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YOUR NAME:
INTRODUCTION TO MACROECONOMICS. FINAL EXAM
PROFESSOR: LUIGI PASCALI
- Answer A MAXIUMIM of 35 out of the 38 proposed questions.
- Just ONE answer is correct, ONE answer can be chosen and signaled in the “Correction sheet”
- IN THE CORRECTION SHEET YOU MUST JUST USE YOUR ID (If you do not have one, your name and
surname is enough) and YOUR SURNAME AND NAME
- One correct answer: +1, one wrong answer: - 0,25
ANY SUSPICION OF CHEATING will be transformed authomatically into a 0
For questions 1 to 5 consider the following closed economy with the following equations:
C = 500+ 0.25YD
YD = Y – T
T = 400
MD = 0.1Y – 500i+1000
MS = 500
I = 500 – 250i + 0.25Y
G=0.25Y+100
Suppose fixed prices, P=1. Interest rate as percentage points.
1. Which are the slopes of IS and LM curves?
a/ IS= - 0.001 ; LM= 0.0002
b/ IS= - 0.002 ; LM = 0.0002
b/ IS= 0.002 ; LM= - 0.0002
d/ None of the above
2. Which is the interest rate in equilibrium?
a/ 1.5
b/ 3.3
c/ 2.6
d/ None of the above.
3. Which is the value of Y in equilibrium?
a/ 1.5
b/ 3300
c/ 2500
d/ None of the above.
4. The fact of having public expenditure depending positively on aggregate production,
a/ increases autonomous spending multiplier, which helps reducing the impacts of any demand shock over the level
of income
b/ reduces autonomous spending multiplier, which helps reducing the impacts of any demand shock over the level of
income
c/ increases autonomous spending multiplier, which amplifies the impacts of any demand shock over the level of
income
d/ None of the above.
5. Suppose the government decides to increase taxes in 100 units when Central Bank decides to increase Money
supply in 100 units, how do IS and LM curves shift?
a/ IS curve shifts to the left and LM shifts to the right.
b/ IS curve shifts to the right and LM shifts to the left
c/ Both curves shift to the right
d/ None of the above.
6. For decreasing unemployment rate in the mid term:
a/ Output growth must be higher than the normal growth rate
b/ A monetary expansion is needed
c/ An increase in prices is needed
d/ None is correct.
7. Given AD function
Regarding the effects of a monetary expansion in the mid run:
a/ Inflation equals
ls the difference between real money growth and real output growth
b/ Inflation equals the difference between nominal money growth and normal output growth
c/ The rate of nominal money growth affects the natural unemployment rate
d/ An expansive monetary policy
olicy increases real GDP
8. The expectations augmented Phillips curve:
a/ shows the negative trade of between price level and unemployment
b/ has proven to be very stable across countries and over time
c/ assumes that expected inflation is zero
d/ relates changes in inflation rate with unemployment rate
9. The sacrifice ratio:
a/ is the level of unemployment needed to keep inflation rate constant
b/ is the difference between both the actual and the natural unemployment rates
c// is the cost, in terms of real economic growth, derived from a contactionary policy
d/ None of above is correct.
10. Consider Solow Model of economic growth studied, given a production function : Y= K1/3L1/3
saving rate, depreciation are s=0.20, δ=0.05. In steady state, GDP per head, Y/N, is
a/ 4
b/ 6.5
c/ 8
d/ There is not enough information to calculate it
11. The estimated Okun´s Law for the US is given by Ut – Ut-1 = -0,4(gyt - 3%) , if the rate of growth of labour
force is increased by 2 percentage points, Okun´s law would be best represented by
a/ Ut – Ut-1 = -0,4(gyt - 3%) + 2%
b/ Ut – Ut-1 = -0,4(gyt - 3%)
c/ Ut – Ut-1 = -0,2(gyt - 3%)
d/ Ut – Ut-1 = -0,4(gyt - 5%)
12. Phillips curve is given by Πt = Πte - (Ut – 5%) , Πte = Π t-1 , then:
a/ The sacrifice ratio for this economy is 5
b/ The sacrifice ratio for this economy is 1
c/ An increase in prices equal to 1% will reduce unemployment in 5%
d/ None of the above is true
13. The aggregate production function shows the relationship between:
a/ output and capital
b/ technological advancement and capital accumulation
c/ output and the factors of production
d/ output and money
14. In the long run:
a/The saving rate determines the level of output per worker
b/ An increasing saving rate increases the rate of growth of the economy
c/ In the steady state of the economy, saving per worker exceeds the depreciation of the capital stock per worker
d/ In the steady statee of the economy saving per worker is below the depreciation of the capital stock per worker
15. Given the following data Choose the correct one (consider 2011 as base year):
2011
2011
2012
2012
Quantity
Price
Quantity
Price
Trucks
14
4400
17
7200
Mp3 Players
14
50
22
70
Apples
1000
1
1000
1
a/ In year 2012 the nominal GDP growth is lower than the real GDP growth
b/ The nominal GDP in 2012 is approximately two times that of 2011
c/ Nominal GDP cannot be calculated since we do not have data regarding inflation
d/ GDP deflator for 2011 is 0,8 (rounding decimals)
16. Choose the correct answer
a/ Unemployment rate can decrease in an Economy even if in that economy there is a net destruction of jobs.
