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Unformatted text preview: Practice for Final 2. Math [40 pts]
a. Index numbers (5 pts).
Given the following data for a representative market basket: Good u00 u01 u02 p00 p01 p02 A 10 15 20 2.0 3.0 4.0 B 10 12 10 1.0 2.0 4.0 C 10 15 20 2.0 3.0 4.0 11. What is the sPI(02,01) for weights u01? Ans ___
13. sPI(02,01) for weights u02? Ans ___
15. wPI([01,02],{02,01})7 Ans ___ centerlineWORK SPACE Given the following date: Year 2000 2002 Norninal GDP 7.5T Real GDP 5.0T 12T GDP deﬂator 125 17. GDP deﬂator in 2000? Ans ___
19. What is the nominal GDP in 2002? Ans ___ c. Macro Model 1: [10 points]
1. Given two equation dynamic model:
Equations: (1) Yt : Ct + It (2) Ct : a + bYt_1
with values a : 600 b : 1/2 and I0 : 1000: Suppose the economy is in equilibrium initially. 21)Equilibrium Y0? : Ans ___
Suppose I increases from 1000 to 1100 in period 1( and remains at 1100 for all subsequent periods).
23) Y1 : Ans ___
26) Y2 : Ans ___
27) Final equilibrium YOO? : Ans ___ 11. Consider two equation model.
Variables: C consumption, Y real GNP, I Investment, C government expenditures, T Taxes (Revenues),
and a, I) known coefﬁcients
Equations: (1) Y : C + I+ C and (2) C : a + [9(Y — T)
Given values: a : 1000 b : 4/5 I : 1000, C I 1000 and T I 1000
28) What is the equilibrium Y7 Ans ___ If I decreases from 1000 to 960, how much would the government have to raise C to maintain the same
equilibrium Y? 30) AC: Ans ___
If a decreases from 1000 to 960, how much would the government have to lower T to maintain the same
equilibrium Y? 33) AT : Ans ___ 11. Math and Policy Section: SHOW ALL WORK” Page 2 Name: A. Banking (15 points + 5 bonus point) 9 To expand the money supply the FED should:
a. Raise the discount rate c. Buy government securities from banks 10 The interest rates will: a. Go down b. Go up Group Leader: b. Raise the required reserve ratio
d. Sell government securities to banks c. Remain unchanged d. Can not tell 11. (1 pts) If you buy a $2000 consul with the interest rate at 15% and the interest rate falls to 5%, the value of your consul is now a. 1000 b. 2000 c. 4000 d. 6000 12. (1 pts) The FED can always effect an contraction because:
a. The FED can sell government securities at a loss
b. The FED can verbally convince bank presidents to call in loans
c. Banks may decide not to make new loans. Assume the FED’s transaction to contract the money supply is $10M and to maximize proﬁts the banks
keep reserves down to the legal minimum. Given a very large number of standard banks whose initial
position is shown below and where R is reserves, GS is government securities, L are loans, DD is demand
deposits and the required reserve ratio is 10%. Questions are in the boxes and the answers are below:
BANK 1
Assets Liabilities Assets Liabilities Assets Liabilities
R $30M DD $300M R $ ____ __ M DD $ ____ __ M R $ Q13 belowM DD $Q14 below V1
GS 130M GS ____ __ M GS Q15 below M
L 140M L ____ __ M L Q16 below M
BANK 2
Assets Liabilities Assets Liabilities Assets Liabilities
R $30Vl DD $300M R $___ M DD $___ M R Q17 below M DD Q18 below M
GS 130Vl GS ___ M GS Q19 below M
L 140Vl L ___ M L 20 Q20 below M
13. Ans ___ 14. ___ 15 ___ 16 ___
17. ___ 18. ___ 19 ___ 20. ___ 21. The money expansion multiplier for the problem above is: a.1b.5c.8d. 10 22. In relationship to the actual money expansion multiplier the formula is:
