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c11mfall98 - Intermediate MacroecOnomics C-l 1-1(Professor...

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Unformatted text preview: / Intermediate MacroecOnomics C-l 1-1 (Professor Gordon) Mid-term Examination Fall 1998 YOUR NAME: _ TA: INSTRUCTIONS: 1) The exam is worth 50 points in total: 30 pts. for the questions, 20 pts. for MC. 1) Place all of your answers for part A in the spaces provided. 2) The examination will conclude promptly at 9:50 am. 3) Write your answers to Part B (the multiple choice section) in the blanks on page 4. DO NOT FORGET TO DO THIS!! You will NOT receive time at the end of the exam to transfer your answers. You will NOT get credit for answers circled under the multiple choice questions. PART A QUESTION 1: 1. Which of the following should be included in the GDP of the US. Circle Yes or No (2.5 pts). (a) The salary of a French woman who works in the US selling magazines. (Y es . / No) (b) The labor service of a mother cutting her child’s hair. ' (Yes / No) (c) The gas a taxi driver uses to do his business. (Yes / No) (d) The gas you use to drive to East Lansing to see the Northwestern-Michigan State game. (Yes / No) (e) A tomato eaten by a farmer. He made that tomato to sell it in the market. (Yes / No) 2. Is the following statement correct? Briefly give a reason (One sentence or less will be sufficient). (2.5 pts) “A country which has a large government deficit, and an excess of domestic investment over private saving, must have a positive amount of foreign investment.” QUESTION 2: A Japanese traveler has 200,000 yen for traveling several countries. First he went to the US and spent $500. Next he went to England and spent L300. If this is all the he spent during the trip, how much money in yen is heleft with after traveling? (Exchange rate $1 = 120 yen, $1 = L0.6) (3 pts) ) m—wn _ ems _ . U, www -m. . , «W77 QUESTION 3: Consider the following economy (expressed in billions of dollars): C=a+0.75 (Y—T) G=480 Ip=400—18r a=200—6r T=80+Og2Y Real money supply = 750 Real money demand = 0.5Y — 5r Part 1: For this part only, suppose that there is no money market and investment does not respond to changes in interest rates (Lo. 1' = 0). (a) What is the value of the multiplier for a change in autonomous taxes (2 pts)? (b) What is the equilibrium level of Y (2 pts)? 1% Part 2: Now assume there is a money market so r is not necessarily fixed or equal to Zero. (0) Solve for the IS curve (2 pts). (d) Solve for the LM curve (2 pts). (e) Find the equilibrium levels of r and Y (2 pts). (i) What is the velocity of money (2 pts)? . (g) Suppose that government expenditures increase by 56. What is the new equilibrium level of Y and r? How much Y is crowded out (4 pts)? (h) Starting from the equilibrium in part (e) suppose that government expenditures increase by 56. However, this time assume monetary policy adjusts in order keep interest rates junchanged. What sort of monetary policy will yield this result. What is the new equilibrium level of Y and r? How much Y is crowded out?(3 pts). (i) Supposemoney demand in this economy changes so that the interest rate responsiveness of the demand for money were zero. Assuming the IS curve is the same as in part (c), What would be the equilibrium levels of Y and I? Now assume government expenditures increase by 5 6, what are the new equilibrium levels of Y and r? How much Y is crowded out? (3 pts)? PART B - In the spaces below write your answers to the multiple-choice questions on pages 5 thru 7. 1 _ 6 _ 9 _ 13.____ 17 __ 2.____ 7.___ 10.~_¥_ 14._ ' 18._ 3._____ 8.____ 11.______ 15.____ 19.____ 4 9 12. 16 20 NC 1) We go from Cross to Net National Product by . A) adding depreciation to GNP. ' B) subtracting depreciation from GNP. C) subtracting indirect business taxes from GNP. D) adding indirect business taxes to GNP. 2) In the consumption fimction, suppose a = 60, c =0.75, Y = 3000, and T = 800. Consumption expenditure is A) 2910. B) 1510. C) 1590. l D) 2245. , l E) 1710. 3) During a recession, automaticstabilization causes the government budget deficit to A) fall. _ B) increase. C) move in the same direction as Y. ‘ D) remain stable} 4) Saving is positive for all levels of disposable income A) above autonomous consumption. B) below where the consumption line intersects the 45-degree line. C) above where the consumption function intersects the vertical axis. D) above where the consumption line intersects the 45-degree line. B) above zero. 5) If EP is 2500 and Y is 3000 then companies will A) increase orders and production by 500. B) wait for final sales to increase. C) reduce orders and production by 500. D) wait for final sales to decrease. 