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Unformatted text preview: ,SSN (last four digits): I L lI’therm'ediate Macroeconomics C1 PrOfessor Gordon:- 7 ‘ Final Examination,‘ Fall 1999 J NAME: _ INSTRUCTIONS: 1. This is a closed book exam. You may use acalcu’latbr ‘ ' , ‘ _, _. _ _ _ r 2. Write your answers to Part A (multiple-choice) in the space provided On page - _ DO NOT WRITE YOUR ANSWERSION THE MULTIPLEgCHOICE - * “ j j , 3‘. Write yOur answers to Part B and Part C in the spaces provided, . r r n " TIME ALLOCATION _; - PoiNTALLoCATION , ’_ , , L L PARTA r 40 y 1' ,V4 PARTB - 44 I 44 PARTC , f 36 ' _ ~ , 36 r_ TOTAL , l ,120‘ 99120: ' ' PART A (40' points) ' answers game "m ; WWRITELEGIBLY! ‘ ‘ e12; if”. V V‘ ;,1‘4. i6. 17., “18; I p i9. , 20.; ultiple-ehoice questions in the space belOw. ‘ ‘ ' 24. ' ffjff29. ' _ 3,0; ' ‘ , 32'; (34'; 36. 314.38; -‘39. 731.7 ’33. 37. .40. SECTION A Be sure to place all or your answers on the answer sheet provided” Recommended time: 40 minutes. ' 1) Keynes held out the possibility of "monetary impotence" causing the aggregate demand curve to 1) __ be below the natural real GDP, which results in an economy with self- correction. I A) vertical, instant -, B) vertical, no C) horizontal, instant - D) horizontal, no 2) If an increase in expected inflation equally raises the nominal interest rate, the expected real , 2) __ interest rate __ and thus investment demand A) rises, increases B) rises, decreases C) is unchanged, is unchanged D) falls, increases . E) falls, decreases 3) According to Robert E. Hall and Charles Jones, successful economic performance requires 3) __ ’ A) a favorable infrastructure of rules and institutions. B) minimizing corruption and criminality. . C) the use of one of the eight major intemational languages. D) a and b. E) all of the above. 4) Suppose that initially we have an exchange rate of 130 yen to the dollar. Suddenly trouble 4) __ develops in the Japanese stock market, making American stocks more attractive than before. We - expect that the dollar will against the yen, meaning that it will cost than 130 yen. A) depreciate, more B) depreciate, less C) appreciate, more D) appreciate, less 5) In a fixed exchange rate system such as the Bretton Woods system, a country Would be forced 5) _ to "devalue" its currency if persistent balance of payments cause it to foreign exchange reserves. A) deficits, amass dangerous amounts of B) deficits, run dangerously short of C) surpluses, amass dangerous amounts of D) surpluses, run dangerously short of 6) From an initial situation where P = 1.00 and Y = 100, 6 percent nominal GDP growth that 6) __ causes P to go to 1.02 also causes Y to go to A) 98. B) 112. C) 103. D) 104. 7) The purchasing power parity theory "predicts" that if the price of semiconductors in the US. is 7) _ $3 and the price in Japan is 210 yen for a comparable semiconductor, the exchange rate would be (assume only 1 good is traded, there is no government intervention, and transportation costs are negligible) A) 180 yen/$. B) 140 yen/$. C) 70 yen/$ D) $/yen 1.45. 8) The Pigou effect is 8) _ A) the stimulus to aggregate demand from a fall in the interest rate B) the effect of a cut in taxes on the aggregate demand curve C) the effect of a fall in prices on aggregate demand curve D) the direct stimulus to consumption because of an increase in the real value of the money supply 9) The Pigou effect might be ineffective in correcting a recession if 9) __ A) prices are falling _ 3) people expect the implied deflation to continue C) there is a liquidity trap D) the government does not expand the money supply 10) A rise in Us. interest rates, all else constant, would cause a dollar ' in fact, this i 10) _. relationship __ found in the actual data from the last two decades. - A) depreciation, is not B) depreciation, is C) appreciation, is not , ” D) appreciation, is Figure 7-5 Price Level (P) YN Real GDP (Y) 11) In Figure 7-5, from initial point B, suppose AD] shifts to ADo. Under the assumptions of 11) _ classical macroeconomics, we would - ' ' A) stay at point B. , A * B) almost immediately move to and then stay at point A. ‘C) almost immediately move to and then stay at point P. D) almost immediately move to and then stay at point B. 12) An adverse supply shock will shift the short-run Phillips curve I '12) __ A) outward to the right ' B) downward to the right ‘ C) upward to the left . D) upward to the right 13) In the SP/ LP model it is possible to have all short-run equilibrium points run along the LP 13) _. ' line if we employ the assumption of ‘ expectations. ‘ * A) backward-looking B) forward-looking C) adaptive D) extrapolative 14) Dating the start of falling labor productivity growth