Professional Documents
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Final Exam
December 5, 2011
NAME: _________________________________
Circle your TAs name:
Agustin
Brian
9 a.m.
3 p.m.
Meysam
INSTRUCTIONS:
1. The exam lasts 2 hours.
2. The exam is worth 120 points in total: 45 points for the multiple choice questions (Part A), and
75 points for the six analytical problems (Part B).
3. Write your answers for part A (the multiple choice section) in the blanks below. You wont
get credit for circled answers in the multiple choice section. There is no penalty to guessing, so
be sure to answer all of them.
4. Place all of your answers for part B in the space provided.
5. You must show your work for part B questions. There is no need to explain your answers for the
multiple choice questions.
6. Calculators are permitted. Books, notes, reference materials, etc. are prohibited.
7. Good luck!
PART A: Multiple Choice Problems. Answer multiple choice questions in the space provided
below. PLEASE USE CAPITAL LETTERS.
11
21
31
41
12
22
32
42
13
23
33
43
14
24
34
44
15
25
35
45
16
26
36
17
27
37
18
28
38
19
29
39
10
20
30
40
MC
Q1
Q2
Q3
Q4
Q5
Q6
Total
Page 1 of 17
Page 2 of 17
8. A major source of economic growth discussed in the course packet readings but not in the textbook is
A) Ignoring the effects of environmental pollution
B) Saving instead of consuming
C) Accumulating human capital
D) Rural-urban migration
9. The aggregate demand curve shows a ________ relationship between ________ and aggregate output
________.
A) positive; the price level; demanded
B) negative; the price level; supplied
C) negative; the price level; demanded
D) positive; the interest rate; demanded
10. When the general price level rises,
A) investment rises as a result of the real wealth effect.
B) consumption increases as a result of the multiplier effect.
C) investment rises as a result of the multiplier effect.
D) consumption falls as a result of the real wealth effect.
Refer to the information provided in Figure 1 below to answer the three questions that follow.
Figure 1
11. Refer to Figure 1. An aggregate demand shift from AD2 to AD0 can be caused by
A) an increase in the price level.
B) a decrease in the price level.
C) a decrease in money supply.
D) a decrease in taxes.
12. Refer to Figure 1. An aggregate demand shift from AD1 to AD0 can be caused by
A) an increase in the price level.
B) a decrease in the price level.
C) a decrease in government spending.
D) an increase in money supply.
Page 3 of 17
13. Refer to Figure 1. Suppose the economy is at Point A, an decrease in government purchases can cause
a movement to Point
A) E.
B) B.
C) C.
D) D.
14.
A)
B)
C)
D)
Refer to the information provided in Figure 2 below to answer the two questions that follow.
Figure 2
15. Refer to Figure 2. The money demand curve will shift from
A) the level of aggregate output increases.
B) the interest rate decreases.
C) the price level decreases.
D) the inflation rate increases.
to
, if
Page 4 of 17
18. The Economist article the secret sauce discusses a concept called Total Factor Productivity As
explained in lecture, this is the same as the textbooks concept of
A) Productivity
B) Embodied technical change
C) Disembodied technical change
D) Human capital
19. A course packet article about business cycles concludes that
A) Households should not worry about saving because the government will spend
B) Households should not worry about saving because the government should spend
C) The government should not worry about spending because households will spend
D) The government should not worry about saving because households will spend
Refer to the information provided in Figure 3 below to answer the three questions that follow.
Figure 3
20. Refer to Figure 3. Which of the following causes the economy to move from Point A to Point E?
A) technological progress
B) an increase in the price level
C) an oil embargo that increases the price of oil
D) an influx of immigrants
21. Refer to Figure 3. Suppose the economy is at Point A, an increase in the price level moves the economy
to Point
A) E.
B) B.
C) C.
D) D.
22. Refer to Figure 3. During the 1990s, many firms in the United States were investing in new capital. If
the economy was originally at Point A, this would have caused a movement to Point
A) E.
B) B.
C) C.
D) D.
Page 5 of 17
23. Which of the following are not examples of a fiscal policy stimulus cutting unemployment by half or
more
A) Germany 1933-37
B) US 2001-06
C) US 1940-42
D) US 2008-11
E) A) and B)
F) B) and D)
24. If a decrease in net taxes in the United States resulted in a very large increase in aggregate output and
a very small increase in the price level, then the U.S. economy must have been
A) on the very steep part of the short-run aggregate demand curve.
B) on the very flat part of the short-run aggregate demand curve.
C) on the very flat part of the short-run aggregate supply curve.
