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Tentamen 18 December 2015, vragen en antwoorden

Macroeconomics for E&BE (Rijksuniversiteit Groningen)

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1. Gross Domestic Product (GDP) is defined as

A) the value of final goods and services produced in the economy during a given period.

B) the sum of value added in the economy during a given period.

C) the sum of incomes in the economy during a given period.

D) All of the above.

2. Which of the following calculations gives the correct measure of real GDP?

A) Divide nominal GDP by the consumer price index

B) Multiply nominal GDP by the consumer price index

C) Multiply nominal GDP by the GDP deflator

D) None of the above.

3. Suppose firms produce goods in a given year but these are not sold in the same year. In the

national accounts of the same year this is registered as

A) GDP.

B) Inventory investment.

C) A and B.

D) None of the above.

Use the following information for questions 4 and 5.

Consider the goods market for a closed economy in which consumption C depends on

disposable income Y–T and in which investment I depends on income Y: I = d0 + d1Y.

Furthermore, taxes T and government spending G are exogenous. The marginal propensity to

consume is denoted as c, and c and d1 are positive numbers which are smaller than 1.

4. The multiplier of exogenous taxes in this economy equals

A) –c/(1−c−d1).

B) –c/[1−c(1−d1)].

C) –c/(1−c+d1).

D) None of the above.

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5. (Use the same information as in question 4) If the taxes T and government spending G both

increase by 10 units, then income in equilibrium

A) stays the same.

B) increases, but by less than 10 units.

C) increases by more than 10 units.

D) increases also by 10 units.

6. If the central bank increases the ratio of required reserves then

A) the money multiplier decreases even if consumers keep all money they demand in the form

of currency.

B) the money multiplier decreases only if consumers do not keep all money they demand in

the form of currency.

C) the money multiplier increases even if consumers keep all money they demand in the form

of currency.

D) the money multiplier increases only if consumers do not keep all money they demand in

the form of currency.

7. The LM curve shifts down (or, equivalently, to the right) when which of the following

occurs?

A) An increase in taxes.

B) An open market sale of bonds by the central bank.

C) An increase in consumer confidence.

D) None of the above.

8. Consider the IS-LM model. At any point to the left of the IS curve, but the right of the LM

curve

A) investment falls short of savings, and money demand is lower than money supply.

B) investment exceeds savings, and money demand is lower than money supply.

C) investment falls short of savings, and money demand is higher than money supply.

D) investment exceeds savings, and money demand is higher than money supply.

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9. Consider the IS-LM model. For this question, assume that investment spending depends

only on the interest rate and does not depend on output. Given this information, a reduction in

government spending

A) will cause investment to decrease.

B) will cause investment to increase.

C) may cause investment to increase or to decrease.

D) will have no effect on investment.

10. Which of the following best defines the real exchange rate?

A) The price of foreign bonds in terms of domestic bonds.

B) The price of foreign currency in terms of domestic currency.

C) The price of domestic goods in terms of foreign goods.

D) The price of domestic currency in terms of foreign currency.

11. If the price level in Japan is 1.0, the price level in the Netherlands is 2.0, and it costs 150

Yen to buy one euro (the euro is the home currency), then the real exchange rate between the

Netherlands and Japan is

A) 1/300.

B) 1/75.

C) 75.

D) 300.

12. Suppose there is a real depreciation of the euro. Which of the following may have

occurred?

A) Foreign currency has become more expensive in euros.

B) Foreign goods have become more expensive to citizens of the euro zone countries.

C) The foreign price level has increased relative to the price level in the euro zone countries.

D) All of the above.

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13. Suppose that over the past decade, inflation in the Netherlands is less than that in the

United States. Further assume that during this same period, the euro (the home currency)

depreciates relative to the U.S. dollar. Given this information,

A) the real exchange rate must decrease.

B) the real exchange rate must increase.

C) the real exchange rate can increase or remain the same, but not decrease.

D) the real exchange rate can decrease or remain the same, but not increase.

14. For this question, assume the interest parity conditions holds, and that the euro is the home

currency. Assume that the interest rate in a foreign country is 7% and that the foreign

currency is expected to depreciate by 3% during the year. For each euro that a Dutch resident

invests in foreign bonds, he/she can expect to get back an approximate total of

A) €0.90.

