NAME: _________________________________
STUDENT NUMBER: ____________________
SIGNATURE:____________________________
THE UNIVERSITY OF NEW SOUTH WALES
OCTOBER 2008
ECON 1102 MACROECONOMICS 1
PRACTISE FINAL EXAMINATION
TIME ALLOWED - TWO (2) HOURS
THIS PAPER IS WORTH 60% OF THE TOTAL MARK FOR THE COURSE
TOTAL NUMBER OF PARTS - TWO (2)
PART A: 15 MARKS 15 MULTIPLE CHOICE QUESTIONS
Answer all questions from this part on the answer sheet provided, using pencil
only. Print your name and initials in the spaces provided and mark the
appropriate boxes below your name and initials;
for each question, mark the the most correct answer A, B, C, D or E.
Each question is worth 1 mark.
PART B: 45 MARKS 4 WRITTEN ANSWER QUESTIONS
Answer ONLY THREE (3) questions from this part
Each question is worth 15 marks
ANSWER BOTH PARTS.
ANSWER EACH QUESTION IN PART B IN A SEPARATE BOOK
WITH THE QUESTION NUMBER INDICATED ON THE COVER
OF THE ANSWER BOOK. FAILURE TO DO SO MAY MEAN THAT
ONLY ONE QUESTION WILL BE MARKED.
Be sure to print your name and student number on the front of each answer book in
the space provided.
CALCULATORS WILL BE PROVIDED
FOR PART A PENCILS SHOULD BE USED FOR THE ANSWER SHEET
FOR PART B ALL ANSWERS MUST BE WRITTEN IN INK. PENCILS MAY BE
USED ONLY FOR DRAWINGS, SKETCHING OR GRAPHICAL WORK.
PRINT YOUR STUDENT NUMBER AND NAME ON THE TOP RIGHT CORNER
OF THIS QUESTION SHEET AND SIGN.
THIS QUESTION BOOKLET MAY NOT BE RETAINED AND MUST BE HANDED
IN
PART A
1. Part A is worth 15 marks
2. There are 15 questions all of equal value.
3. On the answer sheet, using pencil only:
(a)
print your name and initials in the spaces provided and mark the
appropriate boxes below your name and initials;
(b)
for each question, mark the appropriate response A, B, C, D or E.
4. Mark the most correct answer.
Question 1
Gross domestic product (GDP) equals the ______ of final _______ produced within a
country during a given period of time.
A: market value; goods
B: market value; services
C: market value; goods and services
D: quantity; goods
E: quantity; goods and services
Question 2
If real GDP equals 2500, nominal GDP equals 5000 and the price level equals 2, then
what is velocity if the money stock equals 2000?
A: 1.25
B: 2
C: 2.5
D: 3.75
E: 5
Question 3
Holding all else constant, a decrease in the preferences of Australians for Japanese goods
will ____ the supply of dollars in the foreign exchange market and ____ the equilibrium
Japanese yen/Australian dollar exchange rate.
A: increase; increase
B: increase; decrease
C: not change; not change
D: decrease; increase
E: decrease; decrease
Question 4
If there is an increase in nominal GDP, we would expect:
A: the demand for money to increase.
B: the interest rate to rise.
C: bond prices to fall.
D: all of the above to occur.
E: None of the above to occur
Question 5
Cheques are classified as money because:
A: they can be readily used in the making of purchases and payment of
debts.
B: banks hold currency equal to the value of their outstanding deposits.
C: they are ultimately the obligations of the Treasury.
D: they earn interest income for the depositor.
E: All of the above
Question 6
An increase in aggregate expenditures, resulting from a decrease in the price level, is
equivalent to a:
A: rightward shift of the aggregate demand curve.
B: leftward shift of the aggregate demand curve.
C: movement downward along a fixed aggregate demand curve.
D: decrease in aggregate supply.
E: none of the above
Question 7
According to the real-balance effect, people purchase more real output when the price
level falls, because:
A: investment spending declines.
B: the aggregate demand curve shifts to the left.
C: the aggregate supply curve is vertical.
D: the value of their savings falls
E: the purchasing power of their money goes up.
Question 8
A leftward shift of the traditional Phillips curve suggests that:
A: the productivity of labour has decreased.
B: a lower rate of inflation is now associated with each rate of
unemployment, compared with previously.