6) From any point below the current LM curve, money market equilibrium can be restored by some combination of a income and a interest rate that the demand for money. A) higher, lower, increases B) higher, lower, reduces C) _ lower, higher, increases D) higher, higher, increases E) lower, higher, reduces 7) A change in the interest rate will generally affect the A) level of consumption. B) level of investment. C) the amount of money people want to hold. D) All of these. 8) In constructing the planned autonomous demand schedule, which two components are assumed to depend on the interest rate? A) autonomous consumption and net exports B) autonomous consumption and autonomous planned investment C) government expenditure and autonomous planned investment D) government expenditures and net taxes E) government expenditures and net exports 9) If a 200 billion dollar increase in government spending occurs when the Fed seeks to maintain a fixed interest rate then A) there is no crowding out, the LM curve shifts to offset the shift in the IS curve. B) crowding out is assured since the Fed will accomodate the spending increases. C) crowding out is assured since monetary policy is fixed. D) there is no crowding out, the monetary policy is fixes as is the LM curve fixed. Page 5 10) With a vertical LM curve, an increase in the money supply can be matched by an equal increase in money demand only through , which causes monetary policy to be particularly A) a rise in income, strong , B) a rise in income, weak C) a fall in the interest rate, weak D) a fall in the interest rate, strong 11) In the IS-LM model, the fiscal multiplier effect can be increased by , A) raising the income tax rate. B) expansions of the money supply. C) contractions of the money supply- D) larger increases in government expenditure. 12) Which of the following events will tend to increase net exports of the U.S.? A) a fall in the real interest rate in several western European countries B) an increase in the U..S real interest rate ‘ C) an appreciation of the dollar D) None of the above 13) With perfect capital mobility, a Fed policy that lowers the US. interest rate below the foreign rate causes a huge capital that puts pressure on the dollar to A) outflow, appreciate B) inflow, appreciate C) outflow, depreciate D) inflow, depreciate 14) The following are ways the Asian Crisis could hurt the American economy. A) Reduce autonomous consumption I J B) Raise autonomous taxes 4 C) Reduce net exports D) (a) and (c) E) (b) and (C) 15) The following are ways the Asian Crisis could help the American economy. A) Reduce inflation B) Reduce unemployment C) Reduce'long-term interest rates D) (a) and (b) E) (a) and (c) 16) What does a recent study of cellular phones have to do with macroeconomics? A) Shows that inflation is overstated B) Shows that output growth is overstated C) Shows that productivity growth is understated D) (a) and (b) E) (a) and (c) 17) What current policy would you recommend for Japan? A) Move IS to the right and LM to the left B) Move IS to the left and LM to the right C) Move IS to the right and LM to the right D) Move IS to the left and LM to the left E) Move IS to the left and leave LM alone Page 6 18) Which of the following statements is not true? A) The Japanese unemployment rate is equal to the U. S. unemployment rate B) The Japanese retired-persons dependency ratio is below that in France and Germany. C) Japanese economic ,' growth was faster than the U. S. in the 1980s. D)» The Japanese tax/ GDP ratio is higher than that in Europe. E) The Japanese have expanded government spending in the 1990s. 19) Financial markets can alter planned expenditures by the direct inipact ‘ of changes in short—term interest rates, and by which other types of effects? A) Wealth effects B) Availability effects C) Yield curve effects D) (a) and (b) E) (a), (b), and (c) 20) A country that saves more than it invests A) Sacrifices the present for the future B) Sacrifices the future for the present C) Runs a current account surplus D) Runs a current account deficit E) None of the above Page 7 ...
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