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Intermediate Macroeconomics
Exam 1, Spring 2006
Name:
Please answer the questions in order.
Show all your equations and math.
1. a. Generally speaking, what happened to the Nikkei index in the 1980s?
b. In a sentence or two, explain the basis for this decade’s Nikkei performance.
c. What impact did the Nikkei performance have on the Japanese GDP? Explain the
connection. (9 pts)
2. Let 1995 be the base year.
Assume that for 1995: $Y = $67
Assume that for 2005: $Y = 82.25, and Y = $72.70
a. Find the GDP deflator for each year.
b. Is there sufficient information to calculate the inflation rate for 2005? If so, calculate and
show your work. If not, explain how to obtain the inflation rate. (8)
3. Assume the following about an economy that consists of just three firms:
Steel company
Revenues from sales
Expenses (wages)
Profits
Car company
Revenues from sales
Expenses
Wages
Steel purchases
Profits
$400
$340
$60
Lobster company
Revenues from sales
Expenses
Profits
$200
$160
$40
$1000
$500
$400
$100
a. Name the three approaches to measuring the value of GDP.
b. Is there sufficient information to calculate GDP by each approach? If so, employ each to
measure the GDP, fully indicating your calculations. If not, indicate what information is
missing. (15)
4. a. Write the general equation for our linear consumption function. (That is, do not indicate
specific numeric values.)
b. Which variable represents the slope?
c. Which variable represents the intercept?
d. Write an equation that represents the relationship among consumption, private savings,
and disposable income.
e. Write the equation for our linear private savings function. (You may have to ponder a bit,
but don’t get stuck; 13)
OVER
5. Suppose the US economy is represented by the following equations:
C=400+.5YD
T=400
I=200
G=600
a. What is the equilibrium output level?
b. What is the numeric value for the slope of Z?
c. What is the numeric value for the intercept of Z?
d. At the equilibrium, how much is consumption?
e. One statement of the equilibrium condition is the Z=Y. What is the alternative statement
for the equilibrium?
f. What is the numeric value for each of the variables contained in that alternative statement?
(25)
6. Suppose the US economy is represented by the following equations:
C=300+.5YD
T=400
I=200
G=1000
Assume the equilibrium is $2600.
a. If government spending declines by $50, what will be the change to equilibrium GDP?
b. If government reduces taxes by $50, what will be the change to equilibrium GDP?
c. Draw a LARGE Keynesian cross and clearly illustrate each of these two changes and the
effect each has on GDP. Fully label your graph and briefly describe what you have drawn.
d. What is the combined effect on GDP of reducing government spending and taxes by $50?
(25)
7. Indicate whether each of the variables is endogenous, exogenous, neither, or both:
Goods market model: Y, I, G, T, c1, co
Financial market model: M (money supply), Y, i
(5)