Wednesday, January 18, 2017

Aqui

http://apcentral.collegeboard.com/apc/public/repository/_ap06_frq_macro_b_51793.pdf

Thursday, October 13, 2016

Export Practice


What happens to US Exports if?

1.     Savings decrease….
2.     Germany goes into a recession…
3.     The Federal Reserve sells bonds…
4.     The Government Runs a surplus….
5.     Savings increase…
6.     The Federal Reserve sells bonds…
7.     The Federal Reserve raises the discount rate…
8.     The Federal Reserve lowers the reserve requirement…
9.     The Government Runs a deficit….
10.  The German government has expansionary fiscal policy…

Investment Practice


What happens to Investment (I) in the US if?

1.     The Federal Reserve raises the discount rate…
2.     The Federal Reserve lowers the reserve requirement…
3.     The Government Runs a deficit….
4.      The government taxes new business investment…
5.     Savings decrease….
6.     The US subsidizes new business investment…
7.     The Federal Reserve sells bonds…
8.     The Government Runs a surplus….
9.     Savings increase…
10. The Federal Reserve buys bonds…


Tuesday, October 20, 2015

Homework 10/21

1) The US economy is currently suffering from high inflation (an inflationary gap).

a)  Graph the inflationary gap on a graph of AD/AS, labeling the current price level Pi, and current output level Qi.

b)  What open market operation (buying or selling bonds) should the US central bank (The Federal Reserve Bank) pursue to help reduce inflationary pressures in the economy?  Graph the impact of your policy recommendations (buying or selling bonds) on a graph of the money market.

c) On your graph of AD/AS in part a), illustrate the shift in AD based upon the change in the money supply from the open market operations you recommended.

2)  Explain why your recommendation helped to reduce inflation.

ANSWER:  The sale of bonds removes money, which is used to buy the bonds from the Fed, from the commercial banking system.  The decrease in the money supply causes both nominal and real interest rates to increase.  Since higher interest rates increase borrowing costs, both investment spending by businesses (I) and consumption spending by consumers (C) will decrease, causing AD to decrease (shift left), lowering the price level and therefore reducing inflation.

3)  Explain how a reduction in inflation helps consumers purchasing power.

ANSWER:  With a lower price level, consumers have more real purchasing power with their current income.  For example, if Jeans are $20 a pair and my income is $100 I can buy 5 pairs.  If inflation is reduced and the price of Jeans falls to $10, I can now purchase 10 pairs with my $100 income.

4) Explain how a reduction in the price level in the US helps US exports.

ANSWER:  Since the price of US goods has fallen with a reduction in inflation, foreign buyers real purchasing power has also increased, causing them to import more from the US, so US net exports increase and AD shifts right.