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Unformatted text preview: Economics 100B
UCSC Professor K. Kletzer
Sample Final Examination Instructions: You may find graphs or equations useful in your explanations, but do not just draw shifting
curves or write down equations. Your prose explanation will be graded. The total number of points is 200.
Part A (20 points each) Choose any 4 of the following statements. Explain why the claims in these
statements are true, false or ambiguous.
A1) A permanent decrease in the growth rate of the money supply reduces the nominal and real interest rates
in the short run but not in the medium run.
A2) An increase in the growth rate of the money supply causes the exchange rate to rise and imports to fall in
the short run.
A3) A tax cut leads to a real depreciation and an increase in net exports in the short and medium runs.
A4) An expected future monetary expansion increases current inflation, stock prices and output.
A5) A fiscal expansion has a smaller effect on output in the short run under a floating exchange rate than
under a fixed exchange rate. Part B (20 points each) Choose 3 questions from this part.
B1) Explain how an expected future increase in the rate of technological progress affects consumption,
investment and net exports in the short run.
B2) Explain how a permanent rise in government military expenditures affects investment in the medium run
and output growth in the long run.
B3) Explain how the exchange rate and net exports react to a decrease in consumer confidence and adjust
from the short to the medium run.
B4) Explain why a government would be expected to devalue its currency during a recession under a fixed
Part C (30 points each) Choose 2 questions from this part.
C1) Because inflation is rising, people expect the Fed to increase short-term interest rates by reducing the
growth rate of the money supply. How do these expectations affect short-run investment, consumption and
output? How does the term structure of interest rates (the yield curve) change? If expectations are rational,
does inflation change in the short run? How does short-run output react when the Fed actually reduces the
money supply growth rate?
C2) How does an increase in the US government deficit affect net exports in the short and medium run?
How does it affect the nominal and real exchange rates in the short and medium run? Explain how it affects 2 interest rates and output in both the US and Japan in the short run. How does a US fiscal expansion affect
medium-run investment in the US and Japan?
C3) Suppose that people expect a future increase in the growth rate of the money supply in the US. How
does an increase in the growth rate of the money supply affect inflation and the exchange in the medium run?
How does the expected future rise in the money growth rate affect the dollar-euro exchange rate and interest
rates in the US and Europe in the short run? Explain how net exports and output change in the short run in
both the US and Europe. ...
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