FRQ 1: Measures of Economic Performance
a. Define gross domestic product (GDP) and explain the difference between nominal GDP and real GDP.
b. Explain how the following would be categorized in the calculation of GDP:
FRQ 2: Phases of the Business Cycle
a. Identify and describe the four phases of the business cycle.
b. During a recession, what typically happens to unemployment, inflation, and real GDP?
c. Explain how fiscal policy could be used to move the economy from a recession to an expansion. Include examples of specific policy tools.
FRQ 3: Unemployment and Inflation
a. Define frictional unemployment, structural unemployment, and cyclical unemployment, and provide an example of each.
b. The natural rate of unemployment is 5%, but the current unemployment rate is 8%. What does this indicate about the state of the economy?
c. Explain how unanticipated inflation affects:
FRQ 4: Aggregate Demand and Aggregate Supply
a. Draw a correctly labeled graph of the aggregate demand (AD) and aggregate supply (AS) model in long-run equilibrium.
b. Suppose there is an increase in consumer confidence. Show and explain how this affects the AD-AS graph.
c. Explain the impact of an increase in government spending on aggregate demand and the price level in the short run.
FRQ 5: National Income and Price Determination
a. Define the multiplier effect and explain its significance in fiscal policy.
b. If the marginal propensity to consume (MPC) is 0.8, calculate the spending multiplier.
c. Explain how a $200 billion increase in government spending would affect aggregate demand if the spending multiplier is 5.
FRQ 6: Phillips Curve and Economic Policy
a. Draw a correctly labeled short-run Phillips curve (SRPC) and identify the relationship between inflation and unemployment.
b. Explain how a contractionary monetary policy affects the short-run Phillips curve.
c. In the long run, how does the economy adjust back to the natural rate of unemployment, according to the Phillips curve model?
a. Define gross domestic product (GDP) and explain the difference between nominal GDP and real GDP.
b. Explain how the following would be categorized in the calculation of GDP:
- The purchase of a new car by a consumer.
- Government spending on military equipment.
- The sale of used goods.
c. If nominal GDP increases but real GDP remains constant, what does this indicate about the economy?
FRQ 2: Phases of the Business Cycle
a. Identify and describe the four phases of the business cycle.
b. During a recession, what typically happens to unemployment, inflation, and real GDP?
c. Explain how fiscal policy could be used to move the economy from a recession to an expansion. Include examples of specific policy tools.
FRQ 3: Unemployment and Inflation
a. Define frictional unemployment, structural unemployment, and cyclical unemployment, and provide an example of each.
b. The natural rate of unemployment is 5%, but the current unemployment rate is 8%. What does this indicate about the state of the economy?
c. Explain how unanticipated inflation affects:
- Lenders and borrowers.
- Fixed-income earners.
FRQ 4: Aggregate Demand and Aggregate Supply
a. Draw a correctly labeled graph of the aggregate demand (AD) and aggregate supply (AS) model in long-run equilibrium.
b. Suppose there is an increase in consumer confidence. Show and explain how this affects the AD-AS graph.
c. Explain the impact of an increase in government spending on aggregate demand and the price level in the short run.
FRQ 5: National Income and Price Determination
a. Define the multiplier effect and explain its significance in fiscal policy.
b. If the marginal propensity to consume (MPC) is 0.8, calculate the spending multiplier.
c. Explain how a $200 billion increase in government spending would affect aggregate demand if the spending multiplier is 5.
FRQ 6: Phillips Curve and Economic Policy
a. Draw a correctly labeled short-run Phillips curve (SRPC) and identify the relationship between inflation and unemployment.
b. Explain how a contractionary monetary policy affects the short-run Phillips curve.
c. In the long run, how does the economy adjust back to the natural rate of unemployment, according to the Phillips curve model?