ECON 252 Final Purdue w/ Vargas Questions All Solved Correct.

Money - Answer Medium of Exchange Store of Value Unit of Account Equation for Growth of GDP - Answer Nominal GDP - Inflation Equation for Quantity Theory of Money - Answer Inflation Rate = Growth Rate (M2) - Growth rate GDP What can inflation do? - Answer Lower real wage rates and real interest rates What do lower fed funds rates do? - Answer Shift demand curve to the left and banks to hold more reserves What do higher fed funds rates do? - Answer Shift demand curve to the right and banks hold less reserves What do contractions do? - Answer Businesses and households borrow less What happens in expansions? - Answer Businesses and households borrow more How does the fed keep the funds rate constant? - Answer Supply more or less reserves Equation for Nominal Interest Rates accounting for realized interest rates? - Answer Realized interest rate + Realized interest rate 3 Components of Economic Fluctuations? - Answer Co-Movement Limited Predictability Persistence What happens during a recession? - Answer Decline in employment levels and GDP decreases