ECO 610 Final Exam

ECO 610 Final Exam

ECO 610 Final Exam

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Do not leave problems or areas of problems blank. Answer to the best of your ability, and where you are given enough information to provide a numerical answer, please provide this.

Problem 1

A. If the rate of job separation is 0.025 per month and the rate of job finding is 0.4 per month, what is the natural rate of unemployment (U/L)*?
B. If the economy were at a steady-state unemployment rate with a separation rate of 0.025 per month and a job-finding rate of 0.4 per month, and the labor force consists of 100 million workers, on average how many individuals (in absolute number) would lose their jobs each month?

Problem 2
Assume the following money supply information and use as needed for all parts of this problem.

Currency in circulation (CU, in $) 75
Deposits (D, in $) 200
The required reserve ratio (rr, in %) rr = 0.14
High-powered money (monetary base, B, in $) 102

A. Using the information given, what is the value of the money multiplier, m?
B. What is the level of the M1 stock of money?
C. Suppose the public’s holding of currency increases to $100 while, at the same time, the level of deposits remain constant at $200. What is the value of the new money multiplier (m’)? If the FED wishes to hold the M1 supply of money equal to the value obtained in Part (ii) above, by how much must the FED change the monetary base (ΔB), and in which direction, as a result of the new money multiplier (m’)?

A. The version of Okun’s law studied in Chapter 9 assumes that with no change in unemployment, real GDP (RGDP) normally grows by 3 percent over a year. If RGDP last year was $12,375 and the unemployment rate fell by 1 percentage point from last year to this year, what would you predict RGDP to be this year?
B. Assume that the long-run aggregate supply curve is vertical at Y = 3,000 while the...

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