b/ If we read today on newspaper that Nominal GDP growth of Spanish Economy for 2013 is expected to be 1%,
those are positive news, since it implies more goods and/or services will be produced with respect to 2012.
c/ A decrease in active population increases unemployment rate
d/ All of the above are correct
17. Defining Exchange rate €/$ as the quantity of € per one dollar. In an open economy scenario:
a/ Facing a difference between both prices (domestic and foreign) in the same currency, a flexible exchange rate
between both currencies will help to achieve purchasing power parity in the long run.
b/ The continuous expansive monetary policy applied by European Central Bank compared to that of The US central
BAnk, Federal Reserve, has being provoking a revaluation of $ against €.
c/ Purchasing power parity will never tend to hold if the two countries have different price levels even if there is a
flexible exchange rate between both currencies.
d/ An increase in the USA competitiveness, so that US products become cheaper, will imply, in the long run, an
appreciation of Euro against dollar
18. Choose the correct/s answer/s:
a/ The propensity to consume has to be positive and can take any positive value
b/ Fiscal policy describes the choice of exchange rate regime adopted by and economy.
c/ The equilibrium condition for goods market states that consumption equals output
d/ An increase in the propensity to consume leads, in the short term, to an increase in output
19. Suppose the price of bonds increases, then:
a/ The interest rate will rise
b/ The interest rate will remain constant
c/ The interest rate will fall
d/ We have not enough information
20. Consider Solow model studied. Suppose the government can determine saving rate and wants to maximize long
term consumption per capita without considering present consequences. Which saving rate should be chosen?
a/ Golden rule saving rate
b/ Saving rate equal to 0,5.
c/ Saving rate equal to 0
d/ It cannot be determined since we need information about this economy´s production function.
21. Choose the correct one, for a long term period of time
a/ the Solow model shows the relation among production, inflation and labour
b/ if depreciation and saving rate increase in the same proportion, this has no effect on the stock of capital per worker
(K/N)
c/ the level of K implying the lowest sacrifice ratio is called golden-rule level of capital
d/ the highest the saving rate, the lowest the consumption per worker in the long term
22. In the AS and AD model, which are the different effects derived from fiscal and monetary expansive policies in
the mid term?
a/ Both have the same effects
b/ Monetary policies do not affect prices while fiscal policies increase those in the mid term.
c/ Monetary policies do not affect prices or activity rate, while fiscal policies increase both activity rate and price
level in the mid term.
d/ Monetary policies do not affect interest rate in the mid term, meanwhile expansive fiscal policies increase interest
rate in the mid term
For answering 23 & 24, consider the model of AS and AD studied. We want to analyse the effects of a decrease in
the price of oil (Remember with the model studied we can capture this effect by a decrease in the mark up of the pice
over the nominal wage)
23. Let us focus now on the short run consequences, the first period when this shock occurs, during that period:
a/ nothing happens since the shock does not affect short term AS curve
b/ both prices and production levels increase.
c/ both prices and production levels decrease.
d/production level increases but price level decreases.
24. If we now compare the mid run equilibrium with the previous short run, this new mid run equilibrium will
imply:
a/ lower prices and same level of production
b/ lower prices and higher level of production
c/ same prices and higher level of production
d/lower prices and lower level of production
25. Consider an economy with a production function: Y= K α L 1- α
0 < α < 1. , saving rate is exogenous: s, depreciation is 0
We want to compare stock of capital in steady-state with that stock of capital maximising long term comsumption
(kgr). Which is the relationship between both leves of capital stock ?
a/ kgr is always higher.
b/ kgr is always lower.
c/ kgr is higher when s>α.
d/ kgr is lower when s>α.
