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Advanced Macroeconomics 311 (Professor Gordon) Final Evaluation Fall, 2009 YOUR NAME: ________________________________ INSTRUCTIONS 1 . The exam lasts 2 hours. installment payments on your
The exam is worth 120 details in total: 35 points for the multiple choice questions, 60 factors for the analytical concerns, and 40 points for the works. 3. Publish your answers to Component A (the multiple choice section) inside the blanks on-page 1 .
You will not get credit rating for circled answers inside the multiple choice section. some. Place your entire answers for part B in the space provided. five. You must show your work for portion B questions. 6. Compose your works with a coop. Write plainly! 7. Good Luck and Content Holidays! PART A (45 points) Select the ONE alternate that BEST completes the statement or answers problem. Your answers must be inside the space supplied below. MAKE USE OF CAPITAL WORDS. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PART B (45 points) Please captivate work and write down the formulas you make use of for part credit. Issue 1 (5 points) (a) What month-to-month rate of inflation causes the price level to increase by a factor of 5 (500 percentage points) over a year? (2 points) (HINT: Use the LN and EXP formulations from Chapter 9, Difficulty 2, further more examples of which are presented in lecture on November 11). Using the sign formula: g = 100*log(5)/12 = 13. 4%. b) If the charge of month to month inflation can be 25%, with what factor could prices possess risen over the year? (3 points) Discussing call the original price level P0 and the price level at the end from the year P12 25 = 100*log(P12/P0)/12 P12/P0 = exp(25*12/100) = 20. Question a couple of (10 points) Consider an economy in which inflation targets are given by equation pet =. 5 pt-1 +. 6 pet-1. Also imagine when the record of the result ratio boosts by you points, inflation increases simply by 4 details. a) Jot down the SP equation, equally its standard form as well as its specific contact form with these particular parameter presumptions inserted. (2 points) pt = pet + gYt-1 + zt =. 4pt-1 +. 6pet-1 + 4Yt-1 + zt ) Jot down the DG equation (no need to obtain anything, just write this down). (1 point) Sumado a = Y-1 + [pic] , p c) Incorporate the SP and DG equations to convey p being a function of pt-1, pet-1, Yt-1,[pic]t, and zt. (2 points) (HINT: Your response must have g on the left side with the equation and terms not including current p on the right side, considering the relevant guidelines inserted and solved away. ) s = zero. 4p-1 + 0. 6pe-1 + 4Y + z = zero. 4p-1 & 0. 6pe-1 + 4(Y-1 + [pic] , p) + z 5p = 0. 4p-1 + 0. 6pe-1 + 4Y-1 & 4[pic] + z p = 0. 08p-1 & 0. 12pe-1 + zero. 8Y-1 + 0. almost 8[pic] + unces For the remainder of the trouble, assume that in period t=1 the economy provides values given by: p0 = 3pe0 sama dengan 3Y0 = 0 ) Suppose you cannot find any supply shock in period 1 (z1 = 0) and that [pic]you = your five. Solve pertaining to period you values p1 and Y1. (2 points) p1 sama dengan 0. 08(3) + zero. 12(3) + 0. 8(0) + 0. 8(5) + 0 sama dengan 4. 6 Y1 = 0 + 5 ” 4. 6th = zero. 4 e) Suppose instead that there is a period 1 source shock that increases the value of unces from zero in period 0 to at least one in period 1 . Locate the period 1 values p1,[pic]1 and Y1 as well as the anticipated period 2 inflation, pe2, if the government adopts an accommodating coverage. (3 points) Accommodating Insurance plan means Y1 = zero, so in the DG formula p1 sama dengan[pic]1 and through the SP formula: p1 sama dengan. 4(3) &. 6(3) & 4(0) + 1 = 4 = [pic]1 pe2 =. 4(4) +. 6(3) = 3. 4 Issue 3 (15 points)
