Problem 1

1. Assuming, that the individuals hold no cash calculate the simple money multiplier for each of the following reserve requirements: 10%, 30%, 100%.
2. Why do Keynesians believe that activist policies are effective while Classicals believe they are not? Explain using the Macro policy model.
3. What was the main difference between Classical and Keynesian economists?

Problem 2

1. Define the aggregate supply path and the three ranges of the path.
2. Show  the effect of increased money expenditure on real output when the economy on the fixed price level

Problem 3

1. If m= $400, p=2, v=4, then Q=?

Problem 4

1. The classical economist’s solution to the Great depression was A) reduce the wage rate, B) increase aggregate demand, C) increase the money supply. Explain your choice.
2. The Keynes major problem with the classical model was that: A) it focused too much on money, B) it was a short run model, C) it lacked a reasonable disequilibrium adjustment mechanism. Explain your choice.

Problem 5

What was the main difference between Classical and Keynesian economists?

Problem 6

1. In the Keynesian model, if autonomous expenditure was $400 and the mpe were 0.85 what is the equilibrium income?
2. If mpe is 0.8 what is the size of the multiplier in Keynesian model

Problem 7

1. Define the AP/AE model and show it graphically.
2. You are given the following information about the economy
   
   

1. What is the level of autonomous expenditure?
2. What is the marginal propensity to expend?
3. What expenditure’s function corresponds to the table?
4. What is the mpw?

Problem 8

1. Define expansionary and contractionary policies.
2. Define the three alternatives to fiscal policies.
3. How does the fiscal policy affect the economy?

Problem 9
You are speaking at the congressional conference.  A Congress person wonders whether the funding of fiscal policy by selling bonds will change the direct effect of fiscal policy. You tell her that it might and explain how.

Problem 10

1. Fill in the following table.

How does the Keynesian theory of inflation differ from the Classical theory of inflation?

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