Download St. Paul`s University Information and Computer Science Department

St. Paul’s University
Information and Computer Science Department
Bachelor of Business and Information Technology
First Semester Exam Series
BEC 2113 – Advanced Macroeconomics
Examination Series 2014
Time: 2 hrs 30min
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INSTRUCTIONS TO CANDIDATES:
ANSWER ALL QUESTIONS
Question 1:
Whenever Inflation occurs, which segment of the society is badly affected? (10mks)
Question 2:
Fill in the blanks(10mks)
a. The deviation of actual rate of unemployment from the natural rate is called
_______________ unemployment.
b. In simple words we can say that the cost of disinflation is __________GDP.
c. A budget that accounts for assets as well as liabilities is called
_____________________.
d. The business cycle is the change occurs automatically in response to a
______________ economy.
e. The reduction in _________ raises the interest rate, which crowds out investment.
f. Forward looking consumers perceive that lower taxes now mean ___________later.
g. According to Keynes MPC is between _______ and ______.
h. A long depression of infinite duration unless fiscal policy was used to stimulate
aggregate demand is called ____________.
i. The APC did not vary systematically with income, this relationship is called the
_________________consumption function.
j. _______________________shows the combination of first period consumption that
makes the consumer equally happy.
Question 3:
a. Use the theory of liquidity preference to explain why an increase in the money supply
lowers the interest rate. (4mks)
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b. Use the IS-LM model to predict the effects of each of the following shocks on
income, the interest rate consumption and investment:
i.
A boom in the stock market makes consumer wealthier. (3mks)
ii.
A wave of credit card fraud increases the frequency with which people make
transactions in cash. (3mks)
Question 4:
Why is frictional Unemployment sometimes not necessarily harmful? (10mks)
Question 5:
There are four possible answers of each question, select the correct one: (10mks)
a. Convergence refers to the hypothesis that:
i.
It is easier for a country to grow relatively quickly if it starts out poor
ii.
Rich countries must always bail out poor countries
iii. Saving must be equal to investment in the macro economy
iv.
None of the given options
b. The aggregate demand curve:
i.
Is an upward sloping curve
ii.
Is a downward sloping curve
iii. May slope upward or downward
iv.
Is horizontal
c. The aggregate demand curve slopes downward because at higher price level:
i.
The purchasing power of consumers' wealth declines and consumption
decreases.
ii.
The purchasing power of consumers' assets declines and consumption
increases
iii. Producers can get more for what they produce, and they increase production.
iv.
The purchasing power of consumers' wealth increases and consumption
increases.
d. The aggregate demand curve would shift to the left if:
i.
The cost of energy was to decrease
ii.
Taxes were increased.
iii. Government spending was increased
iv.
The money supply was increased
e. The aggregate supply curve depicts the relationship between:
i.
The cost of inputs and the total quantity of goods and services that firms
supply
ii.
The level of prices and the total quantity of goods and services that firms
supply
iii. The cost of labour and the total quantity of goods and services that firms
supply
iv.
The unemployment rate and the total quantity of goods and services that firms
supply
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f. The aggregate demand curve slopes downward:
i.
Because of the law of demand in macroeconomics
ii.
Because of the law of supply in microeconomics
iii. Because of the law of demand in microeconomics
iv.
None of the given options
g. A decrease in taxes leads to:
i.
A decrease in aggregate demand
ii.
No change in aggregate demand
iii. A decrease in aggregate supply
iv.
An increase in aggregate demand
h. If the economy is in long run equilibrium at full employment, an increase in aggregate
demand will:
i.
Decrease the price level and leave the level of output unchanged
ii.
Increase both the price level and the level of output
iii. Decrease both the price level and the level of output
iv.
Increase the price level and leave the level of output unchanged
i.
The 2001 recession in the U.S. economy is considered to be mostly the result
of:
i.
A sharp increase in labour costs
ii.
A negative shock to aggregate supply
iii.
A negative shock to aggregate demand
iv.
A slowdown in labour productivity.
j. For convergence of GDP per capita between rich and poor countries to take place, it
must be the case that:
i.
Poor countries must grow faster than rich countries
ii.
Rich countries must grow more slowly than poor countries
iii. Countries must grow more slowly as they become richer
iv.
All of the given options
Question 6:
a.
b.
c.
d.
In which situation inflation has inertia? (2mks)
What does the sacrifice ratio means?
(2mks)
What are the effects of imports restrictions under the floating exchange rates? (4mks)
What does the sticky wage model imply? (2mks)
END OF EXAM
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