B) €0.96.

C) €1.04.

D) €1.10.

15. For this question, assume the interest parity conditions holds. Also assume that the

domestic interest rate is 9% and that the foreign interest rate is 5%. Given this information,

we would expect that

A) individuals will only hold foreign bonds.

B) individuals will only hold domestic bonds.

C) the domestic currency is expected to appreciate by approximately 4%.

D) the domestic currency is expected to depreciate by approximately 4%.

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16. When the Netherlands has a current account surplus, we know that it is also

A) running a surplus on the balance of payments.

B) lending to the rest of the world.

C) borrowing from the rest of the world.

D) suffering from negative investment income.

17. According to the goods market equilibrium condition for an open economy an increase in

the budget deficit can be reflected in

A) an increase in private saving.

B) a reduction in investment.

C) a reduction in net exports.

D) All of the above.

18. Suppose an open economy is in equilibrium. Given this information, we know with

certainty that

A) government spending equals taxes (G = T).

B) exports equals imports (X = IM).

C) saving equals investment (S = I).

D) income equals demand (Y = Z).

19. In an open economy, a decrease in government spending will cause

A) a reduction in domestic output.

B) a reduction in imports.

C) a reduction in consumption.

D) All of the above.

20. In the wage-setting relation, the nominal wage tends to decrease when

A) the price level increases.

B) the unemployment rate decreases.

C) unemployment benefits decrease.

D) All of the above.

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21. The price setting equation is represented by the following: P = (1+µ)W. When there is

perfect competition, we know that µ will equal

A) W.

B) P.

C) 0.

D) P/W.

22. The natural level of output is the level of output that occurs when

A) the goods market and financial markets are in equilibrium.

B) the price level expected by workers equals the actual price.

C) the unemployment rate is zero.

D) there are no discouraged workers in the economy.

23. The labor force is defined as

A) the sum of the employed and unemployed.

B) the total number employed.

C) the total number of working age individuals in the population.

D) the sum of the number of employed, unemployed and discouraged individuals.

24. Based on wage setting behavior, we know that a reduction in the unemployment rate will

result in

A) no change in the real wage.

B) a reduction in the real wage.

C) an increase in the real wage.

D) a shift of the WS curve.

25. Based on price setting behavior, we know that a reduction in the unemployment rate will

result in

A) no change in the real wage.

B) a reduction in the real wage.

C) an increase in the real wage.

D) a shift of the PS curve.

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26. Suppose the aggregate production function is given by Y = AN. Given this information,

we know that labor productivity is represented by the following:

A) 1/A.

B) A.

C) 1/N.

D) N/Y.

27. Lower unemployment protection will tend to cause which of the following?

A) An upward shift in the WS curve.

B) A downward shift in the WS curve.

C) An upward shift in the PS curve.

D) A downward shift in the PS curve.

28. Based on our understanding of the labor market model, we know that an increase in the

markup will cause

A) an increase in the equilibrium real wage.

B) a reduction in the equilibrium real wage.

C) a reduction in the natural rate of unemployment.

D) Both B and C.

29. An individual is said to be a discouraged worker if he or she

A) is working, but prefers not to work.

B) is working part time, but would prefer a full time job.

C) wants to work, and is actively searching for a job.

D) wants to work, but has given up searching for a job.

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The final questions are about the guest lecture by Klaas Knot, the President of the Central

Bank of the Netherlands which he delivered on Tuesday November 24, 2015.

30. What causes the low level of inflation we see today?

A) Low commodity prices.

B) Globalization (causing low inflation abroad).

C) Weak productivity.

D) All of the above.

31. The measure of inflation, which is based on the development of prices of a fixed basket of

goods over time,

A) overstates the actual rate of inflation because of improvements in the quality of goods.

B) overstates the actual rate of inflation because consumers substitute away from expensive

goods.

C) Both A) and B).

D) None of the above.

32. Which statement is correct?

A) Monetary policy by itself cannot stimulate potential output.

B) Monetary policy can close the output gap.

C) Structural reforms are needed to improve potential output.

D) All of the above.

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