Final. 1. (2 pts) What is the expected effect on the real demand for money of an increase in the nominal interest rate? How to explain this effect?


 Peter Parrish
 4 years ago
 Views:
Transcription
1 Name: Number: Nova School of Business and Economics Macroeconomics, st Semester Prof. André C. Silva TAs: João Vaz, Paulo Fagandini, and Pedro Freitas Final Maximum points: 20. Time: 2h. Pages: 10. The exam is closed books, closed notes. No calculators are allowed. You may write on the back of the pages if you need space. 1. (2 pts) What is the expected effect on the real demand for money of an increase in the nominal interest rate? How to explain this effect? 1
2 2. (4 pts) Select the best answer. By consumption smoothing, savings are expected to (decrease / stay approximately constant / increase) during a recession. A steady state is understood as (a temporary equilibrium / the best situation / a longrun equilibrium / an economy with ongoing fluctuations). According to the Ricardian equivalence, (government debt policy must be handled correctly for the economy to grow / the period in which taxes are collected is neutral / government spending is neutral / an increase in government spending is neutral if taxesincreasebythesameamount). According to the real business cycles model, a likely cause for a decrease in real output falls is a (negative shock to total factor productivity/ positive shock to total factor productivity / a positive shock to the interest rate target). In this situation, the government should (do nothing / increase expenditures / increase investment / increase R&D expenditures). Fluctuations in the target interest rate in the New Keynesian model lead to all of the following except (procyclical real wages / procyclical employment / countercyclical prices / procyclical consumption). In the New Keynesian model, the central bank pursues a policy of (fixed money supply / inflation around 2%/ zero inflation / targeting the market interest rate). According to longrun data, the correlation between the money growth rate and the inflation rate is (negative and strong / approximately zero / positive but weak / strong and positive). Under the commitment problem of central banks: The inflation rate is (lower than / the same as / higher than) with commitment. Aggregate output is (lower than / thesameas/higherthan)withcommitment. 2
3 3. (4 pts) We have seen that taxes on labor income decrease hours of work, production, and welfare. Therefore, subsidies to labor income can only be good as they would (1) increase hours of work, (2) increase production, and (3) increase welfare. Do you agree? Justify. 3
4 4. (4 pts) The consumers in a country have preferences given by P =0 log.they also have a production function = 1 to produce goods out of capital and labor,where denotes productivity. The consumers start a period with capital and have to choose capital in the next period, +1. Their maximization problem can be stated as follows: max +1 P =0 log s.t = =0 1 2, (1) given 0 0. The problem uses the fact that each person works =1in every period. Wages in each period are given by =(1 ). Using the fact that = +1, the Lagrangian of this problem can be written as = P =0 log ( +1 ).Thatis, = + log ( +1 )+ +1 log (2) a. (2 pts) The solution to this problem is such that +1 = (3) (and so +2 = +1 andsoon). GiventheLagrangianin(2),obtainthefirst order condition of this problem with respect to +1 and show that (3) is indeed a solution to the problem. 4
5 (Extra Space) 5
6 b. (2 pts) Suppose that productivity is such that =1for a long time. Then, at time = 0, increases permanently to =2. How will consumption and wages change over time after the increase in productivity? Use graphs of consumption and wages over time to illustrate your answer. Justify. 6
7 5. (6 pts) The international interest rate is such that net exports are equal to zero for a certain country. a. (4 pts) Obtain the effects of a decrease in expectations about future total factor productivity. Use graphs in your answer. Especially, state your predictions about investment and consumption. 7
8 (Extra Space) 8
9 b. (2 pts) Consider the data for Portugal in the figures below for investment and for net exports. Does the evidence in the data agree with your findings in item a? Explain. 24 Investment as a Fraction of GDP (%) 2 Net Exports (XM) as a Fraction of GDP (%)
10 (Extra Space) 10
11 SOLUTION SKETCH Question 1 1. (2 pts) What is the expected effect on the real demand for money of an increase in the nominal interest rate? How to explain this effect? Answer The expected effect of an increase in the nominal interest rate is a decrease in the real demand for money. This effect can be explained in the following way: (1) An increase in the nominal interest rate implies an increase in the opportunity cost of money. Money is useful for transactions but it does not receive interest. So, any resources left as money do not receive interest rates. These money holdings could be transformed into bonds and, as a result, receive interest. Bonds, especially government bonds, are highly liquid and can be easily exchanged to cash. The opportunity cost of money, therefore, is equal to the nominal interest rate that is paid to bonds. (2) As the cost of holding money increases, people will make efforttodecreasethe quantity of money. For example, firmswillhiremorepeopletomanagetheirassetsin a way that the real resources allocated to money decrease. These efforts disseminated in the economy will make the real demand for money decrease. Question 2 2. (4 pts) Select the best answer. 1. By consumption smoothing, savings are expected to (decrease / stay approximately constant / increase) during a recession. 2. A steady state is understood as (a temporary equilibrium / the best situation / a longrun equilibrium / an economy with ongoing fluctuations). 3. According to the Ricardian equivalence, (government debt policy must be handled correctly for the economy to grow / the period in which taxes are collected is neutral /governmentspendingisneutral/anincreaseingovernmentspending is neutral if taxes increase by the same amount). 4. According to the real business cycles model, a likely cause for a decrease in real output falls is a (negative shock to total factor productivity/ positive shock to total factor productivity / a positive shock to the interest rate target). In this situation, the government should (do nothing / increase expenditures / increase investment / increase R&D expenditures). 5.FluctuationsinthetargetinterestrateintheNewKeynesianmodelleadtoall of the following except (procyclical real wages / procyclical employment / countercyclical prices / procyclical consumption). 6. In the New Keynesian model, the central bank pursues a policy of (fixed money 11
12 supply / inflation around 2% / zero inflation / targeting the market interest rate). 7. According to longrun data, the correlation between the money growth rate and the inflation rate is (negative and strong / approximately zero / positive but weak / strong and positive). 8. Under the commitment problem of central banks: (1) The inflationrateis(lower than / the same as / higher than) with commitment. (2) Aggregate output is (lower than / thesameas/ higher than) with commitment. Question 3 3. (4 pts) We have seen that taxes on labor income decrease hours of work, production, and welfare. Therefore, subsidies to labor income can only be good as they would (1) increase hours of work, (2) increase production, and (3) increase welfare. Do you agree? Justify. Answer The expected effects of a subsidy on labor income are an increase in hours of work, an increase in production, and a decrease in welfare. So, points (1) and (2) are correct, but point (3), the main point as it considers the final effect on welfare, is incorrect. The reason is that the subsidy has to be financed by a tax. Even though workers see directly the subsidy paid for them for each hour of labor, they take the tax that they will have to pay as a constant, not under their influence. The tax is part of the payments made for the government, which is out of the direct influence of an individual worker. So, there is a difference between what the worker takes into account(thewagesafterthe subsidy) and what the firm pays (the wages before the subsidy). A labor income subsidy will generate inefficiencies, as the economy will generate welfare below its potential. Therefore, although the results on hours of work and of production will be the opposite, a labor income subsidy will be as negative for welfare as a labor income tax. Question 4 The consumers in a country have preferences given by P =0 log. They also have a production function = 1 to produce goods out of capital and labor,where denotes productivity. The consumers start a period with capital and have to choose capital in the next period, +1. Their maximization problem can be stated as follows: P =0 log max +1 s.t = =0 1 2, (1) 12
13 given a certain value for 0, 0 0. The problem uses the fact that each person works =1in every period. Wages in each period are given by =(1 ) Using the fact that = +1, the Lagrangian of this problem can be written as = P =0 log ( +1 ),thatis = + log ( +1 )+ +1 log (2) a. (2 pts) The solution to this problem is such that +1 = (3) (and so +2 = +1 andsoon). GiventheLagrangianin(2),obtainthefirst order condition of this problem with respect to +1 and show that (3) is indeed a solution to the problem. Answer The Lagragian implies that the first order condition with respect to +1 is given by = This equation holds for =0 1 2 The first order condition implies = Substitute +1 = and +2 = Weobtain = = = The two sides of this equation are equal as +1 =. So, the solution +1 = satisfies the first order condition, which means that it is indeed a solution to the maximization problem in (1). b. Suppose that productivity is such that =1for a long time. Then, at time = 0, increases permanently to =2. How will consumption and wages change over time after the increase in productivity? Justify. Use graphs of consumption and 13
14 wagesovertimetoillustrateyouranswer. Answer As has been constant for a long time, it can be understood that the economy is initially in the steady state. In this case, capital is constant. As +1 =. Setting +1 = =,where is the steady state level of capital, we have that = 1 =( 1 ) 1 1, where 1 =1. Consumption over time is given by = +1 =(1 ). As capital and productivity are constant in the steady state, consumption is also constant, = (1 ) 1. So, before the shock, capital at is given by and capital at +1 is given by +1 = 1, which is also equal to. To confirm, set = to obtain +1 = 1 ( 1 ) 1 =( 1 ) 1 1 =,asexpected. When increases, we have that capital at +1increases, as +1 = 2, with 2 =2. Higher productivity allows consumers to produce more and to leave more capital for the future. Although is the same as under 1 =1,thevalueof +1 is higher because productivity is higher. At +2,wehave +2 = So, capital increases from = 0 to +1because increases to =2.Moreover,capital increases from +1to +2because is still high and because capital is higher at +1. As a result, capital increases at = 0,because increases, and keeps increasing afterwards because more capital allows consumers to produce more and to leave more capital to the future. Capital will continue to increase toward the new steady state. The new steady state will be such that =( 2 ) 1 1. The evolution of consumption and wages will be similar. As =(1 ),the increase in will make consumption increase at = 0 and the subsequent increase in capital will make consumption increase gradually to its new steady state. The same description applies to wages, as =(1 ). Wages will increase at = 0 and will continue to increase toward its new steady state. So consumption and wages increase over time by the increase in productivity and by the gradual increase in capital over time. Question 5 a. (4 pts) Obtain the effects of a decrease in expectations about future total factor productivity. Use graphs in your answer. Especially, state your predictions about investment and consumption. Answer 14
15 Following the notation covered in class, this question studies a decrease in 0. As as stated in the question, = and are initially equal with =0. A decrease in expectations about future total factor productivity will decrease current investment and current consumption. Absorption = + + decreases. We suppose that the economy is small in a way that the changes in the economy does not affect the international interest rate. For a constant interest rate, and will be equal in the new equilibrium if 0. Therefore, net exports increase, investment decreases, and consumption decreases. See pages in Williamson 5th Ed. for more details. Notice that the book covers the case of an increase in 0. As here there was a decrease in 0,theeffects are the opposite. b. (2 pts) Consider the data for Portugal in the figures below for investment and for net exports. Does the evidence in the data agree with your findings in item a? Explain. Answer The curves show a decrease in investment and an increase in. So, yes, the evidence in the data agrees with the predictions in item a. 15
ECON 3312 Macroeconomics Exam 3 Fall 2014. Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
ECON 3312 Macroeconomics Exam 3 Fall 2014 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Everything else held constant, an increase in net
More informationAgenda. Business Cycles. What Is a Business Cycle? What Is a Business Cycle? What is a Business Cycle? Business Cycle Facts.
Agenda What is a Business Cycle? Business Cycles.. 111 112 Business cycles are the shortrun fluctuations in aggregate economic activity around its longrun growth path. Y Time 113 114 1 Components
More informationCHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY
CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY Learning goals of this chapter: What forces bring persistent and rapid expansion of real GDP? What causes inflation? Why do we have business cycles? How
More informationBADM 527, Fall 2013. Midterm Exam 2. Multiple Choice: 3 points each. Answer the questions on the separate bubble sheet. NAME
BADM 527, Fall 2013 Name: Midterm Exam 2 November 7, 2013 Multiple Choice: 3 points each. Answer the questions on the separate bubble sheet. NAME 1. According to classical theory, national income (Real
More information4 Macroeconomics LESSON 6
4 Macroeconomics LESSON 6 Interest Rates and Monetary Policy in the Short Run and the Long Run Introduction and Description This lesson explores the relationship between the nominal interest rate and the
More informationEC2105, Professor Laury EXAM 2, FORM A (3/13/02)
EC2105, Professor Laury EXAM 2, FORM A (3/13/02) Print Your Name: ID Number: Multiple Choice (32 questions, 2.5 points each; 80 points total). Clearly indicate (by circling) the ONE BEST response to each
More informationInternational Trade Policy ECON 4633 Prof. Javier Reyes. Test #1
International Trade Policy ECON 4633 Prof. Javier Reyes Test #1 Instructions Out of the following 10 questions you must answer only 8. You are free to choose questions from different sections. Section
More informationUse the following to answer question 9: Exhibit: Keynesian Cross
1. Leading economic indicators are: A) the most popular economic statistics. B) data that are used to construct the consumer price index and the unemployment rate. C) variables that tend to fluctuate in
More informationChapter 9. The ISLM/ADAS Model: A General Framework for Macroeconomic Analysis. 2008 Pearson AddisonWesley. All rights reserved
Chapter 9 The ISLM/ADAS Model: A General Framework for Macroeconomic Analysis Chapter Outline The FE Line: Equilibrium in the Labor Market The IS Curve: Equilibrium in the Goods Market The LM Curve:
More informationAnswers to Text Questions and Problems in Chapter 11
Answers to Text Questions and Problems in Chapter 11 Answers to Review Questions 1. The aggregate demand curve relates aggregate demand (equal to shortrun equilibrium output) to inflation. As inflation
More informationChapter 11. MarketClearing Models of the Business Cycle
Chapter 11 MarketClearing Models of the Business Cycle Goal of This Chapter In this chapter, we study three models of business cycle, which were each developed as explicit equilibrium (marketclearing)
More informationThe Real Business Cycle model
The Real Business Cycle model Spring 2013 1 Historical introduction Modern business cycle theory really got started with Great Depression Keynes: The General Theory of Employment, Interest and Money Keynesian
More informationEcon 303: Intermediate Macroeconomics I Dr. Sauer Sample Questions for Exam #3
Econ 303: Intermediate Macroeconomics I Dr. Sauer Sample Questions for Exam #3 1. When firms experience unplanned inventory accumulation, they typically: A) build new plants. B) lay off workers and reduce
More informationAGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand
AGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand Suppose that the economy is undergoing a recession because of a fall in aggregate demand. a. Using
More informationEcon 202 Section 2 Final Exam
Douglas, Fall 2009 December 17, 2009 A: Special Code 0000 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 2 Final Exam 1. The present value
More informationChapter 4 Consumption, Saving, and Investment
Chapter 4 Consumption, Saving, and Investment Multiple Choice Questions 1. Desired national saving equals (a) Y C d G. (b) C d + I d + G. (c) I d + G. (d) Y I d G. 2. With no inflation and a nominal interest
More informationChapter 13. Aggregate Demand and Aggregate Supply Analysis
Chapter 13. Aggregate Demand and Aggregate Supply Analysis Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics In the short run, real GDP and
More informationMONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL*
Chapter 11 MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL* Key Concepts The Demand for Money Four factors influence the demand for money: The price level An increase in the price level increases the nominal
More informationEcon 202 Final Exam. Douglas, Spring 2006 PLEDGE: I have neither given nor received unauthorized help on this exam.
, Spring 2006 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Final Exam 1. When the government spends more, the initial effect is that a. aggregate
More information13. If Y = AK 0.5 L 0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. C) 200. D) 1,000.
Name: Date: 1. In the long run, the level of national income in an economy is determined by its: A) factors of production and production function. B) real and nominal interest rate. C) government budget
More informationMONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL*
Chapter 11 MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL* The Demand for Topic: Influences on Holding 1) The quantity of money that people choose to hold depends on which of the following? I. The price
More informationMacroeconomics Series 2: Money Demand, Money Supply and Quantity Theory of Money
Macroeconomics Series 2: Money Demand, Money Supply and Quantity Theory of Money by Dr. Charles Kwong School of Arts and Social Sciences The Open University of Hong Kong 1 Lecture Outline 2. Determination
More informationI. Introduction to Aggregate Demand/Aggregate Supply Model
University of CaliforniaDavis Economics 1BIntro to Macro Handout 8 TA: Jason Lee Email: jawlee@ucdavis.edu I. Introduction to Aggregate Demand/Aggregate Supply Model In this chapter we develop a model
More informationAgenda. The IS LM Model, Part 2. The Demand for Money. The Demand for Money. The Demand for Money. Asset Market Equilibrium.
Agenda The IS LM Model, Part 2 Asset Market Equilibrium The LM Curve 131 132 The demand for money is the quantity of money people want to hold in their portfolios. The demand for money depends on expected
More informationReal Business Cycle Models
Real Business Cycle Models Lecture 2 Nicola Viegi April 2015 Basic RBC Model Claim: Stochastic General Equlibrium Model Is Enough to Explain The Business cycle Behaviour of the Economy Money is of little
More informationProblem Set for Chapter 20(Multiple choices)
Problem Set for hapter 20(Multiple choices) 1. According to the theory of liquidity preference, a. if the interest rate is below the equilibrium level, then the quantity of money people want to hold is
More informationAnswers. Event: a tax cut 1. affects C, AD curve 2. shifts AD right 3. SR eq m at point B. P and Y higher, unemp lower 4.
A C T I V E L E A R N I N G 2: Answers Event: a tax cut 1. affects C, AD curve 2. shifts AD right 3. SR eq m at point B. P and Y higher, unemp lower 4. Over time, P E rises, SRAS shifts left, until LR
More information0 100 200 300 Real income (Y)
Lecture 111 6.1 The open economy, the multiplier, and the IS curve Assume that the economy is either closed (no foreign trade) or open. Assume that the exchange rates are either fixed or flexible. Assume
More informationChapter 12. Aggregate Expenditure and Output in the Short Run
Chapter 12. Aggregate Expenditure and Output in the Short Run Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Aggregate Expenditure (AE)
More informationIntermediate Macroeconomics: The Real Business Cycle Model
Intermediate Macroeconomics: The Real Business Cycle Model Eric Sims University of Notre Dame Fall 2012 1 Introduction Having developed an operational model of the economy, we want to ask ourselves the
More informationExtra Problems #3. ECON 410.502 Macroeconomic Theory Spring 2010 Instructor: Guangyi Ma. Notice:
ECON 410.502 Macroeconomic Theory Spring 2010 Instructor: Guangyi Ma Extra Problems #3 Notice: (1) There are 25 multiplechoice problems covering Chapter 6, 9, 10, 11. These problems are not homework and
More informationCH 10  REVIEW QUESTIONS
CH 10  REVIEW QUESTIONS 1. The shortrun aggregate supply curve is horizontal at: A) a level of output determined by aggregate demand. B) the natural level of output. C) the level of output at which the
More informationThis paper is not to be removed from the Examination Halls
This paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON EC2065 ZA BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences, the Diplomas
More informationThe level of price and inflation Real GDP: the values of goods and services measured using a constant set of prices
Chapter 2: Key Macroeconomics Variables ECON2 (Spring 20) 2 & 4.3.20 (Tutorial ) National income accounting Gross domestic product (GDP): The market value of all final goods and services produced within
More informationStudy Questions 8 (Keynesian Model) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Study Questions 8 (Keynesian Model) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In the Keynesian model of aggregate expenditure, real GDP is
More informationAgenda. The ISLM/ADAS Model: A General Framework for Macroeconomic Analysis, Part 3. Disequilibrium in the ADAS model
Agenda The ISLM/ADAS Model: A General Framework for Macroeconomic Analysis, art 3 rice Adjustment and the Attainment of General Equilibrium 131 132 General equilibrium in the ADAS model Disequilibrium
More informationThe Real Business Cycle School
Major Currents in Contemporary Economics The Real Business Cycle School Mariusz Próchniak Department of Economics II Warsaw School of Economics 1 Background During 197282,the dominant new classical theory
More informationAnswers to Text Questions and Problems in Chapter 8
Answers to Text Questions and Problems in Chapter 8 Answers to Review Questions 1. The key assumption is that, in the short run, firms meet demand at preset prices. The fact that firms produce to meet
More informationIn this chapter we learn the potential causes of fluctuations in national income. We focus on demand shocks other than supply shocks.
Chapter 11: Applying ISLM Model In this chapter we learn the potential causes of fluctuations in national income. We focus on demand shocks other than supply shocks. We also learn how the ISLM model
More informationThe RBC methodology also comes down to two principles:
Chapter 5 Real business cycles 5.1 Real business cycles The most well known paper in the Real Business Cycles (RBC) literature is Kydland and Prescott (1982). That paper introduces both a specific theory
More informationChapter 14. Money, Interest Rates, and Exchange Rates. Slides prepared by Thomas Bishop
Chapter 14 Money, Interest Rates, and Exchange Rates Slides prepared by Thomas Bishop Preview What is money? Control of the supply of money The demand for money A model of real money balances and interest
More informationCase, Fair and Oster Macroeconomics Chapter 11 Problems Money Demand and the Equilibrium Interest Rate
Case, Fair and Oster Macroeconomics Chapter 11 Problems Money Demand and the Equilibrium Interest Rate Money demand equation. P Y Md = k *  where k = percent of nominal income held as money ( Cambridge
More informationAnswers to Text Questions and Problems. Chapter 22. Answers to Review Questions
Answers to Text Questions and Problems Chapter 22 Answers to Review Questions 3. In general, producers of durable goods are affected most by recessions while producers of nondurables (like food) and services
More information6. Budget Deficits and Fiscal Policy
Prof. Dr. Thomas Steger Advanced Macroeconomics II Lecture SS 2012 6. Budget Deficits and Fiscal Policy Introduction Ricardian equivalence Distorting taxes Debt crises Introduction (1) Ricardian equivalence
More informationEcon 202 Section 4 Final Exam
Douglas, Fall 2009 December 15, 2009 A: Special Code 00004 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 4 Final Exam 1. Oceania buys $40
More informationVI. Real Business Cycles Models
VI. Real Business Cycles Models Introduction Business cycle research studies the causes and consequences of the recurrent expansions and contractions in aggregate economic activity that occur in most industrialized
More information1) Explain why each of the following statements is true. Discuss the impact of monetary and fiscal policy in each of these special cases:
1) Explain why each of the following statements is true. Discuss the impact of monetary and fiscal policy in each of these special cases: a) If investment does not depend on the interest rate, the IS curve
More informationUsing an appropriately labeled money market graph, show the effects of an open market purchase of government securities by the FED on :
Using an appropriately labeled money market graph, show the effects of an open market purchase of government securities by the FED on : The money supply Interest rates Nominal Interest rates i1 i2 Sm1
More informationInternational Debt Deleveraging
International Debt Deleveraging Luca Fornaro CREI and Universitat Pompeu Fabra 12 th Macroeconomic Policy Research Workshop Budapest, September 213 1 Motivating facts: Household debt/gdp Household debt/gdp
More informationI d ( r; MPK f, τ) Y < C d +I d +G
1. Use the ISLM model to determine the effects of each of the following on the general equilibrium values of the real wage, employment, output, the real interest rate, consumption, investment, and the
More informationAggregate Supply and Aggregate Demand
26 Aggregate Supply and Aggregate Demand Learning Objectives Explain what determines aggregate supply Explain what determines aggregate demand Explain what determines real GDP and the price level and how
More informationCHAPTER 11. AN OVEVIEW OF THE BANK OF ENGLAND QUARTERLY MODEL OF THE (BEQM)
1 CHAPTER 11. AN OVEVIEW OF THE BANK OF ENGLAND QUARTERLY MODEL OF THE (BEQM) This model is the main tool in the suite of models employed by the staff and the Monetary Policy Committee (MPC) in the construction
More informationIntroduction to Macroeconomics 1012 Final Exam Spring 2013 Instructor: Elsie Sawatzky
Introduction to Macroeconomics 1012 Final Exam Spring 2013 Instructor: Elsie Sawatzky Name Time: 2 hours Marks: 80 Multiple choice questions 1 mark each and a choice of 2 out of 3 short answer question
More informationA decline in the stock market, which makes consumers poorer, would cause the aggregate demand curve to shift to the left.
