Exam 2, Econ 1a Foldvary, April 12, 2016, study guide

1) By cutting high taxes and excessive regulations, the government seeks to shift the aggregate supply curve in the long run to the left or right, for supply or demande-side policy?

2) If the price level changes, what is the effect on the aggregate demand curve?

3) The aggregate production function shows that the marginal product of labor increases how, as employment increases?

4) A higher savings rate (portion of income saved) reduces interest rates and does what to investment?

5) In the Equation of Exchange MV = PT helps us understand how monetary and price inflation are related in which way?

6. What is the result of the spending multiplier if investment comes from savings?

7. Supply-side economic policy does what?

8) In a pure free market, interest rates mainly originate in

9. In a market economy, the most important function of the rate of interest is to

10. The Federal Reserve system usually increases the money supply, how?

11. The demand for money means

12) What determines the price level? 

13) Suppose that the money supply M grew as rapidly as GDP or T (transactions), yet we witness P (price level) rising. Economists conclude that

14. Suppose the economy has only two goods, corn and solar calculators. Corn costs $3 per bushel, and solar calculators cost $10 each. If the price level is 1, and the total amount of money M is $100, and during one year, we buy 25 bushels of corn and 25 solar calculators, each dollar is spent how many times each year?

15. The Federal Funds rate is the interest rate for what?

16 What is the economic meaning of pure or real interest?

17. In the long run, money is neutral or does it affect output how?

18 Which one of the following would not shift the aggregate demand curve?

19) The economic cost of inflation is that

20        Monetary policy involves

21.       Fiscal policy involves

22. With a lower real wage, what happens to output?

23.       The aggregate demand curve slopes down because

24.       According to the Keynesian spending multiplier, given a

            marginal propensity to consume (b), the spending multiplier 1/(1-b) will do what to GDP?

25 Explain why, during the gold rush in California, wages first rose to a very high level, and then declined to the same level as before the gold rush.