MacroFinal_Exam_2014.pdf - YOUR NAME and UNI_ Columbia...

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YOUR NAME and UNI____________________________________________Columbia University Intermediate Macroeconomics W3213,Final Exam Fall 2014, Professor XavierInstructions:No calculators.Write name and UNI onEVERYpage of the exam.You can use only 1 sheet of paper per question.If you use more space itwill NOT be graded!You have one page of scratch paper at the end.It will NOT be graded!No explanation = no points! You have to justify your answers.Label the axes and curves when you draw graphs.There are 160 points in this exam. You have 170mins to complete it.Good luck!!
YOUR NAME and UNI____________________________________________Question 1 – Short speeches: it’s all about growth (20 points)Consider the simple Solow1Swan model of growth with only physical capital and labor, and with constantpopulation growth (n), depreciation rate (!), saving rate (s) and technology (A). It was built to answer a simplequestion: “can an economy grow faster forever (inper capitaterm) simply by accumulating physical capital?”(a)What answer does the Solow1Swan model bring to this question? What is the key intuition for this result?(b)According to the same model, what is the only possible source of growth in the long run? Explain. Why isthis a theoretical limitation of the Solow1Swan model?(c)Are the answers to (a) and (b) robust to the assumptions that we made? (For instance, would it changeanything if we were not assuming that all the parameters were constant and could vary with k? Or if wewere also considering human capital?) Explain.(d)Given these insights, what would you suggest that rich countries do to help poorer countries catch up?
YOUR NAME and UNI____________________________________________Question 2 – More short speeches (20 points)(a)What are the effects of an increase in the “cost of going to the bank” (what in class we labeled with theGreek letter Ψ) in the classical model of the business cycle?(b)What are the effects of an increase in the “cost of going to the bank” (what in class we labeled with theGreek letter Ψ) in the Keynesian model of the business cycle?(c)In the long run, the Keynesian model shows that an increase in money supply leads to inflation and no realeffects in GDP. Do you agree? If so, why?(d)If the economy as a whole is open and is indebted (as it is the case for the USA today), an increase ininterest rates leads to lower consumption unambiguously. Do you agree? If so, why?
YOUR NAME and UNI____________________________________________

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