D) on the very steep part of the short-run aggregate supply curve.
25. If an economy like Chinas has growth in real per-capita real GDP of 10% per year, the level of its
per-capita GDP will triple in __ years
A) 7
B) 9
C) 11
D) 13
Refer to the information provided in Figure 4 below to answer the three questions that follow.
Figure 4
25. Refer to Figure 4. Suppose the economy is currently at Point A producing potential output Y0. If the
government increases spending, the economy moves to Point ________ in the short-run and to Point
________ in the long-run.
A) D; E
B) B; D
C) C; B
D) B; C
Page 6 of 17
27. Refer to Figure 4. For this economy to produce Y1 and sustain it without inflation
A) potential output must increase.
B) the government must implement an expansionary fiscal policy.
C) the government must implement an expansionary monetary policy.
D) the price of oil must increase.
28. The large government deficit experienced by the U. S. during 2010-11 was due to the ratio of
government spending to GDP being unusually ____________ and the ratio of government revenues to
GDP being unusually _____________.
A) High, Low
B) Low, High
C) High, High
D) Low, Low
Refer to the information provided in Figure 5 below to answer the three questions that follow.
Figure 5
29. Refer to Figure 5. Cost-push inflation occurs if
A) the aggregate supply curve shifts from AS1 to AS0.
B) the economy moves from Point A to Point B on aggregate supply curve AS1.
C) the aggregate supply curve shifts from AS1 to AS2.
D) the economy moves from Point A to Point C on the aggregate supply curve AS1.
30. Refer to Figure 5. Assume the economy is at Point A. Higher oil prices shift the aggregate supply
curve to AS2. If the government decides to counter the effects of higher oil prices by increasing
government spending, then the price level will be ________ than P2 and output will be ________ than Y2.
A) greater; less
B) less; less
C) greater; greater
D) less; greater
31. Refer to Figure 5. Assume the economy is currently at Point A on aggregate supply curve AS1. An
increase in inflationary expectations that causes firms to increase their prices
A) moves the economy to Point C on aggregate supply curve AS1.
B) moves the economy to Point B on aggregate supply curve AS1.
C) shifts the aggregate supply curve to AS2.
D) shifts the aggregate supply curve to AS0.
Page 7 of 17
32. A rightward shift in the aggregate demand curve generates a ________ inflation and ________ output.
A) demand-pull; higher
B) cost-push; lower
C) demand-pull; lower
D) cost-push; higher
33. The Federal Reserve's policy to "lean against the wind" means that
A) the Fed slows money growth as the economy slows.
B) the Fed lowers taxes as the economy slows.
C) the Fed increases money growth as the economy slows.
D) the Fed raises required reserves as the economy slows.
34. The recognition lag of stabilization policy represents
A) the time that it takes for the economy to adjust to the new conditions after a new policy is introduced.
B) the time that is necessary to put the desired policy into effect.
C) the time needed for the Federal Reserve Board to meet.
D) the time that it takes for policy makers to recognize a change in the economy.
35. In general, fiscal policy has a longer ________ lag than monetary policy but shorter ________ lag.
A) response; implementation
B) implementation; response
C) recognition; response
D) implementation; recognition
36. The time interval taken for information to be communicated was reduced by the greatest magnitude
by the invention of:
A) The telephone
B) The internet
C) The telegraph
D) The personal computer
37. The lecture diagnosis of the weakness of the 2010-11 economic recovery was
A) Weakness of monetary policy
B) Weakness of fiscal policy
C) The double hangover
D) (A) and (C)
E) (B) and (C)
38. The economic impact of ________ during expansionary periods is to moderate growth.
A) positive demand shocks
B) tax cuts
C) automatic stabilizers
D) implementation lags
39. An example of automatic stabilizers is
A) government spending rising during an expansion.
B) government spending falling during a recession.
C) deficit targeting.
D) taxes rising in an expansion.
Page 8 of 17
40. Which of the following concepts discussed in lecture but not in the book explain why many poor
countries remain so poor?
A) Physical capital
B) Political capital
C) Human capital
D) Embodied technical change
41. Diminishing returns to a factor implies that with capital fixed
A) as labor increases, labor productivity eventually decreases.
B) as output increases, labor increases.
C) as labor increases, output decreases.
D) as labor increases output always increases.