Look at a country in whose Central Lender issued 100$ of Attention-grabbing Money (H). Citizens’ cash holdings (dollar bills) amount to 10% (. 1) of their deposits although each industrial bank requires reserves pertaining to 15% (. 15) from the volume of deposits. a) Precisely what is the level of deposit? (2 points) D sama dengan H/(c+e) = 100/(. 1+. 15) sama dengan 400 b) What is the amount of the Money Supply defined as money bills and deposits? (3 points) M = (1+c)D = 1 ) 1*400 = 440 c) Suppose the Central Financial institution wants to increase Money Source to 528. How various extra products of Star-quality Money do they have to circulate? (4 points) M = (1+c) H / (c+e) 528 = 1 . 1 H /. 25 H sama dengan 120 And so they should print out 20 extra units of H ) Assume now that the Central Bank continue to wants to collection the Money Source to 528 but the Federal government forbids them from creating High-Powered Money. What alternative is remaining to the Central Bank? (Hint: restrict the attention to this simplified style where there is nothing like direct lending or any type of other unique policy) (2 points) Replace the reserve requirement e) Provided your advised policy, which usually of the guidelines of the model would that they be changing? To which new value? (Remember that right here H=100 and cannot be transformed by supposition and M=528) (4 points) M=(1+c) They would / (c+e) 528=1. one particular * 75 / (. 1 + e) e=. 1083 sama dengan 10. 8% Question 5 (15 points) Consider two nations, Richland and Poorland.
Both nations have the same Cobb-Douglass production function, Y=AKbN(1-b). Allow Poorland have an economy with technology level A=18, capital elasticity of production b=(1/3), population progress rate n=. 13, capital depreciation price d=. 07, and personal savings rate s=. 3 a) Rewrite the availability function as a function relating Y/N and K/N. (2 points) Y/N = A(K/N)b sama dengan 2(K/N)(1/3) b) Solve to get the steady state values of the capital-labor ratio (K/N) and per-capita GDP (Y/N). (6 points) s(Y/N) sama dengan (n+d)(K/N) sA(K/N)b = (n+d)(K/N) (K/N) sama dengan [sA/(n+d)]1/(1-b) (K/N) = [. 1*18 /(. 2)]3/2=27 (Y/N) = (n+d)(K/N)/s (Y/N) = (. 2)(27)/. 1=54 c) Richland includes a per-capita GDP that is multiple that of Poorland. Given head wear Richland has the same creation function as Poorland, the capital-labor ratio in Richland is exactly what multiple in the capital-labor proportion in Poorland? (In other words, in the event that Poorland contains a capital-labor ratio of K/N= x and Richland provides a ratio of K/N= sumado a, what is y/x? ). (3 points) [pic] d) Compute the limited products of capital inside the two international locations. (3 points) MPK sama dengan b(Y/N)/(K/N) MPKA = (1/3)(54)/(27)=2/3=. 6667 MPKb = (1/3)(162)/(729)=2/81=. 0247 e) Judging from your answer simply (d), will the Solow version predict that poor countries have a better or reduce rate of return on capital? (1 point) The Solow style predicts a higher rate of returning for poor countries.
This is certainly one of the opinions of the Solow growth unit. PART C (30 points) WRITE YOUR NAME AND ID NUMBER WITH YOUR BLUE BOOK. As stated for the syllabus (p. 3) and numerous in-class and e-mailed reminders, you need to write the answers in pen not really pencil. This is certainly a single multi-part essay question. You should publish in your green book to get 30 minutes. 1 . Write a logical essay for the causes of the 2008-09 recession and on the policy answers to this celebration. Your composition should cover the following specific points a. First, create the facts. What were commonalities in the period and size of the 2001 recession and subsequent restoration as compared to the 2008-09 economic downturn and recovery so far?
Consist of comments in GDP, the GDP difference, labor marketplace variables, and any other unique features of the two of these episodes. n. What were the most important reasons for the 2008-09 recession? Incorporate comments where causes were the same as in the 2001 economic downturn, and that have been different. c. In what perception, if any, did financial or fiscal policy partly contribute to the reasons behind the 2008-09 recession? deb. Evaluate the response of economic policy as early 08. What were the similarities and differences between this response as well as the monetary coverage response to postwar recessions in 2001 and earlier? What aspects will you praise or perhaps criticize? at the.
