311FA08midterm1solution

311FA08midterm1solution - Intermediate Macroeconomics 311...

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Unformatted text preview: Intermediate Macroeconomics 311 (Professor Gordon) First Mid-Term Examination Fall, 2008 Answer sheet YOUR NAME: ___________________________________ Circle the TA session you are attending: Briana Chang 9AM 3PM Brian O’Quinn 9AM 3PM Assaf Patir 9AM 3PM INSTRUCTIONS: 1. The exam lasts 1 hour. 2. The exam is worth 60 points in total: 30 points for the multiple choice questions and 30 points for the three analytical questions. 3. Write your answers to Part A (the multiple choice section) in the blanks below. You won’t get credit for circled answers in the multiple choice section. 4. Place all of your answers for part B in the space provided. 5. You must show your work for part B questions. There is no need to explain your answers for the multiple choice questions. 6. Only hand in the answer sheet. 7. Good Luck! PART A: Multiple Choice Answer multiple choice questions in the space provided below. USE CAPITAL LETTERS. 1. __C_ 6. _ A__ 11. __C __ 16. _B_ __ 21. __F __ 26__B___ 2. __A__ 7. _ A_ 12. __ C_ 17. _C_ _ 22. __ C __ 27__B__ 3. __A__ 8. __C __ 13. __ A__ 18. _C_ __ 23. __ B__ 28__E__ 4. __C_ 9. _ _A_ 14. _ C__ 19. _A_ _ 24. __D __ 29__B__ 5. __D_ 10. _ _B_ 15. _ D__ 20. _ A__ 25. __D __ 30__E___ 1 Intermediate Macroeconomics 311 (Professor Gordon) First Mid-Term Examination Fall, 2007 Answer sheet Question 1 (10 points) The following is a table of real GDP values for Germany and France from the last 50 years: Year France Germany 1960 382 648 1968 584 886 1978 872 1259 1988 1103 1531 1998 1343 1956 2008 1653 2281 All amounts are in Billion Euro and the base year is 2000. a) Calculate the growth rate for the two economies between the years 1960-1968 and display your result for each economy. Which economy had a faster growth rate? (3 points) France: 100*LN(584/382)/8 = 5.31% Germany: 100*LN(886/648)/8 = 3.91% France grew faster. b) Calculate the German economy's growth rate for the years 1998-2008. What would the real GDP be in 2009? (3 points) Growth rate for 1998-2008: x=100*LN(2281/1956)/10=1.54% Assume that Germany were to continue to grow from 2008 to 2009 at the same rate as during 1998-2008. Thus, X(2009) = X(2008)*EXP(1.54/100) = 2281 * 1.015519 = 2316 c) If both economies would continue to grow at the same average rate as between 1960-2008 at what year would the GDP equal 3000 Billion Euro? (4 points) Growth rates France: 100*LN(1653/382)/48=3.05% Germany: 100*LN(2281/648)/48=2.62% Years taken, s = LN(X(t)/X(t-s)/(x/100) France =LN(3000/1653)/.0305 = 19.5, so the year is 2027.5 Germany = LN(3000/2281)/.0262 = 10.5, so the year is 2018.5 2 Question 2 (20 points) Consider an economy described by the following equations: C = Ca+(2/3)(Y-T) Ca = 300-15r Ip = 1600-30r T = 300+(1/4)Y G = 1600, NX = 700 (M/P)d = 0.5Y – 40r Ms/P = 3660 a) What is autonomous planned spending (Ap) when the interest rate is 0 (zero)? What is autonomous planned spending (Ap) when the interest rate is 10? What is autonomous planned spending (Ap) as a function of the interest rate r? (3 points) ANS : Ap (r = 0) = G+NX-cTa+Ca (r =0)+ Ip (r =0)= 1600+700-200+300+1600= 4000 Ap (r=10) = G+NX-cTa+Ca (r=10)+ Ip (r=10)=1600+700-200+150+1300=3550 Ap = 4000- 45 r b) What is the multiplier (k) in this economy? (2 points) ANS : c=2/3, s=1/3, t=1/4 MLR=1/3*(1-1/4)+1/4=1/2 Multiplier k =2 c) Derive the IS curve and the LM curve: (4 points) ANS : IS curve : Y=k(4000-45r)= 8000-90r LM curve : Ms/P = 3660 =.5Y – 40r Y = (3660 + 40 r) / 0.5 = 7320 + 80r d) Find the equilibrium income (Y) and the interest rate (r). (2 points) ANS : Y=8000-90r Y=2(3660+40r) r=4, Y=7640 e) What is total consumption (C)? (2 points) ANS : T=300+1/4Y=2210 C=300-60+2/3*(7640-2210)=3860 3 The following questions consider using either expansionary fiscal policy or expansionary monetary policy to achieve a desirable level of income (Y). f) First, suppose the government increased spending by 170 to 1770. What is the new IS curve, holding all else constant? (2 points) ANS Ao’=4170 Y=2(4170-45r) g) What is the new equilibrium income (Y) and interest rate (r) after the