in 1973 is very suggestive of this explanation for it: energy prices and use of energy per worker. A) higher, decreased B) higher, increased C) lower, decreased D) lower, increased 15) Suppose that U.S. and British inflation rates are equal, and $2 exchanges for 1 British pound. Then if US. inflation slows down relative to British inflation, the PPP theory predicts ' of the dollar, so that the pound will cost than $2. A) an appreciation, more B) an appreciation, less C) a depreciation, more D) a depreciation, less 16) The purchasing power parity theory (PPP) of the exchange rate implies that the real exchange rate between two countries I ‘ , _ A) should be constant. B) nshould rise when the foreign price level increases relative to the domestic price level. C) should fall when the foreign price level decreases relative to the domestic price level. D) B and C. 17) The purchasing power parity theory predicts that A) a nation's exchange rate will decline at a rate equal to the difference between the domestic and the foreign rates of inflation. B) a nation's exchange rate will differ from another nation's exchange rate by an amount depending upon the difference between the domestic and foreign rates of inflation. , C) a nation's exchange rate is determined by the extent of speculation in the foreign—exchange market. D) a nation's exchange rate will decline when there is a balance-of-payments deficit. 18) A nation's net international investment position is A) the difference between all foreign assets owned by a nation's citizens and domestic assets , owned by foreign citizens. B) the difference between its exports of goods and services and its import of goods and semces. C) identical to its current account balance. D) unaffected by policy driven interest rate changes. ‘14)- 15) _ 16) _ 17) _ 18) _ ‘ Figure 7—5 . Price Level I (P) YN Real GDP (Y) I 19) In Figure 7-5, from an initial long-run equilibrium the net tax‘rate rises with no initial change L 19) _ in the nominal wage. We would show this as a movement from points A)AtoB. 'B‘)AtoF. C)BtoE. »D)EtoB. E)EtoF. 20).An increase in the price level will v A) increase the real money supply and shift the aggregate demand curve. B) decrease the real money supply and shift the aggregate demand curve. - C) change the slope of the aggregate demand curve at each income level. D) None of the above is correct. ‘ ‘ 20) - 21) At any AD/SAS intersection to the right _of LAS, excess in the labor market is 21) __ putting pressure on the nominal wage. A) supply, upward ' r B) supply, downward C) demand, upward , D) demand, downward ' Figure 8-1 Price Index (P) I . l2 1 .09 1 .06 1 .03 I .00 94 97 100 103 106 109 Real GDP(Y) yN 22) In Figure 8-1, suppose that the economy traces the path E0 to El to E12 We might conclude 22) _ that fiscal or monetary policy shifted the AD curve with price expectation first then . ‘ A) expansionary; constant; revised upward B) expansionary; revised upward; constant I C) contractionarv; revised upward; constant D) contractionary; constant; revised dowriward ‘L £23)ASSunie mathactor markets are competitive and the aggregate technology exhibits ‘ ' ' constant returns to scale. What is the steady state» yearly grth rate of real wages if a i - L'L technology grows by 3% per yearandpopulation per year? . (a)-,7%' 4 _ _ (b)-4%. »L ,(c) 3% _ . * L:(d)T1%- x ‘ (e)N0ne oftheaboVe; 3 724) the lLongrun aggregate sopply curve the real wage is: J V - - (a) Higher at points in Which the price w is‘ higher; " ; (b) Lower at points in which the price level is higher; ‘ t . (c) Constant on allpoints on the curve; I (d) None of the above; , . , 'L25)In‘thLC'10ng fim,ifvelééify ____.__-L 'L L LL,La20%7increase inthesupply of money L _ generatesa » ’ _' increasein prices, ‘ ' L e L ‘- (a) Is random; 120%; y L , (b) Decreases; 40%; _*(C) Is constant;L20%. 7 _ ‘ L-(d)Noneofthe abOve. H _ a - * 26) If most of realgwage gains‘accrued to workers with below median real wages‘this a Limplies:‘__g, '- 7- ’ W * w ' ‘ - _ ,~ _ :(a) Increasing inequality and decreasing median ,real wage. ~ (b) Decreasing inequality and increasingmedian real wage. I. L 7 ~ (c) Increasing'average real wage ., ' ’ " ~ * L (d)b)andc). 7' ‘ ‘ (e) None of the above.__ 7 « 27), If a surprise deflation occurs the cost in the government budget deficit (a) Stays constant; Wealth increases for holders Of nominal government bonds. 