real Apps
Economics 301 Intermediate Macroeconomics Exam #1 Fall, 2013 Prof. Twomey
Please print your names on the back of the last sheet. Answer on these sheets, using the backs of the sheets if you need extra space. The weight of each question is indicated. Please ask for clarification if any question is unclear. Time: the entire class.
1) Identify the following with a sentence or at most two (20 points):
a. Endogenous variable
b. Classical dichotomy
c. National income accounts identity
d. (Distinguish between) Employment rate and the Labor Force Participation Rate
e. Fisher effect
2. (20 points) Consider the standard closed economy full employment model that we have studied – sometimes called the loanable funds model. Draw a graph illustrating the determination of the real rate of interest, as described by that model. Be sure to identify the names of each axis, and label the curves. Explain and illustrate on that graph what happens in the macro-economy if the level of government spending falls.
- In that circumstance, what happens to: (explain real briefly)
Real GDP
Consumption
Tax revenue
The real interest rate
Private sector Investment
The government’s Deficit Unemployment
If in a slightly different world, private savings positively responds to increases in interest rates; will the effect on consumption be bigger or smaller?
3. (10 points) An economy initially has a monetary base of 1,000 one dollar bills. Calculate the money supply in each scenario:
a. All money Is held as currency
b. All money is held as demand deposits.
Banks hold 20 % of deposits in reserves.
c. People hold equal amounts of currency and demand deposits. Banks hold 20% of deposits as reserves.
4. (10 points) Suppose a country has a money demand function (M/P)d = kY, where ‘k’ is a constant parameter. The money supply grows at 15% per year, and real income grows by 5% per year.
a) What is the average annual inflation rate?
b. How would
Please print your names on the back of the last sheet. Answer on these sheets, using the backs of the sheets if you need extra space. The weight of each question is indicated. Please ask for clarification if any question is unclear. Time: the entire class.
1) Identify the following with a sentence or at most two (20 points):
a. Endogenous variable
b. Classical dichotomy
c. National income accounts identity
d. (Distinguish between) Employment rate and the Labor Force Participation Rate
e. Fisher effect
2. (20 points) Consider the standard closed economy full employment model that we have studied – sometimes called the loanable funds model. Draw a graph illustrating the determination of the real rate of interest, as described by that model. Be sure to identify the names of each axis, and label the curves. Explain and illustrate on that graph what happens in the macro-economy if the level of government spending falls.
- In that circumstance, what happens to: (explain real briefly)
Real GDP
Consumption
Tax revenue
The real interest rate
Private sector Investment
The government’s Deficit Unemployment
If in a slightly different world, private savings positively responds to increases in interest rates; will the effect on consumption be bigger or smaller?
3. (10 points) An economy initially has a monetary base of 1,000 one dollar bills. Calculate the money supply in each scenario:
a. All money Is held as currency
b. All money is held as demand deposits.
Banks hold 20 % of deposits in reserves.
c. People hold equal amounts of currency and demand deposits. Banks hold 20% of deposits as reserves.
4. (10 points) Suppose a country has a money demand function (M/P)d = kY, where ‘k’ is a constant parameter. The money supply grows at 15% per year, and real income grows by 5% per year.
a) What is the average annual inflation rate?
b. How would