Predict what would happen to deposits and the money supply if people increased their holding of cash and the Fed kept total reserves fixed.
Why is it that the money supply changes when the Fed sells government bonds to a bank but the money supply does not change?
After he deposits the money in his bank, where the reserve requirement is 5 percent, by how much will the money supply eventually increase?
Down Home Savings has the following assets and liabilities: $6 million in government bonds. Draw up a balance sheet for the bank. What is its net worth?
Why will only the price level and money wages be affected by a change in the money supply in the fullemployment economy?
Why do reserves fall if the Fed engages in an open market sale? Why do they rise if the Fed engages in an open market purchase?
Why do borrowed reserves fall if the Fed raises the discount rate? Why do they rise if the federal funds rate increases?
Why do nonborrowed reserves fall if the Fed engages in an open market sale? Why do they rise if the Fed engages in an open market purchase?
Has the FOMC raised or lowered interest rates at these meetings? What reasons do the press releases give for these actions?
What are the consequences for the output gap in the short run of the policy shift that results? What are the consequences for the output gap in the long run?
Explain how the adjustment of inflation works to return the output gap to zero. What happens to the real interest rate?
How does this affect the ADI curve? What happens in the short run to equilibrium output? To unemployment? Over time, will inflation tend to rise or to fall?
What is the effect on consumption of a $1 change in total income? What is the effect on saving of a $1 change in total income?
If the government made it easier for people to borrow money. How is the marginal propensity to consume affected? How is the multiplier affected?
what does this imply about what has happened to the consumption function? What will be the consequences for the equilibrium level of output?
What determines the slope of the aggregate expenditures schedule? What is the equilibrium output?
How is the multiplier affected by the marginal propensity to consume? By the marginal tax rate? By the marginal propensity to import?
Explain how the equilibrium level of output is determined. Why are points on the aggregate expenditures schedule above the 45-degree line not sustainable?
What has been the average length of recessions since 1854? Since 1945? What has been the average length of expansions since 1854? Since 1945?