7 (b) Decreases; Wealth decreases for holders of nominal goVernment bonds; ' (QIncreases; Wealth increases'fOr holders of nominal government bonds. _ - (d) May increase ordecrease; Wealth increases for holders of nominal governinent : bonds.” _ ’_ I, a; ,y , (e) None of the above; _ r 28) The fact that the Euro'has been depreciating in recent months brings fears, of: - ‘ - ’ (a) worsening trade-balance in the'EMU countries; I ' (b) worsening trade balance in the US; 5 , , (c) inflation in Europe due to higher import‘prices; r , (d) deflation in Europe due to lower importprices; ‘ p (e)'~both(b)and(c)_. i, : : 29) Suppose that a Big Mac in Mexico costs 15 pesos, and that you need>9 pesos to buy a M dollar. If the price of a Big Mac in US werei3 dollars, then r i' ' (a) we have a hint that the Mexican peso is overvalued, ' g “ (b) taxes should fall in MexiCo in order to re-establish the law of one price. _ (c), we have a hint that the MexiCan peso is undervalued. _ r ' ‘ - _ , V, (d) taxes'should increase in Mexico in order to rc-establish the law of one price. ' (e) hamburgers have a lower quality in Mexico than in USL ‘ 30) A monetary‘expanSion in a small open economy with flexible exchange rates ‘ I = _ (a) Appreciatesthe local currency, IS curvewright,‘ and increases output. (b) Depreciates the local currency; the IS curve left, and'decreases output, (c) Depreciates- the local currency, shifts the IS Curve right, and increases output. _ , (d) Doesnothing because monetary policy is ineffective in this exchange rate system. 31) The steady state in the solow growth model isdefined as a situation which (a) aggregate variables are constant I , ;_ I (b) aggregate variables grow at a constant, but different rates across them j (c) per capita variables grow at aconsta‘nt and positive rate ‘ ' 1 (d) aggregate variables grow at a constant and equal rate * ._ (e) savings are equal to zero. '_ L ‘ ' - I 32) lnthe Solow growth model, the new equilibrium after a decrease in the savings rate (a) a lower growth rate of per capita variables , i _ , _ (b) thesame growth rate of per capita variables as in the old equilibrium (0) a higher per capita output level f - ' ((1) both (a) and (c) , ,. , Y ” _ (e) both (b) and (c) " I 33) Assume investment and consumption do not respond to the interest rate, there is a Pigou effect and demand for real money balances in downward sloping but does not . depend on output. Then if government spending increases the equilibrium interest rate , and if the money supply increases the equilibrium interest rate (a) increases; increases; (b) falls; does not change; (0) does not change; falls. (e) increases; falls. . 34) Assume investment and consumption respond negatively to the interest rate, there is no Pi gou effect and demand for real money balances is infinitely elastic. Then, if the government decreases the money supply, the interest rate and output in equilibrium, if it increases government spending the interest rate ' and output ‘ ' r in equilibrium. ‘ - ' (a) decreases; stays the same; increases; increases; (b) stays the same; stays the same; stays the same; increases; (c) increases; decreases; increases; increases; ((1) stays the same; decreases; decreases; increases. 35) The two main short comings of the Solow growth model as an explanation in cross- country differences in the standard of living are that it requires differences in capital per worker to be r and returns to capital in developing countries to be with respect to the data. ' L ' (a) too low; too low; (b) too high; too low; (c) too high; too high; (d) too low; too high. 36) According to the Economist; Which of the following factors is included as a cause of the U. S. current account deficit ' (a) Reduction in U. S. tariff barriers (b) Shifts in international portfolio allocation decisions (c) Low U. S. household saving rat ((1) (a) and (b) ‘ (e) (b) and (C) , _ 37) AcCording t6 RO‘dfik; Liseeds’ Lof: the crisis were soWnbyiRoneld Reagan ‘ fig;(a) Freeityradeflfigfl; - _- r- . , r (b)Adheretofmarketbapitalism; r - * (c) ‘FfCClYII‘lObflB capital flows; 7- f _ " mg ' _ ‘ 1(a) Flexibleexchange;rates y « » L‘ Fixedexchange rates 7 "5(c)7‘Controls_ On‘fireely'mobileicapital _ rs I I ‘(d)”Eliminatecontrolson fi‘eelymobileeapital _'y_*i:‘ " “ * ~ - u; find . '7 (a) RealValue Ofminimum Wage.“ 'f i fé , ‘ p r _ I _ )(b) Growth of earnings of college graduates vs. high-school graduates. __ " , r (c).R_ate ofinflatibn. f “ r _ * I. ‘ " f - , z ~~ ‘ ~ ((1) Level of social security/taxes. ' ., ‘_(e)iRegulationnofhoursofworkg y- I I ,, 40) Whichk'statement beSt describes Hausman‘s index 0f telecom prices in the U.S.' ‘ "i: ‘- 'compared‘to theofficial ,. _ r ‘ .1 w ‘(a), CPI rises more, Hausmanindex fisesless; ,_ s I. » T ,(b) CPIshowszero‘grdwth/and Hausman index declines.fi'_ , _ _ :(C)1CP.I declines and Hausmanindexrdeclinesmores i , _, (d) CPI risesnanid Hausman index declines- g ' __ ‘ , ' ' " (e) CPI rises and Hau‘smanindexshoWSVZero growth. ' a ‘ ...
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