Short Answer Section 1:
1. What are the three goals of Macro Economics and how are they measured?
2. What are the components of Aggregate demand and how is it calculated?
3. What is a Monetary policy and what is the most frequently used tool/type used?
4. What are the primary Fiscal Policies and what component of AD are they designed to
Short Answer Section 2:
Describe Expansionary fiscal and Contractionary fiscal policies make sure to include actions and
problem they are designed to solve?
1. What advantage does using money have over the barters system and name and describe
the three functions of money?
2. List and define the monetary tools and state the actions taken to increase the money
supply (hint: expansionary monetary policies)?
Graphing and problems Section 1
1. Use an aggregate supply-and-demand diagram to show what would happen to an
economy in which the aggregate supply (AS) never moved while the aggregate demand
curve shifted outward year after year? (Make sure to state or show what happens to GDP
and price levels)?
What is the aggregate supply curve, what does it represent? Draw the appropriate graph
to illustrate your answer. Be sure and label all axes and curves.
3. Draw the Aggregate Demand and Supply model showing the changes in Price levels and
Real GDP due to a decrease in Taxes?
4. From the following data determine the equilibrium level GDP?
Graphing and problems Section 2
1. What fiscal policy (or policies) is/are typically used to close a recessionary gap? Draw
the Aggregate Demand and Supply model showing the changes in Price levels and Real
GDP - make sure your illustration clearly shows the recessionary gap
2. State a monetary policy and explain how it is used to close an inflationary gap? Draw the
Aggregate Demand and Supply model showing the changes in Price levels and Real GDP
- make sure your illustration clearly shows the inflationary gap.
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Question 1: Three goals of Macro economics are:
• Economic growth,
• Low unemployment, and
• Low inflation.
Economic growth represents an increase in the nation’s output of goods and services over time. It is measured by the percent rate of increase in real GDP (Gross Domestic Product) or in per capita GDP.
Unemployment is measured by the unemployment rate that shows the number of unemployed people as the percentage of the labor force.
Inflation is the situation when the general level of prices for goods or services is rising, while the purchasing power is falling. It is measured with Consumer Price Index (CPI) and Producer Price Indexes (PPI).
Question 2: The components of Aggregate demand are:
• Consumption (C),
• Investment (I),
• Government spending (G), and
• Net Export (X-M)
Aggregate demand is calculated with the following equation:
AD = C + I + G + (X-M)...