Macroeconomics I 2016-17

Midterm Exam (14th December, 2016)

Name: Version A
Professor:
Group:

E XAM INSTRUCTIONS

1. This exam lasts 1h 20 minutes.

2. It consists of 20 multiple choice questions and 1 open question.

3. The first part of the exam gets 80 points. The second part gets 20 points. Each right answer
of multiple-choice questions gets 4 points whereas each wrong answer gets -1 points.
4. Write your name, the name of your professor, and your group number on the front sheet.
5. Answer the multiple choice questions on the answer sheet (the last page). Keep the booklet
together; exams of which pages are missing are declared invalid

6. You can use the last page in the booklet to do scratch work

7. If you have any doubt, write it down on the exercise sheet.

8. You cannot leave the room unless authorized by the professor. Do not stand up and wait
for the professor to collect your exam.

9. If caught talking during the exam, or copying answers from a neighbor, you will be asked
to leave the exam. In this case, your mark automatically will be a zero.

10. No mobile phones are allowed at any point during the exam.

1
Multiple Choice Questions (80 points)
All economies in the exam are closed economies.

1. Suppose the reserve deposit ratio is rr = 0.3, the currency deposit ratio is cr = 0.4, and the money
supply, M , is 12000. Hence, the monetary base is
(a) B = 24000.
(b) B = 6000.
(c) B = 3000.
(d) B = 12000.
Ms
2. In the long run model of money demand and supply, P = L (r + π e , Y ), which variable is deter-
mined by the equilibrium in the money market?
(a) Real interest rate.
(b) Output.
(c) Money supply.
(d) Prices.
3. Assume the government increases spending by 1 unit. The marginal propensity to consume is 0.8. In
the long-run, what happens?
(a) Output increases by 1 unit.
(b) Output increases by 5 units.
(c) Consumption falls by 1 unit.
(d) Investment falls by 1 unit.
4. The central bank cannot control the money supply exactly because
(a) households may change their preferences between cash and deposits.
(b) of menu costs.
(c) it does not control the monetary base.
(d) the government may change taxation.
5. Let the rate of technological progress be g, the population growth rate be n, and the depreciation rate
be δ. Then, in the steady state, output per capita
(a) grows by n + g.
(b) does not change.
(c) grows by g.
(d) grows by n + g + δ.
6. Let the rate of technological progress be g, the population growth rate be n, and the depreciation rate
be δ. Then, in the Solow-model, the law of motion for capital per efficient worker, k̃t , is given by,
(a) k̃(g + n + δ) = sf (k̃).
(b) ĩt = sf (k̃t ).
(c) k̃t+1 = sf (k̃t ) − (δ + n + g)k̃t .
(d) k̃t+1 = k̃t + sf (k̃t ) − (δ + n + g)k̃t .

2
 7. Consider an economy with a production function Y = K 0.4 L0.4 . The economy has ......... returns to
scale, ......... marginal returns to capital, and ......... marginal returns to labor.
(a) increasing, diminishing, diminishing.
(b) increasing, diminishing, no diminishing.
(c) constant, diminishing, diminishing.
(d) decreasing, diminishing, diminishing.
8. Endogenous in the Solow model are
(a) savings rate and output.
(b) capital per worker and output.
(c) population growth rate and capital.
(d) depreciation rate and growth rate of technology.
9. Assume the government decreases taxes by 50 units, and also increases the money supply by 100
units. The marginal propensity to consume is 0.8. Assume the investment function is I(r) = 300−10 r
(r is in percentage terms), in the long-run, we should expect:
(a) ∆ I = −40, ∆ r = 4%.
(b) ∆ I = 40, ∆ r = −4%.
(c) ∆ I = 50, ∆ r = −5%.
(d) ∆ I = −50, ∆ r = 5%.
10. Suppose that the production technology satisfies Y = K α (EL)1−α , where Y is the aggregate output,
K is the capital stock, and L is the amount of labor. We know that ∆ E/E = 0.02. The economy
is in its steady state given by the Solow model. The inflation rate is π = 0.1 and money growth is
∆ M/M = 0.4. If the velocity of money is constant, then in steady state:
(a) ∆ L/L = 0.18.
(b) ∆ L/L = 0.28.
(c) real output per worker is constant.
(d) real output is constant.
11. Assume the demand for real money balances is given by L(Y, i), where Y is real output and i is the
nominal interest rate. If the central bank promises to higher the growth rate of money tomorrow, then
today
(a) the nominal interest rate rises and prices are not affected.
(b) the nominal interest rate falls and prices rise.
(c) the nominal interest rate rises and so do prices.
(d) the nominal interest rate falls and so do prices.
12. Suppose the job finding rate per quarter is 50%, and the job separation rate is given by s = 30%. Today,
20 people are unemployed, and the total work force is L = 200. Hence, next quarter unemployment
rate, U
L , is