Evaluate the response of financial policy as early 2008. What elements would you compliment or criticize? Multiple Choice Questions Make sure you write you answers around the blanks on-page 1! 1 ) The current accounts includes all of the following other than: A) net exports B) net income coming from abroad C) net unilateral transfers D) foreign immediate investment installment payments on your In what way was the international overall economy cited being a source of the U. H. housing bubble in 2003-06? A) less expensive prices of imported building materials B) support of dollar simply by foreign central banks C) migrants of competent foreign building workers D) high shell out of top executives of foreign purchase banks a few.
Which with the following weren’t cited in the course as a reason for France and also other European countries to be unwilling to support an Obama-like fiscal incitement for their own countries? A) high unemployment in The european union B) low fiscal multipliers C) social welfare system D) unemployment insurance system 4. Imagine we have a great economy by which G sama dengan 1100, capital t = zero. 26, Y = 3800, and YN = 4000. At Y the difference between the actual shortage and strength deficit is usually A) 70. B) 112. C) -172. D) -112. E) 52. 5. The failure of U. H. net exports to improve dramatically in the core 1980? s despite the worsening of the dollar suggests that A) U. T. industries flow of competitive items was inelastic over the period.
B) LDC debt repayment schedules and lack of financing kept U. S. export products low. C) NCIs managed fixed exchange rates vis a vis the dollars and U. S. export products low. D) All of the over. 6. In the reading period assignments from the Economist, the United States is faulted relative to The european countries and Japan for each with the following reasons except: A) labor and capital markets B) major and secondary education C) personal conserving rate D) infrastructure 7. In the browsing period document about Portugal, the French happen to be praised for each and every of the following reasons apart from A) facilities B) household debt C) output progress rate D) medical care system 8. The mechanism of? international crowding-out? s that the government spending budget deficit ________ the home-based interest rate, making the money ________ high-priced for and also the, which then ________ net export products. A) raises, less, lowers B) elevates, less, increases C) elevates, more, lowers D) reduces, less, lessens E) lessens, more, raises 9. Which in turn of the following effects happens as a result of computerized stabilization? A) extra tax revenues are generated within a boom. B) tax earnings remain constant during a economic depression. C) leakages increase throughout a recession, assisting to stimulate the economy. D) Equally A and C are correct. 10. If the Government Reserve intervenes in the foreign-exchange markets and buys foreign exchange A) the U. H. oney supply rises and foreign currencies depreciate. B) the U. T. money source falls and foreign currencies depreciate. C) the U. S i9000. money source rises and foreign currencies value. D) the U. S. money source falls and foreign currencies love. 11. Activists-believe that ADVERTISEMENT is volatile because A) business and consumer perceptions and expectations shift. B) monetary plan is varying. C) monetary policy results are unpredictable. D) Both equally B and C will be correct. doze. Assuming constant wages implies that A) a rise in the price of goods raises income and BARRIÈRE is top to bottom. B) a decrease in the price tag on goods decreases profits and SAS can be horizontal.
C) an increase in the price of goods reduces profits and SAS is definitely vertical. D) an increase in the price of goods boosts profits and SAS is usually positively sloped. [pic] 13. Consider the above figure with equilibrium primarily at E0. If the cash supply is definitely increased and costs are flexible, in the short run prices and output can ___. Over time output and costs will ___. A) become as for E2, go back to E0. B) be while at E1, be since at E2. C) end up being as in E2, always be as for E3 D) be as at E2, be as at E1. E) end up being as in E1, be as at E3. 16. According to the psychic readings, a common characteristic of the Great Depression and the new economic crisis was A) mortgage loan credit B) deposit insurance C) unemployment rate D) monetary coverage 15.
