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Econ 301 Exam #1 Fall, 2004 Professor Twomey
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Econ 301 Exam #1 Fall, 2004 Professor Twomey Please PRINT your name on the back of the last sheet. Answer on these sheets, using the flip sides if necessary. Questions are equally weighted. Be sure to label the axes on the graphs. If any question is unclear, please ask for a clarification. Good luck! 1. Identify the following with a sentence or at most two: a) Labor force participation rate b) Total factor productivity c) Okun’s law d) What is the difference between exogenous and endogenous variables? e) Classical dichotomy 2a. Consider the Solow growth model, in which a country is at equilibrium on its balanced growth path. Explain in words–no graphs or formulas are necessary–what happens if that country’s savings rate declines. b. What is meant by the word procyclical? Our textbook presents data on several variables–which of the following are procyclical? A) Interest rates B) Employment C) Inflation D) Money Supply
b. What is meant by the efficiency wage? Identify and explain briefly two explanations for the existence of efficiency wages c. When efficiency wages are widespread in the economy, will the natural rate of unemployment be larger or smaller? Explain briefly. 4a. In discussing labor supply (with respect to real wage), the textbook speaks of an income and a substitution effect. Explain briefly what is meant by each of those terms b. The textbook suggests that the effects of those two factors (income and substitution effects) basically cancel each other out, empirically. What important supply side proposition is derived from that finding? Explain and illustrate with a graph. c. Write the formula for the standard textbook demand for money, defining each of the terms.
What is the growth rate of technology? If a reduction in government regulations increases investment, so that capital is now growing at 6 percent, by how much does the growth rate of income change b. What might be two things that the government could do (or undo) that might make the rate of growth of technological change. The median on this exam was 70. The high was 90. Econ 301 Exam #2 Fall, 2004 Professor Twomey Please PRINT your name on the back of the last sheet. Answer on these sheets, using the flip sides if necessary. Questions are equally weighted. Be sure to label the axes on the graphs. If any question is unclear, please ask for a clarification. Good luck! 1. Identify the following with a sentence or at most two: a) Real business cycle c) IS curve d) Marginal propensity to import e) Accommodative policy 2. Consider the standard IS-LM analysis of the short run (one period) impact of a change in an autonomous variable. Suppose that, due to increased investor confidence, there is an increase in the autonomous component of investment. Illustrate that change on an IS-LM graph, being sure to label the axes.. Then, explain (graphs optional) how that will change: the amount of savings, tax revenue, net exports, the government’s budget (surplus or deficit), unemployment, and the quantity of money. 3a. State in words (formula optional) why the open economy Keynesian multiplier is smaller in size than the closed economy multiplier. b I. Is Monetary policy more effective if the IS curve is steep or flat? Explain, illustrating your answer with one or two graphs. b ii. Our textbook mentions the natural rate property, and illustrates it both with a formula and with a graph. Explain what is meant by this term, using either the formula or the graph.
Explain your answer analytically, carefully indicating how the slope of the demand for money curve affects the slope of the LM curve. 5. Suppose an initial situation of equilibrium of full employment with no inflation, and that then the Federal Reserve causes the money supply to increase. How will that increase in the money supply initially affect prices and output. What will be the long run affect on prices and output? What happens to cause an adjustment between the immediate short run and the ultimate long run? Explain your answers, illustrating with one or more graphs. The median on this exam was 65. The high was 83. Econ 301 Exam #3 Fall, 2004 Professor Twomey Please PRINT your name on the back of the last sheet. Answer on these sheets, using the flip sides if necessary. Questions are equally weighted. Be sure to label the axes on the graphs. If any question is unclear, please ask for a clarification. Good luck! 1. Identify the following with a sentence or at most two: a) Purchasing power parity b) Monetary base c) Ricardian equivalence d) Pipeline function of inventories e) Reaction function 2. Will an increase in the government’s deficit inevitably lead to an increase in the country’s foreign trade deficit? Explain your answer, being careful in outlining your logic. Graph(s) are optional. 3. Suppose that the next head of the Federal Reserve is a strong believer in policy rules. Two options are being considered, targeting income, or targeting interest rates. In which of these two cases will discretionary fiscal policy potentially have a greater impact? Explain your answer with one or two graphs. Suppose the cash/deposit ratio is 0.25, and the required reserve ratio is 0.05 . If the Fed engages in an open market purchase of ten billion dollars, by how much will the money supply change, and in which direction? 4i. Economists distinguish between the volatility of investment in housing, and the volatility of investment in manufacturing industry. The key to understanding investment behavior is the accelerator model. - What is the basic formula for the accelerator model? - Would the coefficient in that formula be bigger for housing or manufacturing? - That formula can be modified to take into account real world phenomenon such as lags. Do lags make investment more stable or more volatile? Explain - Generally speaking, would construction lags be larger for housing or for manufacturing? Another modification of the accelerator model would be to include depreciation. Would depreciation make investment more volatile, or less volatile? Is depreciation larger for housing or for manufacturing? ii. Let’s do a little arithmetic. Suppose your firm is thinking of renting a computer system, which costs $200,000. The going rate of interest is 4%, the rate of depreciation is 2%, the rental company’s tax rate is 20%, and there is a 10% subsidy on technology investment. What is your after tax rental cost of this computer system?