Economics 304 Final Exam Fall 2000 PART I: TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. (1.5 pts. each) A decline in the stock market, which makes consumers poorer,
More informationInflation. Chapter 8. 8.1 Money Supply and Demand
Chapter 8 Inflation This chapter examines the causes and consequences of inflation. Sections 8.1 and 8.2 relate inflation to money supply and demand. Although the presentation differs somewhat from that
More informationHW 2 Macroeconomics 102 Due on 06/12
HW 2 Macroeconomics 102 Due on 06/12 1.What are the three important macroeconomic goals about which most economists, and society at large, agree? a. economic growth, full employment, and low interest rates
More informationBusiness Conditions Analysis Prof. Yamin Ahmad ECON 736
Business Conditions Analysis Prof. Yamin Ahmad ECON 736 Sample Final Exam Name Id # Instructions: There are two parts to this midterm. Part A consists of multiple choice questions. Please mark the answers
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Suvey of Macroeconomics, MBA 641 Fall 2006, Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Modern macroeconomics emerged from
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Econ 111 Summer 2007 Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The classical dichotomy allows us to explore economic growth
More informationA Model of the Current Account
A Model of the Current Account Costas Arkolakis teaching assistant: Yijia Lu Economics 407, Yale January 2011 Model Assumptions 2 periods. A small open economy Consumers: Representative consumer Period
More informationKOÇ UNIVERSITY ECON 321  INTERNATIONAL TRADE
KOÇ UNIVERSITY ECON 321  INTERNATIONAL TRADE Midterm Exam (100 points; 90 minutes) Answer all 5 questions. In providing answers to the questions in this section algebra or graphs might be helpful. State
More informationLearning objectives. The Theory of Real Business Cycles
Learning objectives This chapter presents an overview of recent work in two areas: Real Business Cycle theory New Keynesian economics Advances in Business Cycle Theory slide 1 The Theory of Real Business
More informationPracticed Questions. Chapter 20
Practiced Questions Chapter 20 1. The model of aggregate demand and aggregate supply a. is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution
More information3 Macroeconomics LESSON 8
3 Macroeconomics LESSON 8 Fiscal Policy Introduction and Description Fiscal policy is one of the two demand management policies available to policy makers. Government expenditures and the level and type
More informationAnswer: C Learning Objective: Money supply Level of Learning: Knowledge Type: Word Problem Source: Unique
1.The aggregate demand curve shows the relationship between inflation and: A) the nominal interest rate. D) the exchange rate. B) the real interest rate. E) shortrun equilibrium output. C) the unemployment
More informationSection 4: Adding Government and Money
Section 4: Adding and Money Ec 123 April 2009 Outline This Section Fiscal Policy Money Next Keynesian Economics Recessions Problem Set 1 due Tuesday in class Fiscal Policy Fiscal Policy is the use of the
More informationChapter 11. Keynesianism: The Macroeconomics of Wage and Price Rigidity. 2008 Pearson AddisonWesley. All rights reserved
Chapter 11 Keynesianism: The Macroeconomics of Wage and Price Rigidity Chapter Outline RealWage Rigidity Price Stickiness Monetary and Fiscal Policy in the Keynesian Model The Keynesian Theory of Business
More informationPractice Problems on the Capital Market
Practice Problems on the Capital Market 1 Define marginal product of capital (i.e., MPK). How can the MPK be shown graphically? The marginal product of capital (MPK) is the output produced per unit of
More informationChapter 18. MODERN PRINCIPLES OF ECONOMICS Third Edition
Chapter 18 MODERN PRINCIPLES OF ECONOMICS Third Edition Fiscal Policy Outline Fiscal Policy: The Best Case The Limits to Fiscal Policy When Fiscal Policy Might Make Matters Worse So When Is Fiscal Policy
More informationECO209 MACROECONOMIC THEORY. Chapter 11
Prof. Gustavo Indart Department of Economics University of Toronto ECO209 MACROECONOMIC THEORY Chapter 11 MONEY, INTEREST, AND INCOME Discussion Questions: 1. The model in Chapter 9 assumed that both the
More informationNoah Williams Economics 312. University of Wisconsin Spring 2013. Midterm Examination Solutions
Noah Williams Economics 31 Department of Economics Macroeconomics University of Wisconsin Spring 013 Midterm Examination Solutions Instructions: This is a 75 minute examination worth 100 total points.