The sources of the existing problems of running economic policy are usually cited because A) Quantitative easing B) Zero lower bound C) Excess traditional bank reserves D) A) and B) E) B) and C) 18. An velocity of nominal GDP development from, declare 4% to 6% is going to A) completely raise the level of pumpiing. B) temporarily lower the speed of pumpiing. C) leave real GROSS DOMESTIC PRODUCT unaffected over time. D) Both A and C. 18. The short-run Phillips Competition gives A) the actual short-run level of real GDP and inflation. B) all possible combinations of real GDP and pumpiing, for a provided set of targets. C) all possible combinations of true GDP and inflation, for fully modified expectations. D) the response of real GDP and inflation to deliver shocks. 18.
The Fed is criticized for the “one-way option regarding asset bubbles. The criticism would be that the Fed __________ when property prices maximize and __________ when property prices lower A) elevates interest rates, lessens interest rates B) leaves interest rates unchanged, leaves interest rates the same C) boosts interest rates, leaves interest rates unchanged D) leaves interest rates the same, lowers rates of interest E) reduces interest rates, raises interest rates nineteen. Which from the following had not been a source of the Great Small amounts, according to the book? A) growth rate secret for money supply B) monetary deregulation at the end of 1970s, early on 1980s
C) magnitude of supply shock absorbers after early 1980s D) government military spending 20. In the short-run, the impact of the adverse source shock is to A) reduce real GDP and keep the inflation rate the same if the regarding nominal GROSS DOMESTIC PRODUCT remains a similar. B) lessen real GDP and keep the pumpiing rate unchanged if the growth of nominal GDP is decreased enough. C) maintain the same level of genuine GDP and reduce the pumpiing rate in the event the growth if nominal GDP is improved enough. D) All of the above. 21. In line with the textbook, the main losers as a result of redistributive effect of the postwar inflation in the us were A) households. B) corporations. C) government. D) A) and B) twenty two. Disgruntled? personnel who give up their jobs to find? a much more reasonable supervisor? are experiencing A) involuntary unemployment. B) mismatch lack of employment. C) cyclical unemployment. D) turnover lack of employment. 23. Policy solutions to mismatch unemployment consist of A) monetary policies to improve the ADVERTISEMENT curve B) monetary plans to raise the AD shape C) guidelines other than financial and financial policies D) accommodative plans to deal with source shocks 24. Over a season, the money source in a land grew simply by 6 percent, while velocity rose by simply 2 percent and real GDP rose by several percent. This kind of results in an inflation in the year of ________ percent. A) 5 B) 10 C) you
D) several 25. The the Fed’s quantitative reducing after mid-2008 is not really described by A) increased open-market purchases of Treasury securities B) increased open-market purchases of private securities C) increased open-market purchases of corporate stock D) A) and B) E) A) and C) 26. Which of the pursuing increased by the largest percentage between mid-2007 and mid-2009? A) extra bank supplies B) M2 C) star-quality money D) total traditional bank reserves E) M1 [pic] 27. In the beginning, the economy are at point G in the determine above. An increase in per capita savings from s0 to s1 is going to in the growing process result in ________ and in the long run result in ________.
A) surplus per capita saving, faster growth in per capita output B) excess every capita saving, less rapid growth in per capita output C) more rapid expansion in per capita end result, more rapid development in per capita end result D) faster growth in per household output, not any change in the long term rate of growth in per household output twenty-eight. Which with the following will never affect steady state every capita cash flow in the Solow growth theory? A) The savings charge. B) Your initial capital stock. C) The citizenry growth level. D) The availability function. up to 29. The Solow growth style predicts that nations which have been initially poor should have A) slower progress rates than nations which have been rich. B) faster growth rates than nations which might be rich. C) growth rates equal to the ones from nations that are rich. D) negative expansion rates. 35.