(a) 68%.
(b) 37, 5%.
(c) 32%.
(d) None of the above.

3
13. In the classical model of the real economy in the long run, which variables are endogenous:
(a) Real wage, marginal propensity to consume.
(b) Real interest rate, investment, savings.
(c) Investment, consumption and government spending.
(d) Income, consumption, taxes.
14. In the model of frictional unemployment, which variables are exogenous:
(a) job finding rate, job separation rate, initial unemployment.
(b) job finding rate, equilibrium unemployment.
(c) job separation rate, equilibrium unemployment.
(d) Number of unemployed that find a job.
15. In the classical economy, let output be produced by Y = K 0.5 L0.5 . Let K = 64 and L = 16 and the
price level is 4. Therefore, the nominal wage rate is given by:
(a) W = 1.
(b) W = 2.
(c) W = 4.
(d) W = 8.
16. Assume the production function of an economy is Y = K 0.5 L0.5 , and, in steady state, the marginal
product of capital is M P K = 0.05. Assume the depreciation rate is 0.04, and the population growth
rate is 0.04. To maximize steady state consumption per worker the economy should
(a) decrease the savings rate.
(b) increase the savings rate.
(c) leave the savings rate unchanged.
(d) we do not have enough information.
17. Suppose the job finding rate per quarter is 50%, and the job separation rate is given by s = 30%. Today,
20 people are unemployed, and the total work force is L = 200. Hence, steady-state equilibrium
unemployment rate, U L , is

(a) 68%.
(b) 37, 5%.
(c) 32%.
(d) None of the above.
18. In the classical economy, let output be produced by Y = K 0.2 L0.70 O0.1 where K is capital, L is labour
and O is Oil. Let K = 160, and L = 10, and O = 10. Therefore, the share of total income going to
capital owners is given by
(a) 0.1.
(b) 0.7.
(c) 0.2.
(d) 3.48.

4
 19. According to the Solow-model without technological progress, in the long-run steady state, when the
population growth rate increases:
(a) capital and consumption per worker decrease.
(b) capital and consumption per worker increase.
(c) capital and consumption per worker grow slower in the new steady state.
(d) capital and consumption per worker grow faster in the new steady state.
20. As a result of higher reserve requirements, the amount of money that banks hold as reserves decrease,
and the amount they give out as loans increase. Then, in the long-run, according to the neoclassical
theory, if the velocity of money is given and constant:
(a) the money supply, decreases and the price level increases.
(b) the money supply and the price level increase.
(c) the money supply and the price level decrease.
(d) the monetary base increases.

Exercise (20 points)

0.5
21. Suppose that the aggregate production in a closed economy can be represented as Y = K 0.5 (L) ,
where Y is the aggregate output, K is the capital stock, and L is the amount of labor. The depreciation
rate of capital is δ = 0.09, while the growth of the number of workers is, ∆ L/L = n = 0.01. The saving
rate is s = 0.3 and the initial capital per worker (in period 1) is given by k1 = 1.

