Seventh Homework Assignment
ECON 272 - 5
Due at the beginning of class on Friday, March 31
34 pts.
Directions: Copy and paste this into a word document and then type your answers (essay answers not typed will not be graded). Graphs do not have to be typed.
1. Keynesian economists focus on lowering unemployment. Discuss two other "characteristics" of a Keynesian economist (that we discussed in class). (4 pts.)
2. Assume that the table below shows the unemployment and inflation data in Country A as a result of monetary policy (an increase in the money supply).
| Period | Unemployment Rate | Inflation Rate |
| This Year | 2% | 8% |
| Last Year | 5% | 4% |
a. Draw a correctly labeled graph of a short-run Phillips curve for Country A, showing the unemployment and inflation rates for both years. Label the Phillips curve as SRPC. (7 pts.)
GRAPH HERE - leave space!
b. In order for the short-run trade-off you show in the graph above to take place, the workers must not be given cost of living raises to offset the inflation. But in the long-run - what happens (according to the theory discussed in class)? You don't have to explain the short-run theory - just explain what happens with respect to workers, etc. in the long-run. (6 pts.) Type your answer!!
c. Using the data above, now draw the long run Phillips curve for Country A. Label the curve LRPC. Label your axes correctly and put your original SRPC on your graph too.(5 pts.)
GRAPH HERE - leave space!
For all multiple choice questions - you must type your answer or it will not count. For example, at the end of the question, type: answer: a or b or c, etc. Again, all answers not typed in your homework will not count. (2 pts. each)
Leave spaces between questions and answers!!
3. If the dollar is "devalued" against the Euro, theoretically this will:
a. cause more U.S. exports and more European Union (EU) imports
b. cause more U.S. imports and more EU exports
c. cause both countries to export more
d. cause both countries to import more
e. none of the above
ANSWER:
4. The government of Bobsville would like to balance the budget by changing government spending. Current tax revenue stands at $400 million and government spending is at $575 million. If spending decreased by $100 million and tax revenue stayed the same, Bobsville would have a:
a. balanced budget
b. budget deficit
c. budget surplus
d. no budget at all
e. none of the above
ANSWER:
5. People often make the mistake of thinking that a government's budget deficit (and the debt that creates) causes inflation. This is because they don't understand:
a. how the government goes into debt
b. how the interest on bonds plays into the theory of inflation
c. the Phillips curve theory
d. that monetizing of the debt sometimes occurs
e. None of the above makes sense
ANSWER:
6. The way by which the FED is involved in monetizing the U.S. government's debt is:
a. The FED decreases the money supply
b. The FED buys government (Treasury) bonds from financial institutions with "new" money
c. The FED sells government (Treasury) bonds to financial institutions and puts the money paid out of circulation
d. The FED buys government (Treasury) bonds from the U.S. Treasury with "new" money
e. More than one answer could be correct
ANSWER:
7. If a cost of living raise pushed Bob into a higher tax bracket (with a progressive income tax system), this would be called:
a. deflation
b. capital gains tax
c. sales tax
d. tax bracket creep
e. None of the above
ANSWER:
8. A short-run Phillips curve shows an inverse relationship between:
a. interest rates and borrowing
b. inflation and unemployment
c. income and consumption
d. prices and quantity demanded
e. none of the above makes sense
ANSWER: