Um-d econ 301 Exams
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Preference d) Automatic Stabilizers e) Natural Rate Property 2. The Federal Reserve recently announced a policy to increase the money supply. Using the IS/LM and AD/PA models, state and explain briefly how that new policy should be expected to affect each of the following variables. a) Prices b) Output c) The interest rate d) Unemployment e) Consumption f) Investment g) Tax revenue h) Imports
early 1980s, there was a marked decrease in savings (compared to income). The forward looking consumption model is supposed to be able to interpret phenomena such as this. We do know that newly elected President Reagan implemented several new policies, which potentially could explain the decline in savings. a) Identify and explain briefly three factors which could have caused this decline in savings. (These factors may or may not be historically accurate. Also, for the purpose of this discussion, you may choose to consider the change in savings to have been either permanent or temporary). b) The forward looking model of consumption is inherently a theoretical construct. Identify and explain briefly two real world phenomena that might impede it from functioning according to theory. 4. Give a brief definition of the IS and the LM curves. How will each of the following affect the IS or the LM curves? Explain briefly: a graph is optional, but recommended. a) An increase in taxes b) An increase in the demand for money c) An increase in tariffs affecting imports d) An increase in prices e) Technological change leads to an increase in investment demand. 5a. Suppose the Fed used monetary policy to keep the interest rate at 7 percent, no matter what else happened in the economy. Although 7 percent may seem like a high rate, it is possible that such a policy could in fact be inflationary. Explain what could happen in the economy that would lead to this policy being inflationary. How would the nominal money stock and output behave in this situation? b. "Stagflation" is a term coined in the 1970s to describe a sustained period of both high inflation and unemployment. We now interpret this as resulting from price shocks, which affect aggregate supply. The textbook discusses two different policies the monetary (or fiscal) authorities can choose take in such a situation. What are they, how do they affect the macro-economy, and what are the benefits or costs of each one? The median on this exam was 78; the high was 105, and max was 120. Econ 301Intermediate Macroeconomics Exam # 3 Winter, 2001 Professor Twomey Please PRINT your name on the BACK of the LAST SHEET. Answer on these sheets, using the backs if necessary. Questions are equally weighted. Please ask for clarification if you do not understand the question. Time: unlimited, which means until about 11:00. Good luck!
a sentence or at most two: a) Monetary base b) Bretton Woods system c) Ricardian Equivalence d) Real exchange rate e) Staggered contracts
put a ten percent tariff on US exports. [Using the IS-LM model, show how that] would affect our prices, output, interest rates, and the nominal exchange rate (Euro/$)? Illustrate your answer with a graph. b. Suppose the Federal Reserve wished to neutralize the change of our interest rates that you described above. Would the Fed engage in open market purchases or open market sales? Explain briefly.
investment accelerator, defining each of the variables. Show briefly the derivation of that formula. b. Without further derivations, how do the following considerations affect the accelerator? i) depreciation ii) lags in the investment process 4a. What is meant by the theory of purchasing power parity? b. Suppose inflation in the US is 4 percent while that of Europe is 7%. Under PPP, how does E (the average exchange rate Euro/$) change? Is this an appreciation of the dollar or a depreciation? c. Why might a depreciation of a country's currency cause inflation? What is the textbook's argument for why this has not happened in the US? 5. It can be argued that the introduction of new payment mechanisms (credit cards, ITM machines, web based payment systems) will change the demand for money, as these substitute for currency. a) Will this lead to an increase or a decrease in the demand for money? In the short run, how would this change an assumed initial IS-LM equilibrium? (Illustrate on a graph) b) Suppose the monetary authorities had been following Friedman's constant growth rate rule. Would the change in equilibrium from part (a) lead them to change the money supply? If so, in what way? If not, why not? c) Suppose now that the monetary authorities had been following the Taylor rule: R = ã + (Y-Y*) + ë(ã - ã*) + Rf; where R is the nominal short term rate, Rf is real interest rate target, ã is actual inflation, ã* is the target inflation rate, and (Y-Y*) is the GDP gap. Going back to your answer in part (a), what would the Fed do to interest rates, and how would they change the money supply to cause that change in interest rates? The median on this exam was 56; the high was 85 Econ 301 Exam #1 Fall, 2000 Professor Twomey Please PRINT your name on the 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. Time: the entire class.
a)Slowdown in productivity growth b) Endogenous growth theory c) Value added d) Okun's law e) Crowding Out 2a. Using the long run growth model of chapter 3, suppose that the incentive to invest falls, and explain and illustrate with a graph what would happen to the share of total GDP of consumption and net exports.