(a) Obtain the function of output per worker. (5 points)

(b) What is the capital per worker in the steady state? (6 points)

(c) What is the capital per worker in period 2? (5 points)

5
(d) What is the capital per worker given by the Golden Rule? (5 points)

6
 Macroeconomics I, 2015-16
Midterm Exam, November, 2015

Nombre:
Profesor:
Grupo:

1 a b c d
2 a b c d
3 a b c d
4 a b c d
5 a b c d
6 a b c d
7 a b c d
8 a b c d
9 a b c d
10 a b c d
11 a b c d
12 a b c d
13 a b c d
14 a b c d
15 a b c d
16 a b c d
17 a b c d
18 a b c d
19 a b c d
20 a b c d

7
 Macroeconomics I, 2016-17
Midterm Exam (December, 2016)
Multiple Choice Questions (80 points)
All economies in the exam are closed economies.

1. Suppose the reserve deposit ratio is rr = 0.3, the currency deposit ratio is cr = 0.4, and the money
supply, M , is 12000. Hence, the monetary base is
(a) B = 24000.
(b) B = 6000.
(c) B = 3000.
(d) B = 12000.
Ms
2. In the long run model of money demand and supply, P = L (r + π e , Y ), which variable is deter-
mined by the equilibrium in the money market?
(a) Real interest rate.
(b) Output.
(c) Money supply.
(d) Prices.
3. Assume the government increases spending by 1 unit. The marginal propensity to consume is 0.8. In
the long-run, what happens?
(a) Output increases by 1 unit.
(b) Output increases by 5 units.
(c) Consumption falls by 1 unit.
(d) Investment falls by 1 unit.
4. The central bank cannot control the money supply exactly because
(a) households may change their preferences between cash and deposits.
(b) of menu costs.
(c) it does not control the monetary base.
(d) the government may change taxation.
5. Let the rate of technological progress be g, the population growth rate be n, and the depreciation rate
be δ. Then, in the steady state, output per capita
(a) grows by n + g.
(b) does not change.
(c) grows by g.
(d) grows by n + g + δ.
6. Let the rate of technological progress be g, the population growth rate be n, and the depreciation rate
be δ. Then, in the Solow-model, the law of motion for capital per efficient worker, k̃t , is given by,
(a) k̃(g + n + δ) = sf (k̃).
(b) ĩt = sf (k̃t ).
(c) k̃t+1 = sf (k̃t ) − (δ + n + g)k̃t .
(d) k̃t+1 = k̃t + sf (k̃t ) − (δ + n + g)k̃t .

1
 7. Consider an economy with a production function Y = K 0.4 L0.4 . The economy has ......... returns to
scale, ......... marginal returns to capital, and ......... marginal returns to labor.
(a) increasing, diminishing, diminishing.
(b) increasing, diminishing, no diminishing.
(c) constant, diminishing, diminishing.
(d) decreasing, diminishing, diminishing.
8. Endogenous in the Solow model are
(a) savings rate and output.
(b) capital per worker and output.
(c) population growth rate and capital.
(d) depreciation rate and growth rate of technology.
9. Assume the government decreases taxes by 50 units, and also increases the money supply by 100
units. The marginal propensity to consume is 0.8. Assume the investment function is I(r) = 300−10 r
(r is in percentage terms), in the long-run, we should expect:
(a) ∆ I = −40, ∆ r = 4%.
(b) ∆ I = 40, ∆ r = −4%.
(c) ∆ I = 50, ∆ r = −5%.
(d) ∆ I = −50, ∆ r = 5%.
10. Suppose that the production technology satisfies Y = K α (EL)1−α , where Y is the aggregate output,
K is the capital stock, and L is the amount of labor. We know that ∆ E/E = 0.02. The economy
is in its steady state given by the Solow model. The inflation rate is π = 0.1 and money growth is
∆ M/M = 0.4. If the velocity of money is constant, then in steady state:
(a) ∆ L/L = 0.18.
(b) ∆ L/L = 0.28.
(c) real output per worker is constant.
(d) real output is constant.
11. Assume the demand for real money balances is given by L(Y, i), where Y is real output and i is the
nominal interest rate. If the central bank promises to higher the growth rate of money tomorrow, then
today
(a) the nominal interest rate rises and prices are not affected.
(b) the nominal interest rate falls and prices rise.
(c) the nominal interest rate rises and so do prices.
(d) the nominal interest rate falls and so do prices.
12. Suppose the job finding rate per quarter is 50%, and the job separation rate is given by s = 30%. Today,
20 people are unemployed, and the total work force is L = 200. Hence, next quarter unemployment
rate, U
L , is