Two readings in the course supply for Phase 11 cite a particular technological innovation for increased economic growth in poor tropical countries. This is: A) television B) internet C) mobile phones D) new drugs to fight malaria 23. Several structural changes that occurred in the last two decades had been a theme of lectures. Which usually of the subsequent was not one of those changes? A) greater need for structural joblessness and less importance of frictional joblessness B) smaller response of core pumpiing to oil price shock C) larger decline of employment to declines in output in recessions D) larger maximize of output to increase in output in recoveries E) More reliance on income flexibility instead of layoffs in 2008-09 downturn 32.
Inside the Cobb-Douglas development function Y=AKbL1-b, the variable A features several different titles. Which in the following is not one of them? A) independent growth factor. B) infrastructure. C) multifactor productivity. D) residual. thirty-three. The formula for the expansion rate of multifactor efficiency is: A) a = y & bk & (1 , b)n. B) y sama dengan a + bk + bn. C) a sama dengan y , bk , (1 , b)n. D) y sama dengan a , b/k(1 , b)n. 34. Which of the following would not affect multifactor productivity? A) a tax on low-efficiency firms B) a higher keeping rate C) Environmental control. D) Technical progress. thirty five. Relative expansion rates of the standard of living in the us and The european countries indicate that workers in ________ include chosen to? dedicate? _______ of their higher productivity on leisure time rather than about consumption of market services and goods. A) The european union, a significant portion B) the United States, a significant portion C) Europe, almost non-e D) the United States, almost all 36. Which from the following might cause labor? s reveal of countrywide income to diminish? A) Labor productivity raises less quickly than the true wage price. B) Labor productivity boosts more rapidly than the real wage rate. C) Labor productivity has increased exact same rate because the real salary rate. D) Labor? t share of national income is certainly not affected by the relative development rates of labor efficiency and the actual wage rate. 37.
When monetary coverage is dedicated to controlling the level of nominal GDP, then money policy can be used to A) pick the overall standard of interest rates, which has a high spending budget surplus implying a high level appealing rates. B) choose the overall level of rates of interest, with a high budget deficit implying if you are a00 of interest costs. C) control the rate of inflation, using a high spending budget surplus suggesting a quicker rate of inflation. D) control the pace of pumpiing, with a substantial budget shortfall implying a faster price of inflation. 38. A significant side-effect of the stimulative monetary policy is the fact it will A) discriminate for housing. B) crowd out private bills.
C) raise the natural level of unemployment. D) once and for all raise the rate of inflation. 39. Which usually of the subsequent was a plan of Roosevelt’s New Package which is not part of the Obama stimulus deal? A) taxes reductions B) infrastructure advancements C) Immediate intervention to halt financial institutions from failing D) Federal government direct hiring in the unemployed 45. The Barro-Ricardo Equivalence Theorem assumes each of the following except: A) Persons value the welfare with their heirs just as much as their own well being. B) Interest rates will remain regular. C) Most individuals possess children D) Markets intended for consumer housing and durable goods are ideal. 41.
Which usually of the pursuing will cause the date the Social Security trust pay for runs out of money to get pushed additional into the future? A) A decline in the rate of real GDP growth. B) An increase in the population growth level. C) A decrease in the expansion of the genuine wage. D) All of the previously mentioned. 42. A fixed money-supply regulation will have the highest stabilizing influence on output when ever A) funds demand is unstable and commodity require is stable. B) both equally money and commodity require are unpredictable. C) equally money require and product demand are stable. D) the velocity involving is volatile. 43. M1 is a meaning of money mainly confined to which usually function(s) pounds? A) device of accounts B) shop of value
C) medium of exchange D) B and C. forty-four. In the scientific validation in the theory from the political business cycle talked about in lecture, which from the following variables measured above the year prior to the election has been the best predictor of the effects of usa president elections? A) the unemployment rate B) the inflation rate C) the growth charge of every capita genuine GDP D) the level of the federal government fiscal deficit 45. In the empirical acceptance of the theory of the personal business circuit discussed in lecture, which will of the following elections is actually a clear outlier as violating that empirical evidence? A) 1932 B) 1936 C) 1972 D) 1992 E) 2000