More informationECON20310 LECTURE SYNOPSIS REAL BUSINESS CYCLE
ECON20310 LECTURE SYNOPSIS REAL BUSINESS CYCLE YUAN TIAN This synopsis is designed merely for keep a record of the materials covered in lectures. Please refer to your own lecture notes for all proofs.
More informationEcon 202 Final Exam. Douglas, Fall 2007 Version A Special Codes 00000. PLEDGE: I have neither given nor received unauthorized help on this exam.
, Fall 2007 Version A Special Codes 00000 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Final Exam 1. On average over the past 50 years, the U.S.
More informationECONOMIC QUESTIONS FOR THE MASTER'S EXAM
ECONOMIC QUESTIONS FOR THE MASTER'S EXAM Introduction 1. What is economics? Discuss the purpose and method of work of economists. Consider observation, induction, deduction and scientific criticism. 2.
More informationEcon 116 MidTerm Exam
Econ 116 MidTerm Exam Part 1 1. True. Large holdings of excess capital and labor are indeed bad news for future investment and employment demand. This is because if firms increase their output, they will
More informationPreTest Chapter 11 ed17
PreTest Chapter 11 ed17 Multiple Choice Questions 1. Builtin stability means that: A. an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby
More informationMonetary policy rules and their application in Russia. Economics Education and Research Consortium Working Paper Series ISSN 15612422.
Economics Education and Research Consortium Working Paper Series ISSN 15612422 No 04/09 Monetary policy rules and their application in Russia Anna Vdovichenko Victoria Voronina This project (02230) was
More informationMoney and Capital in an OLG Model
Money and Capital in an OLG Model D. Andolfatto June 2011 Environment Time is discrete and the horizon is infinite ( =1 2 ) At the beginning of time, there is an initial old population that lives (participates)
More informationEconomics 202 (Section 05) Macroeconomic Theory 1. Syllabus Professor Sanjay Chugh Fall 2013
Department of Economics Boston College Economics 202 (Section 05) Macroeconomic Theory Syllabus Professor Sanjay Chugh Meetings: Tuesdays and Thursdays, 1:30pm2:45pm, Gasson Hall 209 Email address: sanjay.chugh@bc.edu
More informationMEASURING GDP AND ECONOMIC GROWTH CHAPTER
MEASURING GDP AND ECONOMIC GROWTH CHAPTER Objectives After studying this chapter, you will able to Define GDP and use the circular flow model to explain why GDP equals aggregate expenditure and aggregate
More informationLECTURE NOTES ON MACROECONOMIC PRINCIPLES
LECTURE NOTES ON MACROECONOMIC PRINCIPLES Peter Ireland Department of Economics Boston College peter.ireland@bc.edu http://www2.bc.edu/peterireland/ec132.html Copyright (c) 2013 by Peter Ireland. Redistribution
More information. In this case the leakage effect of tax increases is mitigated because some of the reduction in disposable income would have otherwise been saved.
Chapter 4 Review Questions. Explain how an increase in government spending and an equal increase in lump sum taxes can generate an increase in equilibrium output. Under what conditions will a balanced
More informationProfessor Christina Romer. LECTURE 17 MACROECONOMIC VARIABLES AND ISSUES March 17, 2016
Economics 2 Spring 2016 Professor Christina Romer Professor David Romer LECTURE 17 MACROECONOMIC VARIABLES AND ISSUES March 17, 2016 I. MACROECONOMICS VERSUS MICROECONOMICS II. REAL GDP A. Definition B.
