Midterm Exam – Macroeconomics (50 points)
(1st Semester, 2011 –Type A)
Name:
Student Number:
I solemnly swear NOT to cheat, therefore upholding my conscience. (Signature:
)
I. Answer the multiple choice questions below: (2 points each)
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I. Using the concept of money supply and money demand, derive the money market equilibrium condition
in the long run. Use the money market equilibrium condition to explain the impact of an increase in the
money supply in the long run. Explain why classical economists think money is neutral?
II. In the closed economy model of Chapter 3, what happens to consumption, investment, GDP, the
interest rate in the long run when the government increases taxes? How your answers would be different
if the home country is a small open economy? Please also discuss the impact on net export and net capital
flow in the open economy.
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I. Find the most appropriate answer to the following multiple-choice questions: (2 points
each)
2. In the national income accounts, investment includes all of the following except
(1) firm’s spending on equipment
(2) increase in the value of firm’s inventories
(3) household’s purchase of new houses
(4) firm’s purchase of stocks
(5) firm’s spending on plant
3. In a small open economy, an economy’s _________ equals its ________________ in the long run.
(1) expenditure on goods; expenditure on services
(2) Saving; investment
(3) Export; imports
(4) Consumption; investment
(5) None of the above
4. Which of the following is a correct statement about saving?
(1)
Private saving equals consumption minus disposable income.
(2)
Public saving equals government spending minus government tax revenue.
(3)
National saving equals private saving minus public saving.
(4)
National saving equals income minus the sum of consumption and government spending.
(5)
The supply of loanable funds comes from private saving and from government spending.
5. If the amount of national production increases by 5% and all prices increase by 8%, then
(1) real GDP increase by 8%.
(2) real GDP increases by 13%.
(3) nominal GDP increases by 13%.
(4) nominal GDP increases by 8%.
(5) None of the above.
6. Which of the following statements is true?
(1) If the nominal interest is lower than the real interest rate, then inflation rate must be positive.
(2) If inflation rate is higher than the nominal interest rate, then the real interest rate must be positive.
(3) If inflation rate is positive, then the real interest rate is lower than the nominal interest rate.
(4) If the nominal interest rate is higher than inflation rate, then the real interest rate must be negative.
(5)If inflation rate is higher than the real interest rate, then the nominal interest rate is must be positive.
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7. Which of the following statements about economic models is true?
(1) There is only one correct economic model.
(2) All economic models are based on the same assumptions.
(3) The purpose of economic models is to show how exogenous variables affect endogenous variables.
(4) Economists use the same model to address different questions.
(4) None of the above.
8. When the government raises revenue by printing money, it imposes an "inflation tax" because the
(1) real interest rate falls.
(2) difference between nominal and real interest rates becomes smaller.
(3) nominal value of money holdings falls.
(4) nominal interest rate falls.
(5) real value of money holdings falls.
9. According to the classical economists, which of the following variables is NOT affected by an increase
in money supply?
(1) the nominal wage rate
(2) the nominal interest rate
(4) the nominal GDP
(5) inflation rate
(3) real interest rate
10. Hyperinflation usually occurs when
(1) people spend too much money.
(2) workers demand higher and higher wages.
(3) governments collect more and more taxes.
(4) governments print too much money to finance their spending.
(5) the economy grows too fast.
11. Consider the following table:
Consumption of foreign goods and services
1,000
Consumption of domestic goods and services
9,000
Investment of foreign goods and services
500
Investment of domestic goods and services
5,000
Government purchases of foreign goods and services
100
Government purchases of domestic goods and services
2000
Exports
2000
Based on the data, what are the net exports?
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(1) -200
(2) 0
(3) +200
(4) +400
(5) +600
12. If net exports are positive, which of the following is false?
(1) Domestic output exceeds domestic spending.
(2) Domestic saving exceeds domestic investment.
(3) Net capital outflow is positive.
(4) There is a trade surplus.
(5) Private savings exceeds public saving.
13. If a Korean investor buys 1 million dollars worth of stock in a Chinese company, how does this
transaction appear in the national income accounts of Korea?
(1)The balance of trade falls as Korea imports $1 million of stock.
(2)The balance of trade rises as Korea exports Korean investment.
(3)Net capital outflow rises by $1 million.
(4)Net capital outflow falls by $1 million.
(5)None of the above.
14. In the small open economy model of Chapter 5, if a country begins in a position of balanced trade,
what happens when the government increases government expenditure?
(1) National savings rises.
(2) The interest rate rises.
(3) Net capital outflow becomes negative.
(4) Net exports become positive.
(5) The balance of trade goes into surplus
15.In the small open economy model of Chapter 5, starting from balanced trade, a decrease in the world
interest rate abroad leads to which of the following?
(1) negative net capital outflow and a trade surplus
(2) positive net capital outflow and a trade surplus
(3) positive net capital outflow and a trade deficit
(4) negative net capital outflow and a trade deficit
(5) None of the above.
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