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Problem Set 10

The document outlines the final problem set for Econ 162-A1, covering topics such as the Keynesian model, FOMC structure and decisions, monetary policy tools, and the classification of money supply. It includes specific questions related to GDP gaps, government spending, and the effects of monetary policy. Additionally, it requests students to complete the SOOT survey for feedback on the course.

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3 views2 pages

Problem Set 10

The document outlines the final problem set for Econ 162-A1, covering topics such as the Keynesian model, FOMC structure and decisions, monetary policy tools, and the classification of money supply. It includes specific questions related to GDP gaps, government spending, and the effects of monetary policy. Additionally, it requests students to complete the SOOT survey for feedback on the course.

Uploaded by

f7djrpw4cc
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

Econ 162-A1, A2 Kenny Christianson

Fall 2024 due: December 4

THE LAST PROBLEM SET

1. Assume a simple closed Keynesian model where the MPC is 0.75 and the MPIM is 0.15.
Also assume that potential real GDP is $1000 million, while actual (equilibrium) real GDP is
$700 million.

a. What is the GDP gap?


b. Is there an inflationary or recessionary gap?
c. What change in government spending is required to restore the economy to full
employment GDP? Show graphically using a Keynesian cross diagram.
d. What change in lump-sum taxes would bring about the same result?
e. Assume that a Balanced Budget Amendment is passed, so that increases in
government spending must be accompanied by equal increases in lump-sum taxes. What change
in both G and T will close the GDP gap? (HINT: What is the balanced budget multiplier in this
model?)

2. Go to the following web site to read the latest minutes of the FOMC:

[Link]

First read “About the FOMC”, and then answer the following questions:

a. What is the FOMC? What is its purpose?


b. What are the three main tools of monetary policy?
c. What is the structure of the FOMC?

Then click on “Meeting calendars and information”, and then click on “statement” next to
November 6-7. After reading the press release, answer the following questions:

d. How does the FOMC characterize the current state of the US economy?
e. What tools of monetary policy were discussed?
f. What did the FOMC decide to do at the meeting?
g. Was the vote unanimous?

3. Determine whether each of the following is included in both M1 and M2 or M2 only:


a. a Connecticut quarter
b. a savings account at a local savings bank
c. a share draft account at a credit union
d. money market deposit accounts
e. A time deposit at a commercial bank

4. What is Gresham’s law? Provide a modern example.


Econ 162-A1, A2 Fall 2024 Problem Set 10 2

5. Assume that the Federal Reserve increases the money supply by purchasing government
bonds in the secondary market. Show and describe the effects of such an increase in the money
supply in the Keynesian model of the monetary policy transmission mechanism.

6. SOOT Survey

If you have not done so yet, please complete the SOOT survey.

The SOOT (Student Opinion Of Teaching) surveys are available on line. To access the SOOT
survey for this course, go to

[Link]

to complete the survey. There will be surveys for both the lecture and discussion section, please
complete both. The results are anonymous, and I will only see the aggregated results. Thank
you for your feedback.

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