More information12.1 Introduction. 12.2 The MP Curve: Monetary Policy and the Interest Rates 1/24/2013. Monetary Policy and the Phillips Curve
Chapter 12 Monetary Policy and the Phillips Curve By Charles I. Jones Media Slides Created By Dave Brown Penn State University The shortrun model summary: Through the MP curve the nominal interest rate
More informationLecture 7: Savings, Investment and Government Debt
Lecture 7: Savings, Investment and Government Debt September 18, 2014 Prof. Wyatt Brooks Problem Set 1 returned Announcements Groups for inclass presentations will be announced today SAVING, INVESTMENT,
More information1. a. Interestbearing checking accounts make holding money more attractive. This increases the demand for money.
Macroeconomics ECON 2204 Prof. Murphy Problem Set 4 Answers Chapter 10 #1, 2, and 3 (on pages 308309) 1. a. Interestbearing checking accounts make holding money more attractive. This increases the demand
More informationPolitics, Surpluses, Deficits, and Debt
Defining Surpluses and Debt Politics, Surpluses,, and Debt Chapter 11 A surplus is an excess of revenues over payments. A deficit is a shortfall of revenues relative to payments. 2 Introduction After having
More informationLecture 121. Interest Rates. 1. RBA Objectives and Instruments
Lecture 121 Interest Rates 1. RBA Objectives and Instruments The Reserve Bank of Australia has several objectives, including the stability of the currency, the maintenance of full employment. These two
More informationEcon 202 Final Exam. Table 31 Labor Hours Needed to Make 1 Pound of: Meat Potatoes Farmer 8 2 Rancher 4 5
Econ 202 Final Exam 1. If inflation expectations rise, the shortrun Phillips curve shifts a. right, so that at any inflation rate unemployment is higher. b. left, so that at any inflation rate unemployment
More informationIntroduction to Macroeconomics. TOPIC 1: Introduction, definition, measures
TOPIC 1: Introduction, definitions, measures Annaïg Morin CBS  Department of Economics August 2013 What is macroeconomics about? Understanding the behavior of an economy as a whole. studying aggregated
More informationEconomics 152 Solution to Sample Midterm 2
Economics 152 Solution to Sample Midterm 2 N. Das PART 1 (84 POINTS): Answer the following 28 multiple choice questions on the scan sheet. Each question is worth 3 points. 1. If Congress passes legislation
More informatione) Permanent changes in monetary and fiscal policies (assume now long run price flexibility)
Topic I.4 concluded: Goods and Assets Markets in the Short Run a) Aggregate demand and equilibrium b) Money and asset markets equilibrium c) Short run equilibrium of Y and E d) Temporary monetary and fiscal
More informationAssignment #3. ECON 410.502 Macroeconomic Theory Spring 2010 Instructor: Guangyi Ma. Notice:
ECON 410.502 Macroeconomic Theory Spring 2010 Instructor: Guangyi Ma Assignment #3 Notice: (1) There are 25 multiplechoice problems and 2 analytic (shortanswer) problems. This assignment is due on March
More informationPreTest Chapter 10 ed17
PreTest Chapter 10 ed17 Multiple Choice Questions 1. Refer to the above diagrams. Assuming a constant price level, an increase in aggregate expenditures from AE 1 to AE 2 would: A. move the economy from
More informationEdmonds Community College Macroeconomic Principles ECON 202C  Winter 2011 Online Course Instructor: Andy Williams
Edmonds Community College Macroeconomic Principles ECON 202C  Winter 2011 Online Course Instructor: Andy Williams Textbooks: Economics: Principles, Problems and Policies, 18th Edition, by McConnell, Brue,
More informationThinkwell s Homeschool Economics Course Lesson Plan: 36 weeks
Thinkwell s Homeschool Economics Course Lesson Plan: 36 weeks Welcome to Thinkwell s Homeschool Economics! We re thrilled that you ve decided to make us part of your homeschool curriculum. This lesson
More informationLecture/Classroom...45 hours Laboratory...0 hours
SOUTHEAST COMMUNITY COLLEGE / LINCOLN NORTHEAST HIGH SCHOOL ADVANCED PLACEMENT ECONOMICS Beatrice and Lincoln, Nebraska Business/Mass Media Occupations Division Business Administration Program FALL 2007/8
More informationUNIVERSITY OF OSLO DEPARTMENT OF ECONOMICS
UNIVERSITY OF OSLO DEPARTMENT OF ECONOMICS Exam: ECON4310 Intertemporal macroeconomics Date of exam: Thursday, November 27, 2008 Grades are given: December 19, 2008 Time for exam: 09:00 a.m. 12:00 noon
More informationAP Macroeconomics 2012 Scoring Guidelines
AP Macroeconomics 2012 Scoring Guidelines The College Board The College Board is a missiondriven notforprofit organization that connects students to college success and opportunity. Founded in 1900,
More information7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts
Chapter 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Key Concepts Aggregate Supply The aggregate production function shows that the quantity of real GDP (Y ) supplied depends on the quantity of labor (L ),
More information