government reduces its expenditures on defense by the equivalent of 2% of GDP. Explain and illustrate with graphs what would happen to the (real) interest rate, consumption, and investment if: i) the full amount of the defense cut is applied to a tax cut for households ii) the government makes no adjustment is its other programs. 3a. Consider our textbook's standard growth accounting framework, where the share of capital is 30%, and that of labor is 70%. Assume that over a generation, the annual growth rate of the capital stock has been 3.5% and that of labor has been 2.5%, and that the overall growth rate of the economy has been 4%/year. i) what has been the rate of technological change? ii) If a successful government policy raises the rate of growth of the capital stock by a further one percent per year, by how much should we expect the rate of growth of output to rise? b) In last week's presidential debate, there seemed to be widespread agreement on the advisability of increased expenditures on education to increase income. However, in class it was noted that such a position can be rationalized either by supply side approach, or the Keynesian demand side approach. Explain each position, illustrating each with a key graph. 4a. Draw a graph of equilibrium in the labor market, making sure to label the axes. For each curve, identify two variables that can affect that curve, explaining very briefly the economic logic. b. What is meant by the "job-losing rate"? What are its three components? c. The "efficiency wage model" differs from the standard equilibrium model of the labor market in part "a" above in several ways. Identify one that relates to its theoretical structure, and one that relates to implications about its effects. 5. Recall the following formula for equilibrium income: Y = (a + I + G + g)/(1 - b (1-t) + m) where C = a + b Yd , X = g - m Y, Yd = Y (1 - t) and G = 900, I = 1000, a = 400, g = 200, b = 0.75, m = 0.1, t = 0.2 5a. What is the equilibrium level of income? b. With this value of income, what is the level of the government budget balanced, surplus or deficit? (and by how much) c. What is the value of the multiplier? d. If investment rises to 1100, by how much does equilibrium income rise? e. Illustrate the situation in the above question (5d) with a graph. The median on this exam was 62; the high was 96. Econ 301 Exam #2 Fall, 2000 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) Wealth effect on consumption b) LM curve c) real business cycle model d) Longitudinal surveys e) Natural rate property 2a. What is meant by countercyclical stabilization policy? b. If one were to accept the argument associated with Friedman's permanent income hypothesis, would countercyclical stabilization policy look more attractive, or less? Explain. c. Identify and explain real briefly two defects of the forward looking model of consumption. 3a. Are the following facts consistent with the forward-looking theories of consumption? Explain your answer briefly. i The marginal propensity to consume out of current income is less for old people than for middle aged people. ii The savings rate for the United States fell in the early 1980s iii The amount of wealth in the U.S. is far greater than what current wage earners will consume in their retirement.
temporary result of exaggerated stock market prices and a short term technological advantage of the U.S. over its trading partners, would that person predict that savings rates should be higher or lower than normal? Explain. c. In view of Okun's law, is it possible for both output and the unemployment rate to increase from one year to the next? Explain.
monetary policy? b. Assume that the economy experiences a price shock, due to an increase in the price of imported petroleum. What would be the advantages and/or disadvantages of each of the two policies mentioned above in (4a)? c. If money demand falls, what would be the impact on either/both the IS and the LM curves? No explanation needed.
if the LM curve is steep or flat? Explain, illustrating your answer with one or two graphs. b. If the government raises the tax rate, what will be the impact effect on: (explanations and graphs are optional) -- real output -- the interest rate --investment --consumption --net exports-- the real money supply c. In addition to fiscal policy, what would be two other factors that would cause the IS curve to move? The median on this exam was 67, the high was 92. Econ 301 Exam #3 Fall, 2000 Professor Twomey Please PRINT your name on the BACK of the LAST sheet. Answer on these sheets, using the flip sides if necessary. The weighting of the questions varies slightly. 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 (20 points): a) Purchasing power parity b) Depreciation deduction c) Ricardian equivalence d) Exchange rate stabilization e) Monetary base.
exchange rate, and the trade deficit if a uniform 10 percent tariff were placed on all imports? Explain your answer briefly graph optional. b. Suppose that competition in the credit card industry drives down the cost charged for using credit cards. How is this likely to affect money demand? With this change in the demand for money, how will it affect interest rates and output in the IS-LM graph? Explain and illustrate with a graph.
investments represented by consumer demand for automobiles to be more or less sensitive to interest rates? Explain briefly. b. What theory of inventory investment predicts that inventory investment is negative when GDP suddenly rises? What theory of inventory investment predicts the opposite?
why exchange rate changes would not cause price shocks in the U.S., while they would in a small open economy such as Denmark or Holland? b. Consider the issue of whether or not government deficits cause interest rates to rise. What would be one situation where these both rise together? What would be one situation where deficits and interest rates move in opposite directions. According to our textbook, in the last few decades, have movements in government deficits in the U.S. been associated with similar movements (that is, of the same sign) in interest rates?
= ã + 0.5(Y-Y*) + 0.5(ã - ã*) + Rf , where R is the nominal interest rate, Y is actual output, Y* is full employment output [so that (Y-Y*) is the output gap], ã is the rate of inflation, ã* is the target rate of inflation, and Rf is the target real rate of interest. Assume Rf is 3%, ã* is 2%, and that the economy is initially in equilibrium at full employment with R = 5%.
