EC 421, Macroeconomic Analysis

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Oct 28, 2013 (3 years and 5 months ago)

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Economics 316, Macroeconomic Analysis

Exam #1, Spring 2013

Dr. Stonebraker





Name ______________________________________


1.

(18%) True
-
False. Explain each answer. The explanation is more important than the true
-
false choice.


T

F

If a woman marries
her butler, GDP will decrease.







T

F

An increase in interest rates necessarily will increase consumer willingness to save.







T

F

If the MPK exceeds (d+n+g) in the Solow growth model,

an increase in the savings rate will lead to
an increase in
consumption per person.







2
.

(6%) Many economists claim the CPI contains a
Quality Bias
. Explain.








3.

(3%) Explain the difference between GDP and GNP.




4.

(10%) Suppose the U.S. imposes tariffs on all imported goods. Explain how this will affect the U.S.
trade deficit and the exchange rate.




5
.

(6%) Indicate how, if at all, the following would appear in the expenditure approach of the GDP
accounts.


a.

purchase of 100 shares of Google stock:



b.

a Social Security payment:


6
.

(10%) Using the Solow growth model without technological change, draw an appropriate graph to
show the steady
-
state level of capital per person in an economy. Label appropriat
ely. Clearly explain
why higher or lower levels of capital per person are not stable.
















7

(12%) An economy produces

and consume
s

only ice

cream and potato chips. In 2010
, when the price
of ice cream was $2 and the price of chips was $3,
consumers bought 100 units of ice cream and no
chips. In 20
12
, with the price of ice cream up to $3 and the price of chips down to $2, consumers
flipped purchases and bought 100 units of chips and no ice cream.

a.

Calculate a CPI to show how the price o
f the 20
10

market basket of goods has changed and
interpret your result.








b.

Using 2010

as the base year, calculate both nominal and real spending for 20
12
.









c.

Calculate the GDP deflator for 20
12

and interpret your result.







8.

(12%)
Clearly explain the all of the impacts of a decrease in taxes in a closed long
-
run equilibrium
economy.















9
.

(13%) Suppose there is a large increase in savings outside of the U.S. What will happen to the world
rate of interest? What will
happen to the value of the dollar and U.S. net exports? Explain clearly how
and why these effects occur.

















10
.

(10%) Using the Solow model with technological change, identify what will happen in the long run to
Y/L, the real wage rate and
the real rental price of capital, and explain.