a. Always greater b. Always less c. Less in recessions d. Greater in booms 23. Suppose in the problem Bank 2 is a foreign bank in France and the contraction takes place in France. The formula for the US money expansion multilier is now: a.1b.5c.8d. 10 24. The FED is likely to maintain its independence from Congress and the President as long as it:
a. Maintains support of the Banking Committe of the Senate
b. Maintains support of the President c. Avoids affecting Presidential elections d. Maintains support of Wall Street e. (c and d) (2 plus 2 bonus) Assume the FED’s transaction to expand the money supply is $20M and this initial
transaction takes place with a rich individual who deposits the money in his bank and to maximize proﬁts
the banks keep reserves down to the legal minimum and the required reserve ratio is 20%. Given his bank
whose initial position is shown below. questions are in the boxes and answers are below. THINK,
Is this like Bank 1 or Bank 2 in the regular problem: BANK 1
Assets Liabilities Assets Liabilities Assets Liabilities
R $40M DD $200M R $ ____ __ M DD $ ____ __ M R Q25 below M DD Q26 belowM
GS 80M GS ____ __ M GS Q27 belowM
L 80M L ____ __ M L Q28 below M 25 ___ 26 ___ 27 ___ 28 ___ SHOW WORK IN MARGINS Name: Group Leader: B. lS—LM Problem (30 pts ) Answers may or may not be integer
Variables: Y real GNP, G consumption, I investment, G government expenditures, T taxes, 0 interest rate, M3 supply of money, p price level, % real supply of money, a, b , [0 c, e, and f are known constants
IS:1.Y:G——I——G G=a+b(Y—T) 1:10—00
IS Solved: Y:k(A—ci) wherek: 1 andAza—l—IO—l—G—bT (1—0
LM solved;% : eY — fz' Equations to spolve the lS—LM model
Y —— kci : [€14
eY — : Ms/p ISLM Solved for Y: Y = K[A + gﬂ] where K = %
p [Fl—T] A eqns: 1. AY = KAG 2. AI = —%AY 3. A? = f (k — K)AG. Kc
4. AY = mm + A10 + AG — bAT)
Given:G= 880 T = 900 M3 = 500 a = 400 b: 3/4 [0 = 800p: 1. e = 0.25 f: 4000 c
= 8000 :x k = 4 and K = 4/3
Math a) to e) Must show work choose closest answer below.
29 What is the equilibrium Y7 ___
30 Repeat your answer to 29
31 Suppose that to reduce unemployment the government desires to raise Y by 86. What is the required
AG? ___
32 Repeat your answer to 31
33 (3 pts )If G is increased by the amount in 31 above, how much I is crowded out? Answer ___
34 Repeat your answer to 33
35 (3 pts)Now suppose the real money supply Ms/p is increased to compensate the crowding out. What
is AMS/p? Answer ___
36 Repeat your answer to 35
37 Suppose the government in 33 used AT instead of AG and at the same time a decreased by 10 and [0
increased by 20, what is the required AT Answer ___
38 Repeat your answer to 37
On exam: (3 pts) Draw and label IS/LM curves for above questions
More advanced
On exam: (4 pts)Use the IS/LM curves to explain demand pull inﬂation.
39 What is the resulting deﬁcit from 31Answer ___
40. Repeat your answer to 39
41 What would be the AG and AT to achieve a balanced budget and raise Y by 86 Answer for AT ___
42.What is the value ofi corresponding to 31Answer ___
43 Repeat your answer to 42
44. What is the value of C corresponding to 46Answer ___
45. Repeat your answer to 44. 3. Multipliers Name: Given a two country world: (E Exports and H Imports) Country ﬂ Country oz
YOCZCOC__IO(+GO(+EOC—HOC
Ca : aa —— [9060/06 — Ta) Ha I maYa Where Ea : Hg and Eﬁ : Ha RESULT Yﬁ :CﬁnjﬁIGﬁlEﬁ—Hﬁ
0/3 = aﬁ "WY/3 — Tﬁ)
Hg 2 mﬁYﬁ WORK SPACE ...
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This note was uploaded on 05/11/2008 for the course ECON 304L taught by Professor Staff during the Spring '07 term at University of Texas.
 Spring '07
 Staff
 Macroeconomics

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