Macroeconomics I

Final exam: sample questions

June 2015

PART ONE: MULTIPLE CHOICE QUESTIONS

Choose one, the best answers.

1. Depreciation is
A. the difference between private domestic saving and private domestic investment
B. the difference between real and nominal GDP
C. the difference between GNP and GDP
D. another word for capital consumption allowances

2. If nominal GDP is $10,406 billion and the GDP-deflator is 105, then real GDP is about
A. $11,450 billion
B. $10,516 billion
C. $10,296 billion
D. None of the above

3. The money multiplier is the ratio of

A. bank deposits divided by bank reserves
B. bank deposits divided by high-powered money
C. money supply divided by high-powered money
D. the currency divided by bank reserves

4. A nation's balance of payments can be affected by changes in

A. foreign income
B. the differential between domestic and foreign interest rates
C. the real exchange rate
D. all of the above

5. If a British citizen buys $50,000 worth of U.S. Treasury bills, the transaction will be recorded as
A. surplus item in the U.S. current account
B. a surplus item in the U.S. capital account
C. an increase in U.S. net exports
D. a decrease in Great Britain's GDP

6. The Keynesian model of income determination assumes that

A. the price level is fixed
B. interest rates are kept constant
C. the AS-curve is completely horizontal
D. all of the above

7. We can expect the IS-curve to get flatter as

A. money demand becomes less sensitive to changes in the interest rate
B. the marginal propensity to save decreases
C. the expenditure multiplier decreases
 D. the income tax rate increases

8. Any position that is to the right of (and below) the LM-curve indicates that there is
A. excess demand for goods and services
B. excess supply of goods and services
C. excess demand for money
D. excess supply of Money

9. The AD-curve will shift to the right if

A. government transfer payments are increased
B. real money balances increase due to a decrease in the price level
C. autonomous saving increases
D. the central bank restricts nominal money supply

10. In the classical case,

A. the transmission mechanism does not work
B. fiscal policy is most effective in changing the level of output
C. an increase in public spending will be completely crowded out by a decrease in private spending
D. a tax cut will increase consumption without affecting investment

11. The aggregate supply curve

A. is fairly flat when the economy is in a recession
B. is fairly steep when the economy is in a boom
C. is really a curve and not linear
D. all of the above

12. The percentage of total output that is lost for each one percent reduction in the rate of inflation is known as the
A. misery index
B. the sacrifice ratio
C. the replacement ratio
D. the menu cost of inflation

13. The outside lag is defined as the length of time it takes for
A. a policy measure to affect the economy after its implementation
B. policy makers to recognize that a disturbance has occurred
C. policy makers to decide upon the appropriate policy response to a disturbance
D. consumers and firms to change their expectations in response to a Policy
PART TWO: GRAPPHS

Please, fill-in the following table: draw a graph and show the consequences of an exogenous change in an economy
(initial values should be denoted with subscript 0, while post-adjustment values – with subscript 1). Describe axes and
all curves on the graph.

Classical model of an open economy: Keynesian cross:

Restrictive fiscal policy Increase in autonomous spending

ISLM model: Increase in tax rate Investment function: investment subsidies

PART THREE: OPEN QUESTIONS

Choose one of the following questions and answer in using the space below.

1. What are causes of the unemployment in a market economy? What are the policy measures that may be used to reduce
the scale of this problem?

2. Let’s assume that the assumptions of the Keynesian model are met. Let’s suppose:
C=300+0.8 Yd
I=300
G=200
T=0.2 Y
NX=100-0.4Y
a) What is the multiplier?
b) What is an equilibrium output?
c) How an equilibrium output will change when a government will increase by 10%?
d) How the change described in (c) will affect trade balance?