Download Exam 1:09

Intermediate Macroeconomic Theory
February 2009
Name:
Please answer the questions in order.
1.
a. What is the official unemployment rate?
b. Some argue that this official rate understates/undercounts the true extent of unemployment. How do
they make their case? (8)
2.
Will this year’s federal deficit be the largest in history? Argue yes and argue no. (6)
3.
a. What is the “stimulus package” aiming to stimulate?
b. Originally, what was the “bailout” aimed to bailout? (4)
4.
Consider Blanchard’s short run and long run determinants of GDP. To achieve higher levels of GDP, do
we need more savings or fewer saving? Briefly explain. (6)
5.
a. Graph the classical model of the labor market and fully label the graph.
b. What is the policy implication of this model?
c. Briefly explain how that policy follows from the model. (10)
6.
a. State our original version of the equilibrium condition.
b. Solve for the equilibrium value of Y.
c. Given the following relationships, what is the equilibrium Y?
C = 100 + .9YD
I = 90
G = 200
T = 100
d. At the equilibrium, how much is consumption?
e. At the equilibrium, how much is Z?
f. How do we refer to these examples of variables (Y, C, Z) that the model allows us to predict? That is,
these are examples of what types of variables?
g. Given the relationships in (c), how much is autonomous spending? (20)
7.
a. What is Keynes’ fundamental psychological law?
b. How does it relate to our model? (6)
8.
a. Graph the Keynesian cross and label the equilibrium to be $800.
b. Assume that autonomous spending increases by $5. Illustrate this on your graph.
c. Assuming that c0 = $30 and that c1 = .75, what is the value of the new equilibrium? (16)
9.
a. If our model is expanded to include an income tax, will the multiplier get larger, smaller, or could it be
either?
b. Explain. (4)
over
Answer these questions directly on this page.
10.
11.
12.
13.
Does the CBO project deflation for 2009?
a. Yes
b. No
c. They provide a range of possibilities that includes the possibility of deflation. (2)
According to our model, the current drop in the stock market is causing
a. a shift down of C
b. a movement down along the C function
c. both a and b. (3)
According to our model, the current drop in consumer confidence is causing
a. a shift down of C
b. a movement down along the C function
c. both a and b. (3)
According to our model, the current increase in unemployment is causing
a. a shift down of C
b. a movement down along the C function
c. both a and b. (3)
The remaining questions are true/false, and are each weighted 1 point.
________ 14.
The largest component of GDP is consumption.
________ 15.
The propensity to consume has to be positive, but otherwise it can take on any positive
value.
________ 16.
Fiscal policy describes the choice of government spending and taxes and is treated as
exogenous in our goods market model.
________17.
The equilibrium condition for the goods market states that consumption equals output.
________18.
An increase in one unit of government spending leads to an increase of one unit in
equilibrium output
.
________19.
An increase in one unit of government spending has the same effect on equilibrium output
as does a decrease of one unit of taxation.
_______ 20.
Income always equals output.
_______ 21.
Output always equals Z.
_______ 22.
Private savings + public savings always equal investment.
Honor code: