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ECON 201 Final Exam

Final Exam for Macroeconomics (100 Points)

1.    Draw a correctly labeled circular-flow diagram showing the flows of funds between the markets for good and services and the factor markets. Add the government to your diagram and show how money leaks out of the  economy to the government and how money is injected back into the economy by the government.

2.   The economy of Britannica produces three goods: computers, DVDs, and pizza. The accompanying table shows the prices and output of the three goods for the years 2012 and 2014.

3.    a. The natural rate of unemployment is made up of which of the types of unemployment?

b. Explain how cyclical unemployment relates to the natural rate of unemployment.

c. List three factors that can lead to a change in the natural rate of unemployment.

4.    Draw a correctly labeled graph showing equilibrium in the loanable funds market.

5.Assume the MPC in an economy is 0.8 and the government increases government purchases of goods and  services by $60 million. Also assume the absence of taxes, international trade, and changes in the aggregate price level.

a. What is the value of the spending multiplier?

b. By how much will real GDP change as a result of the increase in government purchases?

c. What would happen to the size of the effect on real GDP if the MPC fell? Explain.

d. If we relax the assumption of no taxes, automatic changes in tax revenue as income changes will have what effect on the size of the spending multiplier?

e. Suppose the government collects $60 million in expenditures. By how much would real GDP change as a result of this increase in both government spending and taxes?

9.   Assume the central bank increases the quantity of money by 25%, even though the economy is initially in both short-run and long-run macroeconomic equilibrium. Describe the effects, in the short run and in the long run (giving numbers where possible), on the following:

a. aggregate output

b. the aggregate price level

c. the real value of the money supply (its purchasing power for goods and services)

d. the interest rate.

10.        a. Draw a correctly labeled graph showing a short-run Phillips curve with an expected inflation rate of 0% and the corresponding long-run Phillips curve.

b. On your graph, label the nonaccelerating inflation rate of unemployment.

c. On your graph, show what happens in the long run if the government decides to decrease the  unemployment rate below the nonaccelerating inflation rate of unemployment. Explain.