Sample Macro Final FRQs Students will demonstrate understanding of concepts of macroeconomics

Question 1 (9 points): See graph (labeled correctly) AD decreases as a result of Beta recession—decreased Alpha exports Central bank should buy bonds—expansionary monetary policy Beta IR higher… Financial capital will flow from Alpha to Beta—investors attracted to higher interest rate for greater returns on investment Alpha will supply currency in FOREX causing a depreciation

Question 2 (5 points): RR= 20% Find 20% of $200--$40. Compared to current reserves (not specified excess or required) of $80 the bank can issue $40 M worth of new loans. Use money multiplier to see impact on money supply— 1/RR = ripple effect 1/.2 = 5 5 x $40 M (new loans issued) = $200 M change in MS Cash leakage from banking system or banks may hold excess reserves Find 20% of the $10 M in demand deposits— 10 x .2 = $2M increase in required reserves Bond prices will increase as central bank purchases them from banks— Demand for bonds rises as government looks to purchase

Question 3 (5 points) a. UR = # unemployed/LF— 80/800 = 10% UR b. NRU = 6% (given) i. See graph (labeled correctly) ii. Point Z—place it along SRPC at a point that corresponds to 10% UR c. If UR > NRU = Recession—self-correct? SRAS will increase due to lower input costs in the LR OR Inflationary expectations will decrease over time d. No cyclical unemployment if UR = NRU