Unit 5 check
Unit 5 check: Long-Run Consequences of Stabilization Policies
10 questions from 7 lessons in Unit 5. Answer each one, and if you miss, follow the link back to where it is taught, then try again. Your score counts first tries.
Question 1 · from 5.1 · Sort it
Each plan is for an economy with a negative (recessionary) output gap. Tap a plan, then tap what it does to that gap.
Both tools help close the gap
Both tools widen the gap
The tools pull against each other
Question 2 · from 5.2 · Calculate
Dalmuth's statistics agency estimates that frictional unemployment is 3.5%, structural unemployment is 1.5% and cyclical unemployment is 2%. At what unemployment rate, in percent, should Dalmuth's long-run Phillips curve be drawn?
Question 3 · from 5.3 · Decide and justify
An economy is at full employment. Its central bank increases the money supply by 20% a year for several years, and velocity stays about the same. In the long run, is real output higher than it would have been without the money growth?
Which reason supports your choice?
Question 4 · from 5.4 · Decide and justify
Arland's government had a balanced budget last year. This year it cuts income tax rates, so its tax revenue falls, and its purchases and transfer payments do not change. In the same year Arland's imports grow faster than its exports. Does the government's budget move into deficit this year?
Which reason supports your choice?
Setup for question 5
Pellaro, a fictional country, has had a balanced government budget. Next year its government will run a deficit and borrow $200 billion to cover it, the same amount at every real interest rate. Before that borrowing, Pellaro's loanable funds market looks like this:
| Real interest rate | Quantity demanded by private borrowers | Quantity supplied by savers |
|---|---|---|
| 2% | 580 | 380 |
| 3% | 520 | 420 |
| 4% | 460 | 460 |
| 5% | 400 | 500 |
| 6% | 340 | 540 |
| 7% | 280 | 580 |
| 8% | 220 | 620 |
Question 5 · from 5.5 · Calculate
Pellaro's government will borrow $200 billion at every real interest rate. Using Pellaro's loanable funds schedule, what will the new equilibrium real interest rate be, in percent?
Setup for question 6
Lumeria's statistics agency estimated its aggregate production function: the real GDP Lumeria produces at each level of employment. Curve Y1 uses this year's physical capital, human capital and technology. Curve Y2 is the same economy after every worker gains an extra year of technical training, with nothing else changed. Lumeria's population is 60 million.
| Employment (millions) | Real GDP on Y1 ($ billions) | Real GDP on Y2 ($ billions) |
|---|---|---|
| 10 | 275 | 330 |
| 20 | 500 | 600 |
| 30 | 675 | 810 |
| 40 | 800 | 960 |
Question 6 · from 5.6 · Multiple choice
Lumeria keeps the capital, skills and technology of curve Y1, and employment rises from 20 million to 30 million. Using Lumeria's production function table, what happens to its real GDP?
Setup for question 7
Wrenmoor, a fictional country, spent eight years paying for child care for parents who take jobs and rebuilding its freight rail lines. Its statistics agency reports:
| Measure | Year 1 | Year 8 |
|---|---|---|
| Population (millions) | 40 | 42 |
| Employed workers (millions) | 18 | 21 |
| Real GDP (billions of Year 1 dollars) | 1,440 | 1,848 |
Question 7 · from 5.7 · Calculate
Wrenmoor's population grew from 40 million in Year 1 to 42 million in Year 8, and its real GDP, in Year 1 dollars, grew from $1,440 billion to $1,848 billion. By what percent did Wrenmoor's real GDP per capita rise from Year 1 to Year 8? Give your answer to one decimal place.
Question 8 · from 5.1 · Decide and justify
Marisca has a negative (recessionary) output gap, and its banking system has ample reserves. Its government raises spending on ports, paying for it by borrowing, and its central bank lowers the interest rate it pays on reserves. Real output will rise. What happens to interest rates in Marisca?
Which reason supports your choice?
Question 9 · from 5.2 · Sort it
Each event happens on its own, with nothing else changing. Tap an event, then tap what it does on the Phillips curve graph.
Movement along the SRPC
The SRPC shifts
The LRPC shifts
Question 10 · from 5.3 · Calculate
In an economy, the money supply grows 9% a year, velocity stays constant, and real output grows 3% a year. Approximately what is the long-run inflation rate, in percent?
0 of 10 answered.