(a) 68%.
(b) 37, 5%.
(c) 32%.
(d) None of the above.

2
13. In the classical model of the real economy in the long run, which variables are endogenous:
(a) Real wage, marginal propensity to consume.
(b) Real interest rate, investment, savings.
(c) Investment, consumption and government spending.
(d) Income, consumption, taxes.
14. In the model of frictional unemployment, which variables are exogenous:
(a) job finding rate, job separation rate, initial unemployment.
(b) job finding rate, equilibrium unemployment.
(c) job separation rate, equilibrium unemployment.
(d) Number of unemployed that find a job.
15. In the classical economy, let output be produced by Y = K 0.5 L0.5 . Let K = 64 and L = 16 and the
price level is 4. Therefore, the nominal wage rate is given by:
(a) W = 1.
(b) W = 2.
(c) W = 4.
(d) W = 8.
16. Assume the production function of an economy is Y = K 0.5 L0.5 , and, in steady state, the marginal
product of capital is M P K = 0.05. Assume the depreciation rate is 0.04, and the population growth
rate is 0.04. To maximize steady state consumption per worker the economy should
(a) decrease the savings rate.
(b) increase the savings rate.
(c) leave the savings rate unchanged.
(d) we do not have enough information.
17. Suppose the job finding rate per quarter is 50%, and the job separation rate is given by s = 30%. Today,
20 people are unemployed, and the total work force is L = 200. Hence, steady-state equilibrium
unemployment rate, U L , is

(a) 68%.
(b) 37, 5%.
(c) 32%.
(d) None of the above.
18. In the classical economy, let output be produced by Y = K 0.2 L0.70 O0.1 where K is capital, L is labour
and O is Oil. Let K = 160, and L = 10, and O = 10. Therefore, the share of total income going to
capital owners is given by
(a) 0.1.
(b) 0.7.
(c) 0.2.
(d) 3.48.

3
 19. According to the Solow-model without technological progress, in the long-run steady state, when the
population growth rate increases:
(a) capital and consumption per worker decrease.
(b) capital and consumption per worker increase.
(c) capital and consumption per worker grow slower in the new steady state.
(d) capital and consumption per worker grow faster in the new steady state.
20. As a result of higher reserve requirements, the amount of money that banks hold as reserves decrease,
and the amount they give out as loans increase. Then, in the long-run, according to the neoclassical
theory, if the velocity of money is given and constant:
(a) the money supply, decreases and the price level increases.
(b) the money supply and the price level increase.
(c) the money supply and the price level decrease.
(d) the monetary base increases.

Exercise (20 points)

0.5
21. Suppose that the aggregate production in a closed economy can be represented as Y = K 0.5 (L) ,
where Y is the aggregate output, K is the capital stock, and L is the amount of labor. The depreciation
rate of capital is δ = 0.09, while the growth of the number of workers is, ∆ L/L = n = 0.01. The saving
rate is s = 0.3 and the initial capital per worker (in period 1) is given by k1 = 1.

(a) Obtain the function of output per worker. (5 points)

(b) What is the capital per worker in the steady state? (6 points)
(c) What is the capital per worker in period 2? (5 points)
(d) What is the capital per worker given by the Golden Rule? (5 points)

Answer: y = k 0.5 , k ss = 9, k 1 = 1.2, k Gold = 25.