ECON 2500                                        Name: __________________________________

Exam #2                                               November 22, 1994

1.      There are __________________ Federal Reserve Districts.

2.      The Fed discount rate is ____________.

3.      The index of leading indicators includes ____________ variables.

Answer four (4) of the following:

1.      Explain graphically the determination of equilibrium GDP by (a) the aggregate expenditures-domestic output approach and (b) the leakages-injections approach for the private sector of a closed economy.  Why must these two approaches always yield the same equilibrium GDP?

2.      What is the balanced-budget multiplier?  Explain/evaluate the following:  "Equal increases in government spending and tax revenues of n dollars will increase the equilibrium GDP by n dollars."

3.      If a $500 cash deposit is made to the banking system what will happen to the money supply assuming a 25% reserve requirement. Explain and illustrate using balance sheets.

4.      What are the tools of monetary policy?  Compare and contrast the effectiveness of each.

5.      What is the equation of exchange?  What can it be use to illustrate? What are economists agreed (not agreed) upon?

6.      Critically evaluate fiscal policy.  What are its strengths/weaknesses?