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Suppose a consumer has $1000: If the marginal propensity to save (MPS) is .2, how much will the consumer spend? If the consumer deposits the entire $1000 into a bank and, assuming the reserve requirement rate is 10%, what will be the eventual increase in checking account balances? What are supply shocks? Explain what effect adverse and favorable supply shocks have on the supply curve. Give an example of a supply shock that has affected the U.S. economy on more than one occasion. True/False Statements. Indicate if the statement below is True or False. You must support your answer with a few sentences for each statement. When considering the aggregate demand curve, the wealth effect, interest rate effect, and effects from international trade reinforce each other. When federal government spending amounts to less than tax revenues, the federal government runs a budget deficit. Credits cards are NOT a part of the M1 or M2 money supply. Money is a perfect store of value. Suppose the current real GDP is less than the potential GDP. Explain the ways fiscal and monetary policy can increase real GDP. Be sure to focus on the specific tools, and use the concepts of aggregate demand (fiscal policy) and money supply (monetary policy).

Suppose a consumer has $1000:

If the marginal propensity to save (MPS) is .2, how much will the consumer spend?

If the consumer deposits the entire $1000 into a bank and, assuming the reserve requirement rate is 10%, what will be the eventual increase in checking account balances?

What are supply shocks? Explain what effect adverse and favorable supply shocks have on the supply curve. Give an example of a supply shock that has affected the U.S. economy on more than one occasion.

True/False Statements. Indicate if the statement below is True or False. You must support your answer with a few sentences for each statement.

When considering the aggregate demand curve, the wealth effect, interest rate effect, and effects from international trade reinforce each other.

When federal government spending amounts to less than tax revenues, the federal government runs a budget deficit.

Credits cards are NOT a part of the M1 or M2 money supply.

Money is a perfect store of value.

Suppose the current real GDP is less than the potential GDP. Explain the ways fiscal and monetary policy can increase real GDP. Be sure to focus on the specific tools, and use the concepts of aggregate demand (fiscal policy) and money supply (monetary policy).

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