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(b2.) (5 points) Refer to the data in the above scenario. What is the
unemployment rate in the United States for the given year?
7. (TCO G and H)
(a.) (15 points) Suppose your local Congress representative suggests that
the federal government should NOT intervene in the baseball ticket
market to stop runaway price increases. Would you say that this view
basically supports the Keynesian or the Monetarist school of thought?
Why? What position would the opposing school of thought take on this
issue? (Be brief—you can answer this in 2 or 3 brief paragraphs).
(b.) (10 points) Any change in the economy’s total expenditures would
be expected to translate into a change in GDP that was larger than the
initial change in spending. This phenomenon is known as the multiplier
effect. Explain how the multiplier effect works.
(c.) (15 points) You are told that 75 cents out of every extra dollar
pumped into the economy goes toward consumption (as opposed to
saving). Estimate the GDP impact of a positive change in government
spending that equals $25 billion.
8. (TCO G)
(a.) Reserve requirement for banks is set at 5%. Your firm withdraws
$42,000 on its line of credit at the Security Bank to purchase equipment
for expansion. The equipment vendor deposits the amount that he
receives from you at his bank, The Highland Bank.
(10 points) By how much has each bank’s excess reserves changed as a
result of your withdrawal and expenditure?
(10 points) What is the maximum amount of new money that can be
created in the banking system as a result of your purchase? Show all
work.
(b.) (10 points) suppose that the Security Bank discovers its reserves will
temporarily fall slightly short of those legally required. How might it
remedy this situation through the Federal Funds market?