1. Unit 6 Test Review
9. Using scenario 31-1 (Banks decide to do away with fees charged to noncustomers when they use another bank’s ATM): If the Fed wants to maintain the same federal funds rate, it should:
Increase taxes
Decrease gov’t spending
Sell Treasury bonds
Buy Treasury bonds
Lower discount rate

2. Unit 6 Test Review
9. Using scenario 31-1 (Banks decide to do away with fees charged to noncustomers when they use another bank’s ATM): If the Fed wants to maintain the same federal funds rate, it should:
Increase taxes
Decrease gov’t spending
Sell Treasury bonds
Buy Treasury bonds
Lower discount rate
Rationale:
As fees are eliminated MD falls (shifts left) decreasing IRN. In order then to maintain fed. funds rate, MS must also decrease. This is achieved by selling bonds (contractionary monetary policy)

3. Unit 6 Test Review
Questions 16-19: Classical Model of Price Level: no differentiation between short run and long run meaning the model will self-correct immediately!!! 16. A (output is unchanged as a result of AD) 17. E (PL rises to LREQ after AD and SRAS) 18. B (SRAS must  for model to self-correct) 19. D (EQ jumps immediately from EQ1 to EQ3)

4. Unit 6 Test Review
24. If an economy has just suffered a serious recession but real GDP is expanding once again, we can conclude the unemployment rate will:
Immediately fall
Immediately rise
Initially rise, if people who were previously discouraged enter the work force but do not find jobs right away
Initially fall, if people who were previously discouraged enter the work force but do not find jobs right away
Initially rise, if people who were previously unemployed become discouraged and drop out of the labor force

5. Unit 6 Test Review
24. If an economy has just suffered a serious recession but real GDP is expanding once again, we can conclude the unemployment rate will:
Immediately fall
Immediately rise
Initially rise, if people who were previously discouraged enter the work force but do not find jobs right away
Initially fall, if people who were previously discouraged enter the work force but do not find jobs right away
Initially rise, if people who were previously unemployed become discouraged and drop out of the labor force

6. Mod. 40 LR Growth in Macro Models
C-5 Demonstrate understanding of how long run growth is illustrated and analyzed by completing Macro Activities ( )

7. Economic Growth
What are the 3 factors that lead to LR economic growth?
Increased technology, better/more human capital, and better/more physical capital
Real world examples of each?
Widespread use of internet (think Wal-Mart effect), increase in population size or government subsidy of secondary education, and investment in high-speed rail system or increased production of construction equipment

8. Production Possibilities Curve
What does this figure illustrate?
Potential for depreciation: physical capital’s wearing down over time making it less valuable/productive…
If the machines used to produce guns wear over time and begin to produce fewer guns, the stock of physical capital has depreciated…

9. Economic Growth
LRAS
LRAS2 =
*Note: These shifts are not a result of business cycle fluctuations (SR events), they are enduring factors that will sustain a greater level of output over time.