2006W - Solution to Test 2 - ECO209 - January 25, 2007

2006W - Solution to Test 2 - ECO209 - January 25, 2007 -...

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Page 1 of 10 Department of Economics Prof. Gustavo Indart University of Toronto January 25, 2007 ECO 209Y MACROECONOMIC THEORY Term Test #2 LAST NAME FIRST NAME STUDENT NUMBER Circle your section of the course : L0101 L0201 L0401 L5101 MW – 10-11 MW – 1-2 MW – 2-3 W – 6-8 INSTRUCTIONS : 1. The total time for this test is 1 hour and 50 minutes. 2. This exam consists of three parts. 3. This question booklet has 10 (ten) pages. 4. Aids allowed: a simple calculator. 5. Use pen instead of pencil . DO NOT WRITE IN THIS SPACE Part I /21 Part II 1. /10 2. /10 3. /10 4. /10 Part III /20 TOTAL /81 SOLUTION
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Page 2 of 10 PART I (24 marks) Instructions : Multiple choice questions are to be answered using a black pencil or a black or blue ball- point pen on the separate SCANTRON sheet being supplied. Be sure to fill in your name and student number on the SCANTRON sheet. Write your course section number (e.g., L0101, etc.) on the SCANTRON sheet (in the area where it says “DO NOT WRITE IN THIS SPACE”). Each question is worth 3 marks. No deductions will be made for incorrect answers. Write your answers also in the table below; but only answers recorded on the SCANTRON sheet will be graded. Questions whose answers are not entered on the SCANTRON sheet will get a zero mark. 1 2 3 4 5 6 7 8 B B C E B C A B 1. Suppose that income per capita in Mexico is 45,000 pesos and that the nominal exchange rate for Mexican pesos is 0.10. Further suppose that a given consumption basket of goods and services costs $2,250 in Canada and 15,000 pesos in Mexico. Using the PPP exchange rate, income per capita in Mexico is: A) $4,500. B) $6,750. C) $7,500. D) $9,250. E) none of the above. 2. Suppose that capital mobility is NOT perfect and that import demand is completely insensitive to changes in the level of domestic output. Then, the BP curve will be A) downward sloping. B) horizontal. C) vertical. D) upward sloping if the international rate of interest is greater than the domestic rate of interest. E) downward sloping if the domestic rate of interest is greater than the international rate of interest. 3. In an IS-LM-BP model with flexible exchange rates and perfect capital mobility, contractionary fiscal policy will A) cause an appreciation of the domestic currency. B) shift first the IS curve to the left and then the LM curve to the left. C) not change the overall level of output, but its composition. D) cause a decrease in net exports. E) lower the level of output but leave the interest rate unchanged.
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Page 3 of 10 4. Consider an economic model with fixed prices, flexible exchange rates, and imperfect capital mobility. If the international rate of interest exceeds the domestic rate of interest, then A) net exports are negative and net capital flows are positive. B)
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2006W - Solution to Test 2 - ECO209 - January 25, 2007 -...

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