A. The marginal propensity to consume out of current income is less for farmers than for most other occupations. B. The saving rate for the U.S. fell during the recession of the early 1980s. C. Across the population as a whole, people with lower incomes have lower savings rates than people with higher incomes. D.The amount of wealth in the economy is far greater than what current wage earners will consume in their retirement. E. The marginal propensity to consume out of current income is less for old people than for middle-aged people. The median on this exam was 58. The high was 82. Econ 301 Exam #1 Winter, 2003 Professor Twomey Please PRINT your name on the BACK of the last sheet. Answer on these sheets, using the flip sides if necessary. Questions are equally weighted. Be sure to label the axes on the graphs. If any question is unclear, please ask for a clarification. Good luck! 1. Identify the following with a sentence or at most two: a) Exogenous variable b) COLA c) Total Factor Productivity d) Okun=s Law e) Balanced Growth Path 2. Consider the following equations describing an economy, where Y is real output, C is consumption, I is investment, Yd is disposable income, G is government spending, and T is taxes. For simplicity, let X (net exports) be zero.
C = 100 + 0.8 Yd , I = 500, G = 600, T = 0.25 Y. A) What is the equilibrium level of income? B) Is the government=s budget balanced? Explain. C) If Investment falls by 200, what is the change in equilibrium income? Illustrate this with a graph.
significant increases in government spending. Suppose that these changes are permanent, in the sense that the ratio G/Y increases. What would we expect to happen to the ratio of I/Y? Explain your answer. b. Suppose instead that US exporters were to fall behind our competitors, so that the ratio of net exports to Y (X/Y) were to fall. How would that affect the ratio I/Y? Explain briefly c. Here's another question about long run trends, but focusing on the supply and demand for money. Suppose that technological growth were to decline, thus lowering the level of Y* (potential income). If the Federal Reserve wanted to maintain a constant price level, what would it have to do to the money supply? Explain briefly. 4. Consider the flow model of the determination of unemployment, and the natural rate of unemployment. A) According to this model, what will happen to the natural rate if the economy moves from its current structure to one with a much larger weight in high tech industries for defense? Explain briefly. B) Demographic characteristics of the population also affect the natural rate, according to this model. Identify and explain briefly how each of these two scenarios might affect the natural rate, giving a short explanation. First, the population is characterized by having an age-group that is unusually large, such as the "war-baby" generation that was born shortly after WWII. How might the aging of this group --they are now in their mid-fifties--affect the overall natural rate of unemployment for the economy? The second situation is to consider a groupBlet=s call them womenBwho are more flexible about hours and types of jobs they will take. Suppose that over time the labor force participation of this group grows; how would the natural rate of the economy change? 5. Let's talk some more about economic growth. A) According to the "historical growth accounting" analysis, what have been the three most important factors determining growth of the U.S. economy, in the second half of the twentieth century? What would be the relative ranking of these three, in terms of their contribution to our growth?
B) Which of those three factors is usually blamed for the "Productivity slowdown" of the 1990s? C) In terms of our growth accounting formula, with a weight for labor of 0.6 and for capital of 0.4. What happens to the economy's overall growth rate if the rate of growth of population falls from two percent to one percent? If technological change occurs at 0.75% per year, the target rate of growth of real GDP is 3 percent, and the population is growing at 2 percent, what must be the growth of the capital stock? D) Explain real simply what is meant by Aendogenous growth theory, perhaps illustrating your answer by comparing it to Solow's neo-classical growth theory.
Econ 301 Exam #2 Winter, 2003 Professor Twomey Please PRINT your name on the BACK of the last sheet. You will lose credit if your name appears anywhere else. Answer on these sheets, using the flip sides if necessary. Questions are equally weighted. Be sure to label the axes on the graphs. If any question is unclear, please ask for a clarification. Good luck! 1. Identify the following with a sentence or at most two: a) Pipeline function of inventories b) Accomodative policy c) Natural Rate Property d) Real Balance Effect e) Liquidity constrained consumer 2. Suppose the desired capital stock is given by the expression K* = vY/RK, where the capital output ratio "v" is constant, and RK is the rental cost of capital. Assuming that output in the economy is fixed at Y*, will a permanent increase in the interest rate have a permanent or a temporary effect on the level of investment? -- Is your answer consistent with the investment function incorporated in the IS curve? Explain. B) Let's turn to the issue of government policy. Suppose that there is a price shock, such as would be caused by an increase in the price of petroleum. i) According to the standard model in our textbook, what would be the initial impact of the price shock on the overall level of output, employment, and prices? ii) The government could either do nothing, or engage in some countercyclical policy. Choose one of these policies, and discuss briefly the positive and negative aspects of it. 3. This question relates to the textbook version of the macroeconomy, combining IS-LM into the AD curve, and using the textbook's standard price adjustment equation, where price expectations are backward looking. Suppose the quantity of money is decreased, and that people had not expected this decline. How will this affect the following variables (Increase, decrease, no change), in three time frames; initial impact, in the subsequent short run (say, two periods later) and in the long run?. Explanations and/or graphs are not necessary, but may be helpful. ,Interest Rates, Prices,Tax Revenue,Investment,Consumption,Real GDP Impact,,,,,, Two Periods,,,,,, Long Run,,,,,, 4a. Define briefly the IS curve. B. Explain briefly, (no graph necessary) why the IS curve is downward sloping. C. In macroeconomics, there is a debate about whether or not the level of consumption is affected by the rate of interest. In which situation will the IS curve have a steeper slope, where consumption is not affected by interest rates, or where consumption is negatively affected by an increase in interest rates. Explain briefly (graph optional). D. Explain briefly (no graph necessary) what will happen to the IS curve if consumers feel wealthier due to an increase in wealth, caused for example by an increase in the stock market.
Explain each answer briefly. i. Most European countries have both more extensive social welfare systems for older people and higher saving rates than the United States. ii. The savings rate for the United States fell during the period of recession in the early 1980s iii. Across the population as a whole, people with lower incomes have lower average savings rates than people with higher incomes. B. Demographers predict that the fraction of the population that is elderly will increase over the next 20 years. What does the life-cycle model predict will happen to the national saving rate? C. We had discussed in class that studies show that elderly people do not consume as much as the life cycle model predicts. One study found that the elderly who do not have children consume (dis-save) at about the same rate as the elderly who do have children. What might this finding imply about the reason why the elderly do not dis-save as much as the life-cycle model predicts? The median on this exam was 71; the high was 90 Econ 301 Exam # 3 Winter, 2003 Professor Twomey Please PRINT your name on the back of the last sheet. Answer on these sheets, using the flip sides if necessary. Questions are equally weighted. Be sure to label the axes on each of the graphs. If any question is unclear, please ask for a clarification. Good luck! 1. Identify the following with a sentence or at most two: a) Automatic stabilizer b) Monetize government debt c) Transactions motive d) Menu costs e) Purchasing power parity 2a. Suppose the reserve ratio is equal to 0.05, and the currency ratio c is equal to 0.20. If the Fed engages in an open market purchase of $80 billion, by how much do the monetary base, the money supply, and demand deposits change? b. "If expectations are rational, monetary policy has no effect on output." What is meant by the term rational expectations? Is the statement in quotation marks true or false? Explain your answer.
