NVCC Economics Worksheet

Description

These are short answer questions. Please be precise and concise.

Explain why many argue the use of “market” prices will NOT necessarily enable the economy to operate at its production frontier. (2pt)
Provide two specific fiscal policy actions taken by the government to boost economic recovery from the March 2020 Covid shutdown. (2pt)
Provide two specific monetary policy action taken by the Federal Reserve this year to combat rising inflation.

4. Given the following 2018 output and price data below:

Items	Quantity	Price
Pizza	100	$10
Donuts	200	$1
Crude Oil (barrel)	100	$20
Used phone	100	$100
Personal Loan	100	$100
Haircut	100	$10

a. What is the “nominal” GDP measure for 2018? (2 pt)

b. What is the “real” 2018 GDP measure in 2012 prices if the 2018 price index is 1.05? (2pts)

5. Government survey-takers noted the following prices each year for the listed items.

Items	2016	2017	2018
Pizza	$10	$20	$20
Cell Phone Service	$90	$180	$180
Crude Oil (barrel)	$90	$180	$90

a. Calculate the percentage increase in PPI from the base year, 2016 to 2017. (2 pt)

b. Calculate the percentage increase in CPI from the base year, 2017 to 2018. (2 pt)

c. What is likely to happen to CPI if the unemployment rate declines below the natural rate (2 pt)

6. Assume the following data describe the condition of the banking system:

Checking deposits $800B

Cash held by public $100B

Savings/CD deposits $1000B

Credit card balance $200B

a. How large is the M2? (1 pt)

b. If the Fed’s reserve requirement is 0.10 then how much bank reserve is required in the system? (1 pt)

c. How much M2 will increase if banks lend an additional $10B? (1 pt)

d. With an increase of M2 will likely increase or decrease the short term interest rates in the economy? (1pts)

Bonus: Explain why economics is so cool 🙂 (1pt)

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