26. Focusing on the model of Money studied, choose the correct one
a/ An increase in national income decreases money supply from central bank
b/ An increase in interest rate increases money supply
c/ Even in the absence of commercial banks the overall money supply is strictly higher than the monetary base or
high powered money.
d/ Other things constant, an increase in the quantity of high powered money supplied to commercial banks decreases
the interest rate.
27. Choose the correct one for an open economy scenario:
a/ An expansive monetary policy from the Federal Reserve will, according to asset market forces, tend to depreciate
the Euro against dollar.
b/ A deficit in the trade account must necessarily be compensated by a surplus in the financial account for a Balance
of Payment to be in equilibrium.
c/ Everything constant, a decrease in interest rates paid by Spanish financial assets will translate into an entrance of
capital, transaction registered in the capital account of our current account.
d/ An increase in our imports will, in the long run, increases exchange rate €/$ (Defining Exchange rate €/$ as the
quantity of € per one dollar)
28. Focusing on Solow model:
a/ In steady state, the total capital growth of the economy is equal to depreciation
b/ In steady state, the total saving per unit of capital is equal to consumption per worker
c/ In every period of time growth rate of capital stock is positive
d/ Out of steady-state, capital stock can have a negative growth.
29. Aggregate supply function has a positive slope because
a. when production increases, producers increase their market power so they can increase prices
b. when production increases , unemployment decreases and workers barganinig power increases, so wages and
prices go up.
c. when production increases, production cost decreases so producers can decrease prices
d. None of the above
30. In the model IS LM, considering that Consumption depends on disposable income, if government spending and
taxes increase by equal amounts:
a/ IS curve will shift to the left
b/ LM curve will shift right
c/ IS curve will not shift
d/ IS curve will shift to the right
31. An increase in the mark up shifts:
a/ The price setting relation downward, decreasing the real wage
b/ the wage setting relation leftward, increasing the natural U rate
c/ the wage setting relation rightward, increasing the natural U rate
d/ The price setting relation downward, increasing the real wage
32. LM has a positive slope because:
a/ facing an increase in income, Mdemand increases and interest rate must decrease.
b/ facing an increase in income, Mdemand increases and interest rate must grow.
c/ as interest rate increases, also does income, so M demand must increase.
d/ as interest rate increases, also does income, so M demand must decrease.
33. An increase in unemployment benefits would be expected to:
a/decrease the natural rate of unemployment, because it would make working more attractive
b/ increase the natural rate of unemployment, because it allows unemployed workers to hold out for better wages
c/ cause a corresponding increase in the minimum wage, and thus employment would increase
d/ have no effect on the natural rate of unemployment, because it is unaffected by policy changes
34. Given that teenager workers have a higher probability of being unemployed, an increase in the labour force of
those with ages 16-18 will tend to:
a/ Reduce both real unemployment rate and natural unemployment rate
b/Reduce real unemployment rate and increase natural unemployment rate
c/ Increase both real unemployment rate and natural unemployment rate
d/ None of the above
35. Consider the production function Y = √K √N
a/ If the endowment of capital per worker doubles, output will increase by more than double
b/ The relationship between output per worker and capital per work exhibits decreasing returns to scale
c/ If K/N =6, output per worker is 36
d/ None of the above is true
36. In the Model of Solow, without technological change, an increase in the saving rate s:
a/Decreases both GDP per capita (Y/N) and the per capita rate of growth in steady state.
b/Increases both GDP per capita (Y/N) and the per capita rate of growth in steady state.
c/Decreases GDP per capita (Y/N) and increases the per capita rate of growth in steady state.
d/ None of the above is true
37. Considering Consumer price index (CPI) and GDP deflator, which of the following is the correct reasoning?
a. If in one specific year, the price of intermediate goods increases meanwhile the price of final goods remain
constant CPI increases and GDP deflactor does not change.
b. GDP deflactor always has a higher rate of growth than that of CPI
c. GDP deflactor always has a lower er rate of growth than that of CPI
d. None of the above is true
38. The following figure shows the average flows of workers among employment, unemployment and non active
population during one month for an economy
In this economy:
a. Unemployment rate = 6%; Average duration of unemployment=0.47 meses.
b. Unemployment rate = 5,6%; Average duration of unemployment=3.1 meses.
c. Unemployment rate = 4.1%; Average duration of unemployment= 2,1 meses.
d. None of the above