C: cost-push inflationary pressure has increased.
D: a higher rate of inflation is now associated with each rate of
unemployment, compared with previously.
E: inflation has increased
Question 9
The policy dilemma posed by stagflation is that:
A: an increase in aggregate demand will simultaneously increase inflation
and the unemployment rate.
B: tax rates can be reduced without lowering tax revenues.
C: the reduction of aggregate demand to restrain inflation will cause a
further reduction in the real GDP.
D: the adjustment of aggregate demand can neither increase real GDP nor
reduce inflation.
E: monetary policy will make the all aspects of the situation worse.
Question 10
One symptom of a chronic balance of payments deficit when the exchange rate is fixed
is:
A: a decline in the amount of a nation's currency that is held by other
nations.
B: an excess of exports over imports.
C: diminishing reserves of foreign currencies.
D: an increase in the international value of a nation's currency.
E: excess capital inflows.
Question 11
Under the managed floating system of exchange rates:
A: all exchange rates vary, with changes in the free market prices of gold.
B: industrialised nations meet once a year to negotiate readjustments in
their exchange rates.
C: .exchange rates are adjusted at the discretion of the IMF.
D: exchange rates are essentially flexible, but governments intervene to
offset short-run or ‘disorderly’ fluctuations in rates
E: the balance of payments may not balance.
Question 12
Suppose real GDP was $4719 billion in 1995 and $4848 billion in 1998, whereas real
GDP per capita was $19 261 in 1995 but only $19 162 in 1998. Why did one measure
increase while the other measure decreased?
A: Real GDP indicates the level of industrial production and provides a
measure of the economic strength of the nation; it is the only valid
measure of economic growth.
B: Inflation occurred during this period; therefore, the two measures are
not comparable.
C: Population increased between 1995 and 1998.
D: Real GDP per capita measures changes in labour productivity that is
not captured by a simple measure, like real GDP.
E: The economy did not really grow.
Question 13
A $20 note is an example of:
A: legal tender.
B: fiat money.
C: a store of value.
D: all of the above.
E: none of the above
Question 14
Cheques are classified as money because:
A: they can be readily used in the making of purchases and payment of
debts.
B: banks hold currency equal to the value of their outstanding deposits.
C: they are ultimately the obligations of the Treasury.
D: they earn interest income for the depositor.
E: they are used for payments by the Reserve Bank of Australia
Question 15
If the economy were encountering a severe recession, proper monetary and fiscal policies
would call for:
A: reduced interest rates and a budgetary surplus.
B: reduced interest rates and a budgetary deficit.
C: raised interest rates and a budgetary surplus.
D: raised interest rates and a budgetary deficit.
E: reduced interest rates and a balanced budget.
PART B
This part is worth 45 marks. All questions are of equal value
ANSWER THREE (3) FROM THE FOLLOWING FOUR (4) QUESTIONS.
ANSWER EACH QUESTION IN PART B IN A SEPARATE BOOK
Failure to answer each Part B question in a separate book may result in a zero mark for
some questions.
QUESTION 1
a) If the Reserve Bank increases Australian interest rates, what are the likely effects
on the value of the $Australia under a flexible exchange rate system?
5 MARKS
b) Explain what is meant by exchange rate overshooting? Why might this be a
problem for domestic policy?
5 MARKS
c) Assuming that we start from exchange rate equilibrium, explain the process of
adjustment to a new equilibrium under the gold standard, if there is a sudden and
significant increase in British demand for Australia boomerangs?
5 MARKS
QUESTION 2
a) Summarise Australia’s recent growth experience. What have been the main
factors which explain that growth?
9 MARKS
b) What are the costs and benefits of economic growth for the nation?
6 MARKS
QUESTION 3
a) Explain what is meant by the “Phillips Curve” and show how it can be derived
from the aggregate demand and supply framework?
6 marks
b) Use the aggregate demand and supply framework to outline the distinction
between demand-pull and cost-push inflation
3 marks
c) Why does cost-push inflation create a policy dilemma for policy makers? How
would you design policy to deal with such a situation?
6 marks
QUESTION 4
a) Outline the factors which determine the effectiveness of fiscal policy and of
monetary policy?
8 marks
b) What are the strengths and limitations of fiscal policy and of monetary policy?
7 marks