investment demand, and that ã goes up to 4% and Y rises by 2 %. If the central bank were following the authors' monetary policy rule, what would be the new rate of interest? B) Suppose now that the central bank followed a policy rule of keeping the interest rate constant. In the face of an aggregate demand shock, would output rise by more or less than if it would if the central bank followed a monetary rule such as in the above scenario (5A)? Explain. 6. (10 points) a. Suppose a newly elected president promised not to raise taxes and not to tamper with social security and other transfer programs, and that the economy is at full employment. However, suppose the president still was facing a large budget deficit, and had also promised to eliminate the deficit. Can the deficit be eliminated without breaking any of these promises? Explain your answer. If the president also could influence monetary policy, could the deficit be eliminated without breaking any promises and maintaining full employment? Explain. 7a (10 points). Suppose the desired capital stock (K*) is given by the expression K* = vY/RK, where v is a constant and RK is the rental cost of capital. If the 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? Explain.
sheets, using the flip sides if you need space. Questions are equally weighted. Please ask for clarification if the question is unclear. Time: up to 90 minutes. Good luck! 1. Identify the following with a sentence or at most two: a) Official settlements balance b) New growth theory c) Real GDP d) Intergenerational externalities e) Structural unemployment 2. Consider a situation such as that of the U.S. economy recently, where in the first period, the country has a high fiscal deficit financed by bond sales, but then later it reduces the deficit. According to the classical loanable funds model, how will this affect each of: prices, output, the money supply interest rates, inflation, employment, savings, and investment. Explain your answer, illustrating with one or more graphs. 3. How might the following affect labor supply and demand, the equilibrium real wage, and the aggregate supply curve? Explain each answer, illustrating each with a graph.
in college b) An increase in social security taxes to strengthen the nation's retirement system c) The country's technology improves, increasing worker productivity. d) There is an increase in immigration. 4. Using the classical model, explain and show on the aggregate supply--aggregate demand graph what happens to prices and output if the quantity of money declines. Now, using the same classical analysis, explain and illustrate with a graph what happens in the labor market to employment and nominal wages when the quantity of money declines. Finally, in the Keynesian model, what happens to output and employment if the amount of investment falls?
without reliance on money causes the income velocity of money to decline substantially. Use the classical model to predict what effects, if any, this would have on the price level, real GDP, the real interest rate, and the nominal interest rate.
quantity of money in circulation stable. Its government's budget is balanced. In addition, its income velocity of money is stable, as are conditions in its labor market. Technology does not change. Nevertheless, the value of the nation's currency is persistently depreciating relative to that of its major trading partner. Given the conditions the small country faces, what single factor wold the classical model indicate must account for the steady depreciation of its currency? Explain briefly. The median on this exam was 57: the high was 73. Econ 301 Exam #2 Winter, 2000 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. Please ask for clarification of any unclear question. Time: 90 minutes. Good luck!
a) IS curve b) real balance effect c) automatic fiscal stabilizer d) Traditional Keynesian transition mechanism for monetary policy e) regressive tax 2. Consider an IS-LM-BP/aggregate supply and demand analysis with fixed exchange rates, in which the economy is initially at equilibrium. Now, suppose the monetary authority increases the money supply. Identify and explain briefly how will that effect: real income consumption the price level interest rates the trade balance the balance of payments investment taxes the government's deficit 3. Consider a standard Keynesian IS-LM/Aggregate supply and demand analysis, with an upward sloping (but not vertical) aggregate supply curve. Suppose the government increases government expenditures, financing this with the sale of bonds. There are, in this case, at least two separate causes (or types or channels) of crowding out. a) Define crowding out b) Explain each of these types of crowding out, illustrating each with a separate graph. c) One of those types depends on the LM curve. Will that crowding out be larger if the LM curve is steep or flat? Explain with a sentence or two, illustrating your answer with another graph.
country which has a balance of payments deficit (in a fixed exchange regime) and a government deficit. What policies can it pursue to eliminate both deficits? Explain your answer, illustrating it with a graph. (There is more than one correct answer to this question)
does Ricardian equivalence have for government policy? The textbook discusses several reasons why Ricardian equivalence might not hold. Identify and discuss two. b. What is meant by the Laffer curve? Draw a graph of that curve, being sure to label the axes. What important implication does the Laffer curve have for government policy?
the back of the last sheet. You will lose credit if it appears anywhere else. Answer on these sheets, using the backs if you need more space. Questions are equally weighted. If any question is unclear, ask for clarification. Time: 90 minutes.
or at most two: a) Inside money b) Covered interest parity condition c) Administered pricing hypothesis d) Observational equivalence e) Efficient markets
cycles becomes significantly less pronounced, this would suggest that the variability of aggregate demand and supply had declined. According to the new Keynesian analysis, what would be the likely effect of this on the average duration of wage contracts? Explain. b) There has been a consistent decline in the fraction of the workers in the private sector of the U.S. economy who are unionized. Identify and explain briefly two micro-based explanations for that trend.
suddenly increases during a period in which wage contracts are in force for all firms and workers in an economy. According to the modern Keynesian model, what would be the effects, if any, on employment, unemployment, and real output? Explain your answers briefly.
number of European nations than in the U.S. It is also the case that unemployment levels are higher in Europe than in the U.S. According to the insider-outsider model, are these two facts consistent or not? Explain briefly.
uses to explain short term fluctuations in real output. b. Real business cycle theorists typically come from a political position that is opposed Yüklə 125,26 Kb. Dostları ilə paylaş:
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