Download Economics 302: Intermediate Macroeconomic theory

Economics 302: Intermediate Macroeconomic theory
Final Examination: Due Wednesday, May 1, 2013 at 12:00 noon…sharp! Late exams will be
penalized 15% per hour (or fraction thereof). Exams should be delivered to Room 258 McD.
Essay Questions: (Make sure you thoroughly answer ALL parts of each question! Format requirements
will be enforced.))
1.
Japan has had a low inflation rate (measured at 0.1% per year) while Venezuela and Iran have
experienced inflation rates of 18.7% and 17% respectively, and Zimbabwe’s inflation rate has been
measured at over 12,500% . Is this information sufficient to give us reason to believe that
expansionary monetary policy will have greater real effects in one (or some) of these countries than
in others? If so, explain and show the order in which you believe the four named countries be likely
to experience real effects from expansionary monetary policy (list from “most likely” to “least
likely”). If this information is not sufficient, what additional information would you need? Obtain
that information and show how you would use it to predict the likelihood of real effects from
expansionary monetary in each of these countries.
2.
Using the “New Keynesian” model, suppose households increase their rates of savings (due to some
exogenous event). What will happen to real GDP and to the amount of labor employed, aggregate
consumption, and aggregate savings? Compare these results to those predicted by the equilibrium
business cycle model developed by Barro throughout the text.
Multiple Choice Questions: Use SCANTRON (Available in envelope on my office door).
____
1. If money and the price level are constant, then the government’s real budget debt is:
a. (Bt + Bgt)/P.
c. Bgt/P.
g
g
b. (B t - B t-1)/P.
d. none of the above.
____
2. If households ignore effects on future generations, a pay as you go social security system:
a. raises investment.
c. raises the future capital stock.
b. reduces current national savings.
d. all of the above.
____
3. The price misperception model predicts:
a. the price level will be procyclical while in US data the price level is countercyclical.
b. the nominal quantity of money is procyclical and in US data money is weakly procyclical.
c. the real wage is countercyclical while in US data the real wage is procyclical.
d. all of the above.
____
4. In the new Keynesian model, an increase in household consumption will
a. not affect output.
b. increase saving.
c. increase output by more than the increase in consumption.
d. increase output by less than the increase in consumption.
____
5. Price misperception during a positive technology shock would cause:
a. output or GDP to rise by less than it would without price misperception.
b. the expected price level to fall less than the actual price level falls.
c. labor supply to rise by less than it would without price misperception.
d. all of the above.
____
6. If households ignore effects on future generations, a pay as you go social security system:
a. reduces investment.
c. reduces GDP in the long run.
b. reduces private saving.
d. all of the above.
____
7. Unlike the price misperception model the new Keynesian models finds that:
a. the price level is procyclical as the data show.
b. the price level is procyclical as the data show it is countercyclical.
c. the price level is countercyclical as the data show.
d. the price level is countercyclical while the data show it is procyclical.
____
8. Open market operations amount to:
a. printing more money and raising taxes and lowering taxes and raising the public debt.
b. printing more money and raising taxes and lowering taxes and raising the public debt.
c. printing more money and reducing taxes and raising taxes and reducing the public debt.
d. printing less money and reducing taxes and raising taxes and reducing the public debt.
____
9. The governments sources of funds include:
a. taxes.
b. printing money.
c. borrowing.
d. all of the above.
____ 10. The workers’ perceived real wage rate is:
a. their nominal wage rate divided by the expected price level.
b. their nominal wage rate divided by the actual price level.
c. the expected price level divided by their nominal wage rate.
d. the actual price level divided by their nominal wage rate.
____ 11. Assuming that the nominal quantity of money is constant and there is no inflation, if the real public debt
decreases, the government budget shows
a. a decrease in printing money.
c. an increase in real saving.
b. an increase in the real deficit.
d. a decrease in private bonds.
____ 12. A strategic budget deficit is designed to:
a. increase GDP.
b. increase economic activity.
c. constrain the behavior of future governments.
d. all of the above.
____ 13. In the short run in a new Keynesian model an increase in money means:
a. the price level must rise.
c. real GDP must fall.
b. the interest rate must fall.
d. all of the above.
____ 14. If households ignore effects on future generations when a pay as you go social security system starts, the
then elderly:
a. receive low returns on any taxes paid into the system.
b. have a positive income effect on their consumption.
c. receive benefits that in present value is less the present value of their contributions.
d. all of the above.
____ 15. In the current period a perceived increase in the real wage, will cause households to:
a. consume fewer goods.
c. work less.
b. consume less leisure.
d. all of the above.
____ 16. In the model with sticky prices, in the short run a positive monetary shock leads to:
a. a decrease in household’s demand for goods.
b. an increase in household real money balances.
c. an increase in house hold’s desired real money balances.
d. all of the above.
____ 17. If households ignore effects on future generations, a pay as you go social security system:
a. decreases consumption.
c. reduces the capital stock in the long run.
b. raises national saving.
d. all of the above.
____ 18. A result of a model with sticky nominal wages is:
a. involuntary unemployment in the short run.
b. a procyclical real wage as in the data.
c. money being countercyclical while in the data money is weakly procyclical.
d. all of the above.
____ 19. In a model with sticky nominal wages an increase in the money supply will:
a. decrease real output.
c. increase the labor input.
b. raise the real wage.
d. all of the above.
____ 20. Ricardian equivalence implies that a government budget deficit:
a. increases future tax liabilities.
c. reduces national saving.
b. increases current consumption.
d. all of the above.
____ 21. In the short run with a model with sticky prices a positive monetary surprise:
a. leaves the real wage unchanged.
c. increases real output.
b. decreases labor demand.
d. all of the above.
____ 22. In the price-misperceptions model, an increase in the price level will, in the short run,
a. lower the equilibrium quantity of labor input and increase real GDP.
b. increase the equilibrium quantity of labor input and real GDP.
c. leave the equilibrium quantity of labor input and real GDP unchanged.
d. lower the equilibrium quantity of labor input and real GDP.
____ 23. A balanced government budget is one where:
a. government purchases equal taxes.
b. government debt is zero.
____ 24. In the short run in a model with sticky prices:
a. the average product of labor is
countercyclical.
b. the labor input is procyclical.
c. the governments real savings is zero.
d. all of the above.
c. the real wage rate in procyclical.
d. all of the above.
____ 25. Monetary policy authorities can only affect the real economy, if:
a. their actions are anticipated by the public.
b. their actions systematically fool the public.
c. their actions are consistent and predictable.
d. their actions are fully communicated to the public.