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Scenario 2 In October 2013, President Obama and the Republican Party faced a debate regarding tax increases and government spending cuts (the so-called government shutdown). A temporary solution was reached until February 2014, when the debate started again.   Refer to scenario 2. Suppose that President Obama and the Republican Party did not reach an agreement. Hence, taxes increase and government expenditure fell in February 2014. Within the framework of the AD-SRAS-LRAS model discussed in class, what would happen with prices and output in the U.S. economy if it initially starts in a situation of long-run equilibrium?

Tristan decides to purchase bonds issued by Brazil instead of ones issued by the United States even though the Brazilian bonds have a higher risk of default. An economic reason for his decision might be that

In an open economy, which of the following is correct?

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

To decrease the money supply, the Fed could

The aggregate quantity of goods and services demanded changes as the price level falls because

Robert deposits his savings into his bank account. If the nominal interest rate is 7 percent and the inflation rate is 3 percent, then what is the real interest rate on Robert’s savings?

Figure 2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.   Refer to figure 2. At the end of 2050 the relevant money-supply curve was the one labeled MS1.  At the end of 2051 the relevant money-supply curve was the one labeled MS2. Assuming the economy is always in equilibrium, what was the economy’s approximate inflation rate for 2051?

If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, which of the following is implied by purchasing-power parity?

Scenario 1 In 2007-09, the U.S. economy went through its worst economic downturn in 30 years. As a consequence of the sharp increase in the price of housing in the U.S. in the mid-2000s, a rapid increase in the demand for oil drove up oil prices. Additionally, the collapse of the housing market, which led to Lehman Brothers’ bankruptcy, generated a financial crisis that reduced private spending.   Refer to scenario 1 and question 68. In February 2009, the Congress approved the American Recovery and Reinvestment Act (ARRA) put forward by President Obama, consisting of US$ 787 billion in fiscal stimulus. Starting from the equilibrium at point B, how did the ARRA affect the economy?