real income, interest rates, and the government deficit, according to each of following three theoretical approaches. Explain, (graph optional) and indicate why your answers differ:
a) a standard Keynesian consumption function b) People try to smooth their consumption c) The Ricardo-Barro equivalency is valid.
government's budgetary deficit is thought to be too large, and the country's trade deficit is too large. Describe (and illustrate with a graph) a change in monetary and fiscal policy that keeps the economy at full employment, but lowers both deficits. b. In macroeconomic models with foreign trade and floating exchange rates, why is the effect of monetary policy on net exports ambiguous [meaning could increase or could decrease], while that of fiscal policy is not?
policy rules, to a situation where we suppose that, due to the increased use of credit cards, and because of financial deregulation of different kinds, that the demand for money falls. Identify and explain briefly what would be the response to this change (if any) when the Fed is following: i) Friedman's constant growth rate rule ii) a simple zero inflation rule iii) Taylor's monetary policy rule. b. In discussing the Federal Reserve's policy decisions, the textbooks states: "The choice between interest rate setting and money supply setting usually boils down to practical questions about which variable is easier to measure and interpret." Leaving aside the question of interpretation, explain briefly why there might be problems of measurement of the interest rate and the money supply.
sheets, using the backs if necessary. Questions are equally weighted. Please ask for clarification of any unclear question. Good luck.
a) Classical dichotomy b) Balanced growth path c) Crowding out d) Endogenous growth theory e) Labor force participation rate 2a. It is clear that when economists speak of full employment, not everybody is working. But at full employment, are all the available jobs taken? Explain.
of unemployment? Explain each answer briefly: - Elimination of the minimum wage law - The economy shifts from reliance on production of capital goods, which have unstable demand, to the production of services, whose demand grows parallel with income - There is a marked improvement in the effectiveness of retraining programs for dismissed workers. 3. Recalling that the formula for equilibrium income in the Keynesian model is Y = (a + I + G + g)/(1-b(1-t)+m), with a consumption function C = 2000 + 0.75Yd, a level of Investment of 3500, G = 2500, a tax rate of 0.1, and an import function X = 1000 - 0.1Y. a) what is the equilibrium level of income? b) what is the equilibrium level of savings? c) is the budget balanced? d) if investment rises by 500, by how much does income rise? e) if investment rises by 500, what happens to net exports?
GDP be expected to affect the price level in the full employment model? Explain briefly. b. According to our textbook, how will a reduction in income taxes affect the labor market and therefore aggregate supply? Explain and illustrate with a graph. c. What is meant by the efficiency wage model? In terms of policy, how does it differ from the standard (classical) wage model? 5a. Our textbook provides a model for analyzing the long run shifts of the shares of GDP. Use it to answer the following, explaining and illustrating each answer with a graph. How would an increase in government expenditures, due to a renewal of the arms race, affect the share of net exports in GDP? One issue that may be of importance is the decline of US production of petroleum, and the corresponding rise of imports of petroleum, even relative to GDP. How would this decline in net exports be expected to affect the ratio of investments to GDP? b. The Solow model leads to an "accounting formula" for analyzing the long run contributions to economic growth: Y/Y = A/A + 0.7 N/N + 0.3 K/K, where A is technology, N is the labor force, and K is the capital stock. - According to researchers using this formula, what was the major factor contributing to the decline in US economic growth during the 1970s and 1980s? -If the long run growth of income has been 4%/yr, while that of labor has been 3% and that of capital has been 5%, what has been the annual growth rate of technology? The medan on this exam was 62; the high was 78 Econ 301 Exam #2 Winter, 2001 Professor Twomey Please PRINT your name onthe BACK of the last sheet. Answer on these sheets, using the backsides if necessary. Extra sheets are available from the professor. Questions are equally weighted. If any question is unclear, please ask for clarification. Please turn in your take home question at the end of class.
1. Identify the following with a sentence or at most two: a) Panel data tests b) Net export function c) Rate of Time Yüklə 125,26 Kb. Dostları ilə paylaş:
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