42. A company uses 100 workers and 30 units of capital to produce 500 units of output. If this company
increases its capital to 50 units and, as a result, its output increases by 300 units, the productivity of labor
________ to ________ units per worker.
A) increases; 1
B) increases; 3
C) increases; 8
D) decreases; 4
43. Which of the following is NOT an investment in human capital?
A) older workers return to school to update their skills
B) the Ferris Advertising Agency replaces its secretaries' typewriters with personal computers
C) the Precision Tool Company teaches all its workers how to repair all the machines in the factory
D) local governments begin providing free hepatitis vaccinations to any resident who wants one
44. The convergence theory suggests that a diagram plotting the ratio of a countrys level of real GDP per
capita in 1960 on the horizontal axis relative to the US, and its growth rate from 1960 until now on the
vertical axis, should display the following pattern
A) A negative slope
B) A positive slope
C) A horizontal slope
D) The convergence theory makes no prediction about the slope on that diagram
45. In Econ 201 during Fall 2011, the example of the Netherlands was introduced in relation to which
topic?
A) Agriculture
B) Economic growth
C) Unemployment
D) Monetary policy
Page 9 of 17
112
125mm Railguns
Quafe
113
Price
Quantity
Price
Quantity
7900
8700
50
450
44
250
Percentage Change
(LN formula)
Nominal GDP
1. 38,300
2. 45,800
3. 17.88%
4. 38,300
5. 44,100
6. 14.10%
7. 37,200
8. 45,800
9. 20.80%
10. 103.85
11. 3.78%
100
12. 102.96
100
13. -2.91%
14. What is the percentage growth rate in chain-weighted GDP? _______________ 17.45%
15. What is the inflation rate according to the chain-weighted GDP deflator? _______________
-0.43%
Page 10 of 17
Amarr
1100
1.3%
Dodixie
900
2.1%
1. (1 point) At the given growth rates, how many years will it take for Amarrs real GDP per
capita
exactly
Page 11 of 17
14
48
294
196
2. Suppose the government provides a subsidy of $15 per unit. Complete the following table:
(1 points) Quantity
17
39
54
433.5
289
255
22.5
Page 12 of 17
I = 200
Government purchases:
G = 400
Exports:
EX = 100
IM =
Autonomous taxes:
TA = 200
Autonomous consumption:
a = 50
and
Multiplier
Page 13 of 17
e. (4 points) What is the level of government surplus, and of domestic private savings (S) in this
economy?
Solution:
T = Ta +t Y = 273.75
Gov. Surplus = T G = 273.75 400 = -126.25 (2 points)
C = a + 0.8 ((1-1/24)Y) - 0.8 Ta = 1247
S = Y C T = 1770 1247 273.75 = 249.25
(2 points)
Gov. Surplus =
S=
Page 14 of 17
C = b x ((Disposable Income))
= b x (Y T) = 0.8(-300+12.5) = - 230
i.
C =
(6 points) What would be the new levels of Domestic Private Savings, Government Surplus, and
Imports?
Solution:
S1 = S0 + Y C T = 249.25 +(-300) (-230) (-12.5)
= 249.25 -300 +230+12.5 = 191.75
(2 points)
Gov. Surplus1 = (Gov. Surplus )0 + T G
= -126.25 + (-12.5) (-100) = -38.75
(2 points)
IM1 = m (Y0+ Y)
S 1=
= 0.1 (1770+(-300))= 147
(2 points)
Gov. Surplus 1 =
IM1 =
Page 15 of 17
PROBLEM 5. (6 points)
Now consider the country of Macondo.
a. (1 point) If nominal GDP in 2011 in Macondo is 216 and the GDP deflator is 108, what is 2011
real GDP?
200
b. (1 point) What was the % change (LN) in real GDP between years 2000 and 2001, if 2000 real
GDP was 180, and 2001 real GDP was 188? (1 point)
4.35%
c. (2 points) Suppose the yearly real growth rate is 2%. How long until the real GDP of Macondo is
three times what it is today?
d. (2 points) Suppose real GDP in Macondo in 2011 is 200 with a growth rate of 2%, and a
neighboring country, El Dorado, has a 2011 real GDP of 201 with a growth rate of 2.5%. Will the
GDP of Macondo ever equal that of El Dorado? If so, in how many years?
No
Problem 6. (8 points)
The country of Macondo has a monetary base of $500 million. The Central Bank of Macondo, requires
commercial banks to hold as reserves rr=0.1 (that is, for every unit a bank receives as deposit, it must
keep as reserve 0.1). Assume that commercial banks do keep the reserves, and do not keep excess
reserves.
In Macondo people find useful to keep some cash in their pockets. On average, in this economy you can
observe a currency-to-deposit ratio of c=0.05.
Page 16 of 17
Solution:
.
Page 17 of 17