CALIFORNIA STATE UNIVERSITY, SACRAMENTO
Department of Economics
Prof. A. R. Gutowsky
Economics 100A
Problem Set 4
Chapter 9
1. What is the difference between macroeconomics short-run and long-run?
2. Explain how the Quantity Equation becomes an aggregate demand schedule.
(A) Why is the aggregate demand schedule
downward sloped?
(B) What are the determinants of aggregate
demand?
(C) What would cause the aggregate demand
schedule to shift to the right? Left?
3. Why is the long-run aggregate supply schedule perfectly vertical?
(A) What are the determinants of the long-run
aggregate supply schedule?
4. Why is the short-run aggregate supply schedule perfectly horizontal?
5. Discuss the adjustment process as one moves from the short-run to the long run.
6. What are shocks?
(A) Repeat question (4) for a demand shock.
(B) Repeat question (4) for a supply shock.
(1) What is an adverse supply shock?
(2) Give some examples of an adverse supply shock.
(3) What is a favorable supply shock?
(4) Give some examples of favorable supply shocks.
7. How should stabilization policy deal with:
(A) unfavorable supply shock.
(B) favorable supply shock
(C) stagflation
(D) inflationary gap
(E) recessionary gap
Chapter 11
1. What is a Keynesian Cross Diagram.
(A) Know the equations found on page 259-260.
(B) What is the meaning of the 45-degree
schedule labeled "actual expenditures?"
(C) What is the multiplier?
2. Given the following information:
Y = D
D = C + I + G
C = 100 + .9(Q - T)
I = 300 - 1000r where r = .08
G = 350
T = .2Q
(A) Solve for Q
(B) Solve for BUD = T - G
(C) What is the value of the multiplier?
(D) What is the value of the intercept and
slope of the planned expenditure schedule?
(E) What is the value of C? I?
3. Graphically derive the IS Schedule.
(A) Given the above information (Question 2),
derive the IS Schedule.
(1) Why is the IS Schedule downward sloped?
(2) What will cause the IS Schedule to shift to the right? Left?
4. What is the theory of liquidity preference?
(A) Given the following information:
L = M
L = .5Y - 1000r when Y = 2000
M = 950 assume P (the price level) = 1
(1) Solve for r.
(B) Know the material found on pages 272-275
5. Graphically derive a LM Schedule.
(A) Why is the LM Schedule upward sloped?
(B) What will cause the LM Schedule to shift to
the right? Left?
(C) From the information found in question (4),
derive a LM Schedule.
6. What is meant by a short-run equilibrium IS/LM?
7. Answer questions 1, 2, 3, 5. These questions are a must. If you can do them,
you can pass the next examination.
8. Read pages 307-309 on IS/LM.
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