increase in government spending described in part (f)? (2 points) ANS Y=8340-90r Y=2(3660+40r) Y=7800, r = 6 h) Now go back to the original ingredients in the question that resulted in your answer to parts a) through f). Suppose that the desired level of equilibrium income (Y) for the economy is 8000. Furthermore, suppose the government wants to achieve this level of income only by adjusting monetary policy. By how much should the real money supply increase (or decrease) for the government to achieve its goal of an equilibrium income (Y) of 8000? (3 points) ANS Assume the new money supply is M’ LM curve: 8000 = (M’ + 40r)/0.5 = 2M’ + 80r IS curve: 8000 = 8000 – 90r Thus r = 0, so 2M’ = 8000, M’ = 4000 Therefore, the government needs to increase 4000-3660=340 4 ECON 311 Intermediate (PROF. Gordon) First Mid-Term Examination Fall, 2008 Your Name___________________________________ Circle the TA session you are attending: Briana Chang 9AM 3PM Brian O’Quinn 9AM 3PM Assaf Patir 9AM 3PM MULTIPLE CHOICE (30 points) 1) mploying the data from above, income Y is equal to E A) 3,600,000. $ B) 3,000,000. $ C) 3,300,000. $ D) 5,100,000. $ 2) ans of soup produced by factories but not sold in the current period C A) re considered investment goods and do count in GDP. a B) re considered investment goods but do not count in GDP. a C) re considered intermediate goods, thus do not count in GDP. a D) re considered consumption goods but do not yet count in GDP. a E) re considered intermediate goods, yet still count in the GDP. a 3) high inflation rate will A A) arm those who have saved while helping those who have h borrowed. B) arm those who have borrowed while helping those who have h saved. C) enefit those who have saved and those who have borrowed. b D) arm those who have saved and those who have borrowed. h 4) f a the government of Country Z is running a budget deficit and net I exports are zero, then A) nvestment and saving are equal. i B) nvestment is greater than saving. i C) aving is greater than investment. s D) one of the above. n 5) n exogenous rise in government expenditures will have the same effect A on GDP as an equal rise in either autonomous ________ or autonomous ________. A) axes; consumption t B) axes; investment t C) avings; investment s D) onsumption; net export c Table 1 6) efer to above Table 1, constant (year 2) dollar expenditures in year 1 are R ______. Constant (year 2) dollar expenditures in year 2 are ______. A) 8, 18.6 1 B) 4, 18.6 1 C) 4, 14.6 1 D) 4.6, 18.6 1 7) efer to above Table 1 The chain‐weighted real GDP index for year 2 R (given the base year is 1) is A) 1.038 B) .033 1 C) .031 1 D) .032 1 8) efer to above Table 1. The chain-weighted real GDP for year 2 (given R the base year is 1) is A) 14.49 $ B) 14.44 $ C) 14.53 $ D) 16.61 $ 9) f chain-weighted increases in real GDP for 2002-03, 2003-04, 2004-05, I 2005-06, and 2006-07 are given by gross grow growth rates 1.05,1.04,1.02,1.01 and 1.03 respectively, and nominal GDP in the 2002 base year is $6244.4 billion, then chain-weighted real GDP for 2007 is A) 7235.6 billion $ B) 6987.02 billion $ C) 7239.0 billion $ D) 7,181.06 billion $ 10) he size of the multiplier depends in part on the T A) evel of autonomous expenditures. l B) arginal propensity to consume. m C) hange in autonomous consumption. c D) evel of consumption. l 11) iven total tax revenue is T = Ta + tY, a rise in the income tax rate (t) will G A) aise the multiplier and lower equilibrium income. r B) ower the multiplier and raise equilibrium income. l C) ower the multiplier and lower equilibrium income. l D) aise the multiplier and raise equilibrium income. r 12) onetary policy will have a large effect on GDP provided the M A) ensitivity of autonomous spending to interest rates is low. s B) ensitivity of output changes to interest rates is small. s C) ensitivity of money demand to interest rates is low. s D) one of the above. N 13) Which factor does not affect real money demand ? A) Price level B) ncome I C) nterest rate I D) ll affect real money A demand 14) ssume there are no taxes. In figure above, the multiplier is A A) . 2 B) .5. 2 C) . 5 D) .2. 