Section 1.
Short essay questions – 40 points
Answer the following questions
(at least 250 words each questions)
- What is the difference between the banking system described so far in this class and the one described by Mazzucato? Does the rise of casino capitalism affect countries such as Panama?
- Explain why the neoclassical economists believe that the government does not need to do much about unemployment. Do you agree or disagree? How does it compare to the Keynesian view? Explain.
Section 2.
Short answers – 60 points
Graph 1 (Use for questions 1 to 5)
- What is the current equilibrium price level and real GDP for the economy illustrated in the figure above?
- Does the economy depicted in the graph above have an inflationary gap, a recessionary gap, or neither? Why?
- In the economy depicted above, as it adjusts toward full employment, which curve shifts? What is the equilibrium real GDP and price level that the economy will ultimately reach?
- What fiscal policy could be implemented to lead this economy to close the gap you identified in question 2? Illustrate your answer using an AD, AS, LRAS graph.
- What monetary policy could be implemented to lead this economy to close the gap you identified in question 2? Illustrate your answer. Illustrate your answer using 1) an AD, AS, LRAS graph, 2) a money market graph and a 3) a FOREX market graph.
Table 1. Use for questions 6 and 7
6) Based on the table 1, draw an AD, AS graph.
7) Based on table 1, if potential GDP is $11.0 trillion, what does that imply about the economy’s level of employment? Illustrate this potential GDP.
8) Assume that the level of consumption in an economy is given by the expression C= 1000 + 0.7Y, when Y = 50,000, what would autonomous consumption be and what would aggregate consumption be?
Graph 2 (Use for questions 9 and 10)
- Explain the dynamics that lead from point Z to A illustrated in the graph above.
- What is likely to be its MPC? What is likely to be the multiplier for this economy? Show your assumptions and calculations.
- Using AD, AS and LRAS, explain how a recession in Asia is likely to affect Panama´s aggregate demand?
- State how each of the following affect the aggregate demand and aggregate supply curve:
| Event | AD | AS |
| Increase in the price level | ||
| Consumers expect deflation in the future | ||
| Discovery of new and cleaner energy source | ||
| The exchange rises | ||
| Decrease in workers’ productivity |
