Download Multiple-choicefrågor till tentamen i makroekonomi to 27 april 2006

Intermediate macroeconomics, spring 2010.
2 points.
1. If the CPI (=consumper price index) in 2006 was 100 and in 2007 was 104.5, and your
nominal hourly wage was 110 kronor in 2006 and was 112 in 2007.
What was the inflation rate between 2006 and 2007? By how many percent did the nominal
wage increase? How the real wage develop, in percentage terms.
2 points
2. When are fiscal policies expansionary? In other words, what is the criteria?
Answer: If the government budget is negative when evalutated at potential GDP.
Points 4 (2+1+1)
3. Assume a country with floating exchange rate that is running a huge government budget
deficit (as a percentage of GDP), which is financed through printing new money. Thus, the
growth rate of the nominal money supply is high. What are the effects on the inflation rate,
and on the nominal interest rate, and on the exchange rate?
3A. Assume that the growth rate in nominal money supply (M) is 50 percent, that the velocity
of money (V) (unrealistically) is constant, that the growth rate of real GDP is minus 5 percent,
what is the rate of inflation according to the quantity theory of money?
3B. Assume that the real interest rate on government bonds is 2 percent and that the expected
rate of inflation equals your answer in A. What is the nominal interest rate according to the
Fischer equation?
3C. Assume that the rate of inflation in the rest of the world on average is 10 percent, do you
expect the currency to depreciate or appreciate or stay constant; by how many percent is the
expected depreciation/appreciation?
Points 8
4. Use the short-run Keynesian model for a small open economy with a floating exchange rate
(the Mundell-Fleming model).
This model is described by the equations:
Equilibrium in the goods market: Y = C(Y-T) + I(r=r*) + G + NX (real exchange rate)
Equilibrium in the money market: M/P = L(r=r*,Y)
Assumption 1: r is the real interest rate and r* is the real interest rate in the rest of the world.
Assumption 2: The domestic price level and the price level in the rest of the world are
constant in the short run. That is, the model is for the short run when product prices are
assumed to be fixed.
Use this model to answer the following questions.
A. Assume that government purchases (G) increases.
Compare the new short-run equilibrium after G has increases to the old short-run
equilibrium with respect to:
- GDP (Y)
- the nominal and the real exchange rate
- the trade balance
- the interest rate and private investment (I)?
- national, government, and private saving. Define these concepts!
B. Assume that nominal money supply (M) increases.
Compare the new short-run equilibrium after G has increases to the old short-run
equilibrium with respect to:
- GDP (Y)
- the nominal and the real exchange rate
- the trade balance
- the interest rate and private investment (I)?
Points 8
5. Use the Solow-model with the following production function: Y  AK  L1 .
Assume as usual that every person in the economy is a worker.
Assume also that the growth rate in A is zero.
Assume that the world consists of two countries: INEFFECTIVE and EFFECTIVE.
Parameter
INEFFECTIVE
EFFECTIVE
A
1
4
Saving rate (s)
0.25
0.25
0.5
0.5

Population growth
0.01
0.01
rate (n)
0.1
Depreciation rate (  ) 0.1
L(0)
200
-1a. calculate the long-run equilibrium values for capital per worker (K/L), consumption per
worker (C/L), production per worker (Y/L), the real wage (W/P), and the real return on capital
for the two countries. If you cannot answer with numbers, explain which country has higher
or lower values on the variables mentioned above for partial credit.
1b. Calculate long-run GDP (Y) for country INEFFECTIVE.
1c. When allowing for capital mobility between the countries; from what country will capital
move?
1d. What is the effect on the long-run equilibrium values of K/L, Y/L, W/P, and the real
return on capital if n increases? No need to calculate with numbers.
1e. What is the effect on the long-run equilibrium values of of K/L, Y/L, W/P, and the real
return on capital if the saving rate increases? No need to calculate with numbers.