0 15) ssume there are no taxes. In figure above, a $250 increase in AP causes A A) nduced consumption to increase by $1000. I B) nduced saving to increase by $250. i C) to increase by $1250. Y D) ll of the above. a 16) n figure above, the multiplier effect does not explain I A) he increase in equilibrium income. t B) he increase in AP. t C) he increase in induced saving. t D) ll of the above. a 17) The ratio of deaths/population in the Civil War compared to World War II was roughly __ times higher A) 2 B) 5 C) 10 D) 25 E) 50 18) The GDP deflator in 2007 compared to 1929 was roughly ___ times higher A) 2 B) 5 C) 10 D) 25 E) 50 19) If government spending is increased, A) the Ap line shifts to the right. B) e move downward along an unchanged Ap demand line. w C) he Ap line shifts to the left. t D) e move upward along an unchanged Ap demand line. w 20) The course packet reading on measuring the Chinese economy concerned which of the following revisions A) Reduced the ratio of price‐adjusted Chinese GDP relative to US B) Raised the ratio of price‐adjusted Chinese GDP relative to US C) Reduced the growth rate of Chinese GDP relative to US D) Raised the growth rate of Chinese GDP relative to US E) (A) and (C) F) (B) and (D) 21) Studies of the wealth effect on consumer spending have recently concluded that A)The effect of stock market wealth is greater than housing wealth in the US B) The effect of housing wealth is greater than stock market wealth in the US C) The effect of housing wealth is greater in Anglo‐Saxon countries D) The effect of housing wealth is smaller in Anglo‐Saxon countries E) (A) and (D) F) (B) and (C) 22) When velocity increases, this is represented graphically in the IS‐LM model by A) A movement northwest along the IS curve B) A movement southeast along the IS curve C) A movement northeast along the LM curve D) A movement southwest along the LM curve E) A rightward shift of the LM curve with the IS curve held fixed 23) Events that shift the Ap demand schedule to the left also cause ________ the IS curve. A) arallel rightward shifts of p B) arallel leftward shifts of p C) ovements downward m D) ovements upward along m along 24) hich of the following statements would be true of an economy that can W be characterized as being to the left of the IS curve? A) here will be a tendency for interest rates to fall. T B) here is an excess supply of commodities at the existing interest T rate. C) here will be a tendency for the level of output to decrease. T D) here is an excess demand for commodities at the existing interest T rate. 25) n Figure above, the commodity market is in equilibrium I A) nly at point E. o B) t points B, C, and E. a C) t points A, B, E, and C. a D) t points A and E. a E) t points E and D. a 26) n the figure above, people would be trying to increase their holdings of I money at A) oints B, E, and C. p B) oint D. p C) oint A. p D) oints A and E. p E) oints A and B. p 27) hich of the following statements are true? W A) he flatter the LM curve, the more effective the monetary policy. T B) he steeper the LM curve, the more effective the monetary policy. T C) The steeper the IS curve, the less effective the fiscal policy. D) oth B) and C) B 28) In the course packet article “six fingers of blame in the mortgage mess,” which of the following is not blamed A) Homeowners for signing up for subprime mortgages they could not afford B) Mortgage brokers for convincing home owners to sign up for these mortgages C) Bank regulators D)Investment bankers E) Congress for designing the structure of regulation 29) The chart in the course packet showing tax revenues as a share of GDP reveals that the U. S. is A) The lowest B) Relatively low C) Average D) Relatively high E) The highest 30) An increase in the marginal propensity to consume would cause the IS curve to A) rotate to become flatter from its horizontal intercept B) make a parallel shift to the left. C) ake a parallel shift to the right. m D) otate to become steeper from its vertical intercept. r E) otate to become flatter from its vertical intercept. r ...
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This note was uploaded on 09/04/2010 for the course ECON 311 taught by Professor Gordon during the Spring '08 term at Northwestern.

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