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Multiple-Choice Questions
(2005 Exam Question)
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Numerical Questions
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Numerical Questions
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Numerical Questions
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Numerical Questions
(continued)
(2) – (2)
200r = 2000
r = 10
Bring r back to (1) or (2), then Y = 4000.
Y – T = 4000 – 1000 = 3000
C = 0.8 * 3000 = 2400
I = 800 – 20 * 10 = 600
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Numerical Questions
IS2
IS1
4000 4500 Y
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Numerical Questions
Answer:
G = 1000 + ΔG = 1000 + 200 = 1200
IS: Y = C + I + G = 6000 – 100r (3)
LM: Y = 3000 + 100r (4)
(3) – (4), then r = 3000/200 = 15
Bring r back to (3) or (4), Y = 4500
ΔY = 4500 – 4000 = 500
ΔY/ΔG = 500/200 = 2.5
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Numerical Questions
4000 4250 Y
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Numerical Questions
Answer:
M = 1200 + ΔM = 1200 + 200 = 1400
LM: M = L
1400 = 0.4Y –40r
Y = 3500 + 100r (5)
IS: Y = 5000 – 100r (6)
(5) – (6), r = 1500/200 = 7.5
and then Y = 4250.
ΔY = 4250 – 4000 = 250.
ΔY/ΔM = 250/200 = 1.25
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Numerical Questions
π = π −1 − 0.5(u − 0.06)
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Numerical Questions
SRPC
0.06 u
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Numerical Questions
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Numerical Questions
LRPC1
Answer: π
LRPC2
When inflation falls by
5%, π-1
π − π −1 = −0.05
π − π −1 = 0.5(u − 0.06) π0
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Numerical Questions
(continued)
Δu = 0.16 – 0.06 = 10%
According to Okun’s law: 1% change in u
translates in to change of 2% in GDP.
Hence, Δu = 0.16 – 0.06 = 10% leading to
fall in GDP of 20%.
The sacrifice ratio is 20/5 = 4.
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Numerical Questions
d. Inflation is running at 10%. The Fed wants to
reduce it to 5%. Give two scenarios that will
achieve that goal.
Answer:
3) Very high unemployment rate (e.g. 16%) for a
short period of time (e.g. 1 year).
4) A small amount of cyclical unemployment (e.g.
8%) spread out over a long period of time (e.g. 5
years).
Both plans will achieve the goal but at different
speed.
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