ECO365 Midterm Practice 2014 summer
ECO 365 - International Monetary Economics
Prof. Jordi Mondria
Sample Midterm 1
INSTRUCTIONS: There are 3 parts in this test and you must do all of the questions.
Aids allowed: calculator. You may leave your answer expressed as a fraction or a factorial or power or sum. There are a total of 100 points, so you should allocate approximately
1 minute per point. The points for each question are written in square brackets, e.g., [8 points]. Time may be a factor, so be very careful in allocating your time. Be sure to show your work and reasoning, not just your answer. Partial credit will be generously awarded, so make sure you try all parts of the questions. Obviously, grades will be higher for more precise, detailed, and focussed answers. Be concise in your answers. Good luck!
PART I: Short-Answer Questions (30 points)
1. [10 points] Can you explain why some economists argue that the large current account deficits in Spain during the last decade are caused by a housing bubble?
2. [10 points] Discuss at least one pro and two cons of government debt accumulation at very low interest rates.
3. [10 points] The rapid growth of the U.S. current deficit has sparked vociferous debate
— and fresh research — among international economists. Some economists argue that the recent surge in labor productivity growth in the last two decades is the explanation for the large US current account deficit. This surge is viewed as having several important consequences. First, higher productivity growth boosted perceived rates of return on U.S. investments, thereby generating capital inflows that boosted the dollar.
Second, these higher rates of return also led to a rise in domestic investment. Finally, expectations of higher returns boosted equity prices, household wealth, and perceived long-run income, and so consumption rose and saving rates declined. Under this explanation, all of these factors helped to widen the current account deficit. If this is the case, one can
Prof. Jordi Mondria
Sample Midterm 1
INSTRUCTIONS: There are 3 parts in this test and you must do all of the questions.
Aids allowed: calculator. You may leave your answer expressed as a fraction or a factorial or power or sum. There are a total of 100 points, so you should allocate approximately
1 minute per point. The points for each question are written in square brackets, e.g., [8 points]. Time may be a factor, so be very careful in allocating your time. Be sure to show your work and reasoning, not just your answer. Partial credit will be generously awarded, so make sure you try all parts of the questions. Obviously, grades will be higher for more precise, detailed, and focussed answers. Be concise in your answers. Good luck!
PART I: Short-Answer Questions (30 points)
1. [10 points] Can you explain why some economists argue that the large current account deficits in Spain during the last decade are caused by a housing bubble?
2. [10 points] Discuss at least one pro and two cons of government debt accumulation at very low interest rates.
3. [10 points] The rapid growth of the U.S. current deficit has sparked vociferous debate
— and fresh research — among international economists. Some economists argue that the recent surge in labor productivity growth in the last two decades is the explanation for the large US current account deficit. This surge is viewed as having several important consequences. First, higher productivity growth boosted perceived rates of return on U.S. investments, thereby generating capital inflows that boosted the dollar.
Second, these higher rates of return also led to a rise in domestic investment. Finally, expectations of higher returns boosted equity prices, household wealth, and perceived long-run income, and so consumption rose and saving rates declined. Under this explanation, all of these factors helped to widen the current account deficit. If this is the case, one can